Spilled Milk

Accidents happen. Sometimes I just wish they would happen to someone else... 

Like the spilled milk in my car - all over the seat and floor - on a nearly 90-degree summer day. The lid must have popped off, and sudden braking sent it flying. Ooops!  I tried to soak it up with paper towel, and then I used soapy water to blot it up. I used a carpet cleaning solution (with an odor neutralizer!) and a wet/dry vacuum to suck it up. 

But my car still smells, like spoiled milk.

And although we're trying to pay debt off as quickly as possible, I'm not going to drive around in a smelly car for the next six months. I could rent a commercial upholstery cleaner and see if that'll take care of it, but sometimes it's worth it to pay a professional. 

I called our local automotive detailing store to get prices. They want $60 to shampoo the interior carpets/seats, or $100 to detail the interior. I had my old car detailed there (right before I sold it!), and I remember thinking that it was the best $100 I'd ever spent - and wondering why I hadn't done it before then. 

I think the $60 will be well worth it. 

Estimating Taxes on Self-Employment Income

I had previously mentioned that we have some self-employment income coming in soon, and that we would either have to pay estimated quarterly income tax on it or we would have to adjust our withholdings from our "day jobs" to cover the additional income tax. 

While I love getting extra money from little side jobs, it really sucks to crunch the numbers and see how little is left over. On a $4500 check, we will end up paying close to 40% in taxes! 

We're in the 25% marginal tax bracket, so there's an instant $1125 to the IRS.  It's self-employment income, which means we have to pay an additional 15.3% (12.4% is to Social Security, and 2.9% is for Medicare). And of course we also have to pay state income tax of 4.35%  - so 44.65% in taxes, right off the top! 

There are a few small deductions (when we go to file our federal tax return, the self-employment tax deduction allows us to subtract 1/2 of the 15.3%) and multipliers used in the forms (you only pay the 15.3% on 92.35% of the net income), so the actual taxes paid ends up being slightly less.  

So out of the $4500 check, we pay: 

- Federal Income Tax:  $1125

- Social Security: $515

- Medicare: $121

- State Income Tax: $196

Subtotal, Taxes: $1957

Minus 1/2 SE deduction @ 25% tax rate: $80 [0.25*(0.5*($515+$121))]

Total, Taxes: $1877

We've sometimes been able to take the home office deduction as well, and that would allow us to save an additional $150 if we can take it this year. Even so, we would end up paying $1727! It's frustrating to see so much of our hard-earned money just disappear! 

Anyways, I used the $1877 to calculate how much extra we should have withheld from our normal paychecks for the rest of the year. I ran through the math a few weeks ago, knowing that it would be effective June-December (so seven months).  $1877 / 7 = $268/mo.  We set up an additional $25/mo to go to the State, and the remainder to go to the Feds. 

Debt Tracking

I've been actively tracking progress on our credit card debt for over two years, since February 2007. At that time, we had $41,755 in personal credit card debt, plus an additional $4738 in business debt (that business has since "failed", and we have assumed that debt).

Two years and three months later, the total credit card debt is down to $33,203. In over two years of this, we've only paid off about $13k! But I guess, to be fair, we've also charged a LOT during that same time frame (as evidenced by several distinct spikes in the chart!).

• The first spike was when we assumed the bad business debt, in January 2008.
• The big spike, in July 2008, was when we spent roughly $7000 for some electronics.
• There are a few smaller spikes, for the purchase of new computers and for a couple of vacations.

During the first seven months of tracking, the total debt didn't really change - despite making monthly minimum payments of nearly $1000/mo! We were paying off only about $200/mo in principal, a rate that would have taken us almost 20 years to pay the credit cards off.

June Grocery Budget

Aside from restaurants, groceries have been the biggest source of unnecessary spending. For just the two of us, our typical weekly grocery bill was $100-125, depending on how many personal care items (shampoo, toothpaste, etc.) we threw in the cart. 

We'd have a good mix of food, from healthy produce to convenience items and everything in between. We tended to buy name brands for many items - soda, cake mix, lunch meat, chips, cereal, cleaning products. We had a few things that we would only buy the premium brand - ice cream, hot dogs. And then we'd buy store-brand for other things - frozen vegetables, flour & sugar, bread. 

I noticed that certain grocery stores (especially the local chains or smaller box stores, like Kroger) tended to be more expensive. If I did a full week's worth of shopping, the bill at the checkout would be $25-50 more. Many of their items, even with a sale price, were more expensive than the everyday price at some of the other (bigger) grocery stores in the area.

I tried several months ago to reduce the weekly grocery budget to $50, and I failed miserably. I could make it for two weeks or so spending only $50 a week on groceries, but then we'd have run out of all the useful food in the house, and I would have to stock up on essentials (noodles, baking stuff, canned foods and sauces), produce, and/or meats - so we'd end up with a $150 or $200 grocery bill, and it would all even out to around $100/wk. 

It took some practice, but I've gotten better about balancing out the grocery bill. I peruse the weekly sales circulars looking for good deals, I buy a newspaper (or two) on Sundays for coupons, and I've cut out many of the convenience foods (prepackaged portions of chips & cookies, baby carrots, etc). I've also had to get creative with some dinner meals.... 

For the month of June we're actually going to come in under the grocery budget. I'm still shooting for an average of $50/week, so $200/mo. As of today, we're at $146.70.  I'll probably go pick up a few things this weekend (maybe $30 worth?), but it'll definitely be less than $200! 

Budget for July: FAIL

I had every intention of posting my full budget for July on here, and then tracking how it compares to what we actually spent. 

The only problem, the July budget is completely screwed up.  It's a 3-paycheck month, so we have extra income. We're also expecting a substantial $4500 check for self-employment, but we don't know if we'll receive it in a few days or a few weeks. Together, this will amount to nearly $5900 in extra income for the upcoming month (that is, above and beyond what we normally take home).

But we're also planning to pay down a huge chunk of credit card debt, just over $6200, in preparation for the looming 150% increase in minimum payments on Chase. And I'd like to maintain a $5000 balance in our emergency fund, which means we need to set aside an extra $3000 by mid-August, to cover fall tuition and the upcoming house repair. 

 And because we decided to use the entire $4500 check now, instead of setting aside some for income taxes,  we had to modify our income tax withholdings at work so that they're taking out extra. If we didn't, we would end up owing nearly $2000 next April, which would kick us into the category where we'd also have to pay interest and penalties for underpayment!  Instead, I estimated what we should pay in estimated quarterlies, and just divided that by the number of months left in the year. The end result will be the same, come tax time, but for the rest of the year our take-home pay will be $275-300/mo less. 

July is going to be an unusual month for budgeting. Lots of extra money coming in, huge extra payments towards debt/savings, and a reduction in normal income. Dollar-wise, I think it all works out. In terms of cash-flow, I have no clue how it will shake out. There's plenty to take care of all the essential bills and minimum payments this month, I'm just not sure when all the extra payments will actually be made. 

So instead of posting an itemized budget, I'm just going to post the targets for the month of the July:

• Reduce credit card balance from $32,747 (as of 6/24) to $25,780
• Pay off completely all but two largest credit cards
• Increase emergency fund to $8000 ($3000 of which will be short-term savings)

Redoing Budgets

In order to come up with enough money to cover the extra $525/mo in increased minimum credit card payments to Chase, we sat down and reviewed our finances. We evaluated monthly expenditures, paring things back where possible. Overall, we didn't find much that we were willing to eliminate, so the majority will come from deferring money that would have gone to the emergency fund or other credit cards and instead paying it to Chase. 

We decided to cancel an insurance policy, which will save us $356/year. The policy was up for renewal anyway, so we are going to just let it lapse. Otherwise, we would have had to pay half of it by the end of next week. 

We also decided to put a 90-day hold on our NetFlix account. It's only $9.53/mo, but every little bit helps. I thought about canceling it altogether, but I love being able to stream movies at home - and it's far cheaper than going out for a date. I'm hoping that 90-days will give us enough time to get a grip on the bills, and then decide whether we want to keep it or cancel it. In the interim, we don't have to pay the monthly fee, and all the movies we've added to the queue won't be deleted! 

The biggest decision was to pay off several credit cards with smaller balances (and higher interest rates, ranging from 13-20%). In total, we have decided to pay off three credit cards with a combined total of $6204. The money to do this is going to come from a few different sources: 

• $4500, from some self employment work ($2000 of this was supposed to go to the IRS in September for estimated quarterly income taxes, but we have instead modified our withholdings for the rest of the year, so that take-home pay will be around $300/mo less than normal)
• $1150 in reimbursement checks (from a medical flex spending account, the overage on the mortgage escrow account, and for some items we purchased for someone else) that should be coming any day
• $150, for selling some older electronic items that we no longer need
• $400, from the emergency fund

Once these are paid off (by the end of July), we'll be left with only two credit cards - both with a large outstanding balance but with low fixed interest rates. Paying these smaller cards off won't have much impact on monthly payments (roughly $150/mo, which will be going right back to Chase now), but I'm hoping it'll give us extra momentum to keep going with the debt payoff.  

Bad news from Chase

Waiting in today's mail was an "Important Change in Terms" notice from Chase Bank, addressed to my husband. The contents: 

We're sending you this notice to advise you of some changes to your credit card account. These changes will take place automatically and will be effective with your August 2009 statement.

Your minimum payment due will increase from 2% to 5% of the ending balance on your monthly statement but will not be less than $30 unless your total balance is below $30. The principal factors we considered in increasing the minimum payment due include the current APRs and revolving balances associated with your account. 

There was nothing on there about being able to "opt out", and the Chase customer service representatives are saying that affected cardholders do not have the option to reject the change in terms. Either pay it off now, close the card and have the 5% minimum payment, or keep the card open and have a 5% minimum payment. 

We have several accounts with Chase, and the particular credit card affected by this change currently has a balance of $17,543 at 5.3% APR. The current minimum monthly payment on this card alone is $358 - the new monthly payment will be $877, an increase of $525 each month! 

Thanks to the emergency fund, and some serious budgeting over the past year, we should be able to absorb the increased payment and stay current on everything as well. Unfortunately, it means that some of our other credit cards, with much higher APRs, will be paid off at a significantly slower rate. We also may need to re-evaluate some planned expenditures (including school) to decide what makes the most sense.