Harvesting Dollars suggests designing a second, alternative budget to serve in case of a personal financial disaster, such as a job loss, or a recession severe enough to take the country into depression.

Strikes me as a smart idea. Over a month ago, I sent my annual review materials to the dean. Not a sound has emanated from those precincts. Experience has shown that silence from a dean’s office is never a good thing.

The Great Desert University’s budget is about to be cut by $50 million. In response, the president is threatening to cut enrollment, but that’s just so much hot air: it runs directly counter to his ambition to grow the thing into a monster mega-learning factory, by 2023 churning 90,000 students. The truth is, he’ll cut “nonessential” services and those that don’t pretend to support themselves by circularly charging other units of the university for support services paid for by tax dollars from the outset. It would be easy to convince a regent or a legislator that an office like mine provides no essential service—all it does is support research and publishing, which, while they are essential activities of real learning, are not crucial to assembly-line education.

So I’m getting concerned that the silence means my contract is likely not to be renewed.

Four percent of my savings plus my munificent $960 a month projected Social Security less $1,000 a month for the Investment House comes to about $22,800, a far cry from the 36 grand I’m netting. That is a $13,200 difference between current net pay and projected gross pay, a $1,100 cut in monthly income.

That cuts my monthly income to $1,900. The base cost of running my house is $735 a month. Annual property tax, car and homeowner’s insurance, and automobile registration require monthly set-asides of $300, for a total of $1,035 before I eat, buy laundry detergent, or feed the dog. I could save $75 by laying off the lawn man, so let’s figure $660 a month to operate the house, absent any repair bills. In the winter it’s less, but when the heat rises to 115 degrees and beyond, it costs every penny of that to keep the xeriscapic plants alive and the house livable. So, $660 + $300 = $960, base cost of living in the house and paying nonnegotiable bills.

This leaves $940 for all other expenses: groceries, gasoline, vet bills, clothing, everything that can be put on a charge card.

It’s a far cry from the $1500 I budget now for “all other expenses.” As a practical matter, though, thanks to the weekly budgeting system, I generally have about $250 left each month, so we could (optimistically) assume I spend around $1,150 a month on all non-shelter, non-tax, non-insurance costs. This would leave $560 to make up by economizing. Nine hundred forty dollars a month would give me $235 a week to spend on these necessities, down from $375.

Where would the difference come from?

Well, I yet to cultivate the habits of clipping coupons and buying in dollar stores and thrift shops. I’ve never made my own laundry detergent. I spend way too much at the veterinarian and on coaxing the dog to eat. And a single round trip to my office costs $7.50 in gasoline. So, to start with, I’d save a little money on gas. By changing some of my habits and downgrading my eating standards, I could save a few dollars. Letting my hair grow back out would save $60 every six to eight weeks. And if I put the dog down—which is going to happen soon, anyway—I’d save a great deal more.

Where can I not save?

I don’t wear good clothes to the office and rarely buy any clothes other than an occasional pair of Costco jeans. My make-up comes from Walgreen’s and Target. I don’t eat out. I don’t travel. I’ve stopped drinking wine and beer. I hardly ever go into Home Depot any more. So there’s no fat to be cut there. And the grocery stores are several miles away through stop-and-go traffic, and so the savings on the commute will be partially consumed by trips to buy necessities, which I now make on the way to and from the office.

That means that effectively all of my savings will have to come from cutting back on food, personal maintenance, and household necessities and from putting the dog to sleep.

But there’s a fly in the ointment: health care. If I have to pay the university’s COBRA rates, even an HMO will cost over $400 a month, leaving me about $500 a month for all expenses above and beyond shelter, taxes, and home and auto insurance.

Obviously, I can’t live on that.

Not in this house. Probably not even in Sun City, where costs are significantly lower.

Clearly, I’ll have to hold a job at least until I’m eligible for Medicare. Problem is, at my age I’ve got about a snowball’s chance of getting hired, anywhere. At best, it will take several months to find a new job.

If I cut $500 of spending out of the present budget—not too difficult, given the $250 monthly underrun—the amount I’ve set aside to repay the Renovation Loan would support me for about five months. GDU owes me five weeks of vacation pay. So I’ve got about six months’ worth of cash. My contract expires at the end of June, and so savings would carry me through until January 2009. At that point, I would have one year before becoming eligible for Medicare and two and a half years before I could collect my full Social Security.

If I started collecting SS in August—locking in a reduced fixed income for the rest of my life—it would probably cover the stratospheric COBRA premiums during the six months covered by savings and vacation pay. At my age, with a day in the ER for suspected heart symptoms and a diagnosis of osteoporosis, you can be sure I have no chance of buying healthcare insurance on the open market, and so COBRA probably will be the only option. It lasts for 18 months, which will carry me into Medicare.

If I can get a job during the six months that my savings would support me, then I might delay collecting SS until “full retirement age,” which for me is 66½. Even a part-time job might supplement a 4% draw-down from my retirement funds enough to keep me alive. It would be tight; so tight that I probably couldn’t stay in my home.

But then, neither of these scenarios—I survive for six months on savings and then have to get by on retirement savings and early SS payments, or I manage to get a part-time job that supplements retirement savings—safely provides enough to cover the costs of running my house and buying groceries, too. 

The only chance I have to survive in my present home on my retirement savings plus Social Security will be to work full-time, at or near my present salary, until I reach the age of 70. I might get by OK if I work to 66½, but only if I sell my house and move someplace lots cheaper. I can budget till I’m dazed, but the fact is that the base cost of utilities, property taxes, car taxes, auto and home insurance, and upkeep plus gasoline and food exceeds the income I can generate from my savings and Social Security. And that doesn’t even take health care into account.

categories:  budgeting, personal finance