On judging how poor people spend their money

DH has some extended family whose spending choices compared to their lack of income drives me nuts.  They’re always spending money on luxuries when they have the money (often on luxuries for other people) and then have no money when a small emergency strikes or their taxes were higher than expected or another debt comes due or what have you.  At Christmas we always feel like we have to send money to help out with the latest emergency, though we resist during the rest of the year when there isn’t a good excuse to give.

And it’s really easy for us to judge.  Back when we made little money, back when we had debt, we were frugal to the bone.  We got out of debt by spending money on no luxuries and sending every penny to the debt.  Then we built an emergency fund.  Then we started saving for retirement.  Only then did we loosen up and spend on things we didn’t need.  (Though to be honest, we started eating meat again after the debt was gone.)  I wanted us to be secure before we bought anything we’d wish we hadn’t in an emergency.

But honestly, these days, who are we to judge?  We spend a ton of money on luxuries, just different ones.  We have different priorities.

I think nothing of spending $200 on our annual umbrella insurance, who am I to judge a $200 game console purchase?  How can we judge a $1K granite-topped bar (relatives bought after a windfall) when DH has a $1K ergonomic chair (that he saved his allowance to get)?

The thing is, with us, our money is ours to keep and shelter.  We have no family to impress with conspicuous consumption.  They know we’re doing just fine and they live far away.  We have no childhood of deprivation to try to make up for (though neither of us had much stuff because our parents were often low income, we always had security, we never felt deprived).  We don’t have relatives telling us that we need to give any savings to even more impoverished family.  We’re not caught in the trap of having to spend the money now or give it away.

Possibly most importantly, even when we were living on low incomes with high basic expenses, we knew that situation was only temporary.  We could always and can always tell ourselves that we will have things in the future, when we are out of school and have real jobs, and it’s true and we’ll believe it.  It’s harder to think that way and stay deprived when you haven’t graduated high school and keep failing the GED.  Or when you’re a grandfather in your 30s.  If you don’t buy that  luxury now, you may never get it.  You may never have happiness or an item to show off.

Why can’t people just set up automated savings accounts that put the money away so relatives don’t know about it and people don’t feel the need to spend it?  Because when you’re low income, savings accounts can be dangerous.  Even the most basic bank accounts are expensive when you hit an overdraft fee that you can’t cover or bounce a check or make a mathematical error.  And sometimes you need to draw on that money and everything is empty and instead of just having no money, you have fees and more debt.

And yes, we think we would be perfect and save our way out of poverty, but it’s hard to say what we would really do in those kinds of situations.  We don’t have the pressure.  It’s easy for us to say we’d never be in that situation or we’d get ourselves out as soon as possible, but what would we really do?  People behave remarkably similarly when they’re deprived in experimental settings.  I’m not sure that my willpower is enough to dig out of that big a hole, especially if I didn’t have hope to go with it.

Is yours?

My New Mantra

There are many reasons why I quit my previous job.  Among them: teaching was eating at my soul.  Eventually, the job made me physically sick and I hated it, and it made me be a mean person.  Even now I am still purging toxicity from my soul and come off as angry when I talk about that place.  (gotta work on that!)

There was nothing wrong with GrumpyMe 1.0, but it’s time for patches and upgrades.  One reason that I put off leaving for so long was that there are things I love about academia and didn’t want to give up.  My wonderful partner, though, pointed out that I could actually improve on the job situation by finding a job with more of the things I like and less of the stuff I don’t like.  He pointed out that, instead of giving up my academic identity, I could actually become the thing that is now my new mantra:

A BETTER VERSION OF MY WORKING SELF.

Some of the ideas about how to be a better working Me come from when I thought about my ideal workday.  (Awesome side note: in that post I said that at last year’s conference I had met a new friend/collaborator and talked with her about what we could do together.  At this year’s conference, we presented that research!  Our paper is under review.  Hurrah.)

I don’t know yet what kind of bug patches and upgrades I will eventually find.  (I do know that it involves never ever teaching ever again.)  I do know the things that give me energy, those that make me lose track of time (learning something new!  reading books!).  I know that I can’t stand cubicles.  I have optimism about finding something decent.

In working towards a new, research-based career, I have been networking pretty hard.  Recently I had the pleasant surprise that, when asked to list up to 5 references in a web application, I found myself with 9 or 10 people I could list as references who would all say excitedly good things about me, and I could choose among them.  Go me.  Only … uh… 9 years post-PhD and I’m getting good at my career!

Do you have a work-related mantra?

Ask the grumpies: IRA limits and 401K limits?

Katie asks:

I just started a new job in which for the first time, my employer offers to match my contribution to retirement.  I already have a personal Roth IRA, and I’m trying to untangle contributions limits, etc.  I know the total amount you can contribute to all Roth IRA accounts is $5,500, but does that also include the employer contribution?  E.g. If I personally contribute $5,500 to both accounts and my employer adds their contribution, will I be over the limit?  What about contribution limits to a Roth IRA versus a traditional IRA?

To our knowledge, your employer shouldn’t be offering to do anything with your (personal) IRA.  Also to our knowledge, the IRA limits are completely separate from your work contribution limits.  The IRA is an individual retirement account.  Your employer will offer a 401(K), a 403(b) or a SIMPLE IRA.  Wikipedia has a nice table comparing 401Ks to IRAs.

So if your income is low enough to max out the personal IRA, you can max out the IRA and your 403(b) and your 457.  You have separate limits for IRA vs. 403(b).  If you have a 401K, those limits are the same as for the 403(b).  Here’s a table with the number limits.   In 2014, the limit for employee contributions is 17,500.  You would also be able to add the full amount to the IRA on top of that.  (And if you have a 457, you can add 17,500).

Employer contributions limits are different than employee contributions.  Wikipedia says that the employer + employee limit for 2014 is the lesser of 100% of your income and $52,000 [update: corrected– it doesn’t look like they can do 52K and you can do 17.5K… again, talk to someone who knows these things if you’re in this situation].  Where it might matter what you do is the income limits– if you make enough money you may not be able to contribute to a Roth IRA or get any tax credit for a traditional IRA.  In that case you could put money in a traditional IRA and then back-door convert it to a Roth.

If your employer is offering a SIMPLE IRA, then you can contribute up to $12,000 in 2014 and your employer can contribute either 2% of your salary or match 3% of your salary, with a cap of $260,000 for 2014.  You would still be able to max out your personal IRA on top of whatever you do with the SIMPLE IRA.

Standard disclaimers apply– we’re not tax attorneys, talk to real experts, etc.  Probably the best people to talk to about this stuff are the relevant HR people at your place of employment.

Addendum from Katie:

I have a personal Roth IRA which I began some years ago and as a graduate student, I was never eligible for any benefits or to receive matching funds from my employer.  Now I have started a postdoc, and am eligible to receive retirement benefits.  My employer offers a 403(b) Savings plan and a 403(b) Roth.  I would prefer the 403b Roth because I would rather pay taxes on the smaller, present amount, than the future, larger amount.  I know, however, that there is a limit to the amount you can contribute to a Roth IRA.  So my question was in several parts I guess.  One, what is the difference between a 403b Roth and a Roth IRA?  Two, is the contribution limit applied individually to all Roth accounts, such that you can contribute up to the limit to each account, or does the limit apply to your contributions to all of your Roth accounts added up together?  And three, are there differences when the account is a personal one versus an employer account?

The Fidelity rep informed me that the limits apply individually to each account, so I can contribute the maximum to each if I could afford it.  I’m still unclear, however, on what the difference between the types of accounts and how personal accounts differ from employer accounts.

Think of the 403(b) as a bucket and the individual IRA as a different bucket.  You can fill either bucket with Roth or traditional funds in any mix (subject to income limits you probably aren’t hitting as a post-doc), but the 403(b) bucket will only hold $17,500 this year and the IRA will only hold $5,500 this year.  (Next year you get slightly bigger buckets).  Only your employer can give you the 403(b) bucket, and you need to be making at least 17.5K (otherwise they can only give you a smaller bucket).  You need to make at least 5.5K to put money in your IRA bucket.  If you are making more than 23K/year then you can legally max both out (though you may want to do things like eat).  I’m not sure if you’re allowed to max both out if you’re only making 17.5K/year (as in, can you double count the 5.5K).  I doubt many people are in that situation since most people need to say, eat.

Roth just means, as you noted, that you pay taxes now and not later, whereas traditional means you lower your taxable income for this year but have to pay taxes on earnings in the future when you will hopefully be in a larger tax bracket.  Roth vs. Traditional doesn’t mean anything for how much you can save (at least in the first order sense, you can actually save slightly more with one of them because of how taxes are taken into account, but it hurts my brain to think of which one… in reality it isn’t as important as what tax bracket you think you’ll be in in the future compared to now).

 Does that answer your question?

Conferences for the unemployed academic

Now that I’m no longer a professor, I have to pay for my own conference travel out of pocket.  Of course, before they didn’t really pay for enough to cover even one conference, so this isn’t much different from when I was an employed academic.

In fact, dealing with conferences on my own is expensive and it sucks but it’s easier than dealing with our less-than-competent secretary!  (Insert rant here on:  it was enough for them to say they supported professional development and research, but not enough that they actually did. End Rant.)

Why am I conferencing, even though I’m not employed and I am not bringing in money? I thought it might help get a job, to network, because conferences are cool and fun, to learn about research, to see old friends.  Why does anyone ever go?

But I’m not paying 100% out of pocket.  I’m doing some things to save money on the trip.

To pay for the conference I’m using a mishmash of frequent flier miles, savings, and aggravation.  I’m also sharing hotel rooms with colleagues/friends (SCORE!)

Now, I think the trips themselves are tax deductible since I’m using them for job seeking/networking purposes, but according to my partner’s accountant given that we’re renting etc. we won’t be over the standard deduction this year even with my travel and stuff.  I’m saving the receipts anyway, just in case.

So that’s my story.

Do you pay for work-related conferences out of pocket?  How do you save on travel?  Is a conference your idea of a vacation?

Grocery lists

We have an open source grocery list.

What that means is that rather than one person taking charge of the grocery list, we stick a used envelope up on the refrigerator and people can write things that we’re running out of or have a hankering for on there as we notice or hanker throughout the week.  On Friday evening or Saturday morning, we do menu planning and add other stuff to the list right before grocery shopping.

Open source is nice because nobody has to have the full mental load of this particular chore and if we want something, we can just put it on there.

Of course, if you’re on a really tight budget, this kind of open sourcing isn’t going to work– or you can only use it to put staples back up on there (rice, beans, canned tomatoes, frozen mixed veggies, etc.) when you’re running out.  When your every penny counts, a top down budgeting planned around your pantry and whatever the week’s sales are makes the most amount of sense.  Not having money can take more mental load.

I’m also waiting for DC1 to discover that ze can add things to the list at times other than menu planning.  If ze sticks to just writing ice cream (because ice cream is AOK in my book), that won’t be a big deal, but if ze starts adding things like cheetos, I may be lost forever, assuming DH buys them just because they’re on the list.  (“Hm, I wonder why DW put cheetos on the list?  I thought she was totally addicted to those and couldn’t have them in the house without getting sick.  Must be for a recipe of some sort…”)  DC2 will probably have even more interesting demands, knowing DC2.  (“How did lobster make it on the list?  DW must have it down for a recipe… I wonder if she knows it’s $30/lb right now.”)  Fortunately the amount of damage that can be done at a grocery store when you make a reasonably good amount of money is limited.  At least compared to say, if we had an open-source Target list.

How do you do your grocery planning?  Is it one person?  Multiple?  Do you bring a list?  How do you decide what to put on it?

Ask the grumpies: How much to save when your salary is small?

Leah asks:

I comfortably live on my salary with no issues. I easily put away 50% each paycheck (between savings and retirement). But my salary isn’t huge. Should I be digging deeper to find some less-easy money to amp up my retirement or savings account? I’m contributing to my 403(b) but not really my Roth IRA because I don’t know how to use my bank’s interface. Yes, lamest excuse ever.

Also:  How does my spouse saving for retirement impact my savings? As in, is it okay to not save quite as much? I’m saving, but I’m not saving 15% of my income for retirement. [Ed:  this means 50% of her income is going to general savings + retirement, but less than 15% is going to retirement]

And: I started saving at 30 for retirement. How much do I have to save?

It’s only been a little over a year since you asked this question, and it’s not like your family situation has changed at all, say, by having an adorable baby.  (*Cough*)

If you’re really only living on 50% of your paycheck, then that means you’re doing fine for retirement. Saving 50% starting in your 20s (even late 20s) will allow you to have more money than you need later on, if you keep those living expenses low.

However, some of your living expenses are probably subsidized by your husband.  So you’re probably not really living on just 50% of your income.  You will need to figure out as a family unit what your joint savings and joint spending is and what it’s likely to be in retirement.  What kind of retirement do you envision as a family?  What risks are there in the future?

As a general heuristic, you want to save 10-15% of your (joint) income for retirement.  If you didn’t start until you were 30, then you probably want to aim closer to 20% (or more).  But again, this is going to depend on what your husband is doing.  Even if you have separate finances in most areas, you will most likely be sharing living expenses now and in retirement, just assuming that you want to keep living with each other.  (And in the unthinkable event of divorce, many states are community property meaning they cut your assets in half no matter how many assets there are.)

In terms of whether or not you should dig deeper… well, that depends a lot on what’s going on now and being able to predict the future.  You do have a child now, and for the child’s sake, you want to make sure that he doesn’t have to support you during your golden years.  At the same time, babies are a lot of work and you may have more time and more money to devote when the baby is school-age.  A lot of things change over time.

As a side-note, when your salary is *truly* small, because you’re one of the “47%,” Social Security will replace a large percentage of your income.  And, correlation-wise, you’ll die younger.  But that’s not really your situation.

Yes, not wanting to figure out your bank’s IRA thing is lame.  Don’t use your bank for the Roth IRA (unless the only way you are going to do an IRA is through the bank, but that would only be the case if the bank was super easy to use, satisficing is always better than doing nothing).  Give Vanguard a call and they’ll help you figure out what to do, assuming you have enough money to put away in a Roth IRA.  Stick it either in an S&P 500 index fund or in their Target-Date retirement fund.

So, um, take that advice for what it’s worth given your changed circumstances from when you asked it.  We can elaborate in the comments!

Grumpy Nation, anything to add?

Semi-annual (Biannual? Bienniel?) reminder: Just ask!

Our auto insurance went up $200 to around $1600 this year.  Even though our cars are a year older and more time has passed since our last accident and we’re a year older and so on.

So DH (my hero) called up the auto company and asked what happened.  After some lengthy conversation about how medical claims going up can’t possibly be the reason for vehicular damage costs going up, the person on the other end asked if we wanted to do a 20 min survey to get some underwriting done.  (She didn’t put it quite like that.)

DH said sure, because he called at 7pm and the kids were watching a show.

Less than 20 min later, he’d cut the bill by $600 (to just under $1000).

20 min = $600.  That’s a better hourly rate than Mr. Money Moustache’s latest post about the benefits of credit card churning.

If it’s been a while since you asked your regular providers for a discount… give them a call today!  You might be surprised at what they have to offer.

Do it!  And report back to us.  :)

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