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Amanda's Money Coma, Part II of III
By Amanda Steinberg Wednesday November 25, 2009
Me, hiding from my bills ...
Before I describe our scramble to resolve the issues, I need to address some questions that surfaced after last week's post:
- We do have an emergency fund. Many of you were aghast that I, founder of a website about personal finance, do not have a savings account. We do. We just hate to tap into it. We think of it truly as money for an emergency. Our recent bad planning doesn't really count as such.
- I am not perfect. I founded DailyWorth not because I'm a certified financial expert, but because I wanted to learn about the dynamics of wealth building. I do publish articles I know a lot about, like earning. Everything else is written by our team of experts -- MP Dunleavey, Galia Gichon, Cristina Adams, Manisha Thakor, Kathy Ivens, Claire Poole, Mikelann Valterra, Mary Reed, Gerri Detweiler and many others writing for DailyWorth.
Now, back to those bills ...
Recap
Somewhere around October 30th, I opened 4 bills to the tune of:
- $4,860 bill from my accountant
- $2,500 unpaid transfer tax notice on an apartment we sold two years ago
- $625 bill related to a surgery my husband had a year ago
- $3,000 for new windows to replace our leaky, crumbling, century-old windows
Total: $10,985. In other words, this month we have $10,985 more in bills than we have in income. Perhaps you've been here too?
I've made significant progress in determining how to deal with these bills (Not surprising, given the public scrutiny I would face if I hadn't!).
The Accounting Bill
To start, the $4,860 bill from my accountant, as it turns out, is not a personal expense but a business expense, relating to my Web development company. After working with my bookkeeper to figure out the appropriate allocation, it turns out that we're only personally accountable for $810.
$10,985 is now $6,935.
The Transfer Tax
When we sold our apartment in Manhattan two years ago, we owed a transfer tax of $2,500 to the state of New York. In contacting the lawyer who handled the sale, the $2,500 turned out to be an administrative error, so we're off the hook. Phew!
$6,935 is now $4,435.
In sum, we're responsible for only half of our initial figure.
Now What
So...where is this $4,435 coming from?
My husband and I have 3 options:
- Withdraw the money from our emergency savings account
- Borrow funds against our home equity line of credit
- Charge it to a credit card and pay it off over 3 months
Life is complicated and so are personal finances. Although I wanted to present my accounts to you this week, with all the loose ends sewn up, my husband and I need to take a few more days to weigh what our best options are. I've also solicited the opinions of our resident DW experts.
Stay tuned for "III—Triumph Over Financial Chaos" next week.
Meanwhile, I have learned some critical lessons:
- When times get tough, don't bury your head in the sand. It only makes things worse.
- Consult a financial professional. My bookkeeper helped me to determine how to distribute the accounting bill properly, thereby releasing us of the majority of this expense.
- Most important of all: Designate short-term savings for unexpected expenses. As one reader commented, "life happens." And while life takes Visa, it's much smarter to use cash.
Comments
(15)
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Written by Nicole, November 25, 2009
It's funny how once you either question or challenge a charge how many times it is administrative error or some other kind of misunderstanding. I think you've also shown that it's important to make sure you understand what you are paying for and why, if only because sometimes it isn't even necessary. Good post, Amanda!
Written by Brittany, November 25, 2009
Amanda, you are such a huge inspiration. You and Daily Worth are doing so much for me in terms of helping me understand financial security and wealth. Thank you, thank you!
Written by Brittany, November 25, 2009
I didn't post last time, but I do applaud you for your transparency. I think the best way for us to learn financial wisdom is to see real-life situations and how to resolve them. Thank you so much for sharing.
Written by Cara Marcano, November 25, 2009
I agree that questioning charges is a very interesting part of the issue here. Working moms though have less time than ever to question charges and companies count on this ! Also usually it is women who are responsible for bill paying and for questioning these things.
ANOTHER COMMENT/QUESTION
The issue of the business versus personal expense I would like to see Amanda or others post more about this. I run a small business and my personal expenses are low but my financial obligations are high because I am responsible for growing a business as well as covering the families emergency expenses. Can you write something about say how much should be in your personal savings, how much say your business should have in savings, like did Amanda's business have an extra $5,000 in her checking biz account to pay this expense or does she keep for her business a savings account...
Also the issue of what debt to pay down first... like home equity line versus building up both personal and business cash reserves.... Can you write something more specifically about this from the point of view of female entrepreneurs... also at a certain point you might want to take a loan for the business -- or is this what Amanda's home equity is for? Or does the business have its own line of credit or can it grow on cash alone. Most women-owned businesses start out as lifestyle choices (the home office) but to build wealth there is money that has to be forked over to grow a business, delegate, have employees -- and at the end of the day, MAKE MORE MONEY. I'd like to read more about this b/c at the end of the day 10,000 in obligations is still 10,000 dollars in obligations, whether to your business or your family if you are the business owner... Where did that $5,000 come in the business, cash, savings account for the biz, from and what savings or growth plans versus personal savings does AManda and other female entrepreneurs have?
Less than 5% of women-owned businesses bill/sell more than 1 million dollars per year.
ANOTHER COMMENT/QUESTION
The issue of the business versus personal expense I would like to see Amanda or others post more about this. I run a small business and my personal expenses are low but my financial obligations are high because I am responsible for growing a business as well as covering the families emergency expenses. Can you write something about say how much should be in your personal savings, how much say your business should have in savings, like did Amanda's business have an extra $5,000 in her checking biz account to pay this expense or does she keep for her business a savings account...
Also the issue of what debt to pay down first... like home equity line versus building up both personal and business cash reserves.... Can you write something more specifically about this from the point of view of female entrepreneurs... also at a certain point you might want to take a loan for the business -- or is this what Amanda's home equity is for? Or does the business have its own line of credit or can it grow on cash alone. Most women-owned businesses start out as lifestyle choices (the home office) but to build wealth there is money that has to be forked over to grow a business, delegate, have employees -- and at the end of the day, MAKE MORE MONEY. I'd like to read more about this b/c at the end of the day 10,000 in obligations is still 10,000 dollars in obligations, whether to your business or your family if you are the business owner... Where did that $5,000 come in the business, cash, savings account for the biz, from and what savings or growth plans versus personal savings does AManda and other female entrepreneurs have?
Less than 5% of women-owned businesses bill/sell more than 1 million dollars per year.
Written by Cara Marcano, November 25, 2009
Also how much home equity does Amanda have to tap -- that is how much of this does she have and to what extent should this be considered cash for herself and/or for her business?
Home equity is obviously not cash but it with current interest rates could be seen as better than credit...
I think as a society we need to discuss what is CASH, and what is an investment in having more cash, like an investment in your business, or child care so you can work more, and what is just an expense.. a sweater, a trip to the spa etc.
Home equity is obviously not cash but it with current interest rates could be seen as better than credit...
I think as a society we need to discuss what is CASH, and what is an investment in having more cash, like an investment in your business, or child care so you can work more, and what is just an expense.. a sweater, a trip to the spa etc.
Written by betsy, November 25, 2009
Freelancers and small business owners must adjust to the flow of their business. My cashflow is much better in the spring/summer/fall and stinks in the winter. So I need to plan for big bills, like quarterly estimated taxes due in January. I hate taking money out of investments for routine expenses... In flush times, I put money in a money market tied to my checking account. The MM rate at the moment is barely worth it, but it's a simple way to put money aside in the good times, but making it accessible.
Of course it doesn't solve the problem of not having sufficient funds to cover bills - but psychologically that money is tucked away, while functionally available.
Of course it doesn't solve the problem of not having sufficient funds to cover bills - but psychologically that money is tucked away, while functionally available.
Written by Amanda Douglas, November 25, 2009
Oh man! I think I said this already in another comment but again the emergency fund is SO important! It’s saved me so many times and now it’s saved me and my husband a few times already!! It’s bad that emergencies happen but so much easier to deal with when you’re prepared.
Written by Ashley, November 25, 2009
GOOD FOR YOU FOR INVESTIGATING THOSE CHARGES! You asked questions, you looked into where the charges were coming from, and that slashed your bill into less than 50% of what you thought you would be paying. If I were you, I would:
1) Not perpetuate your revolving line of credit, in other words don't take out more money.
2) Is this really and emergency now that you've only got $4000 instead of $11,000? I save leave those emergency funds alone...
3) Which leaves the credit card option. I myself am incredibly leary of these plastic bad boys, I only have one as is--and that's because every dollar I spend gets me miles on United Airlines and the bill is paid monthly via an automatic transfer from my bank. But, if you and your husband have stable jobs for the next 6 months and you both are willing to live a little tighter through the holidays, it might just be the trick to charge and pay-off. But, I only can completely recommend this option if you are BOTH going to be diligent about really and truly paying off everything in the next 3 mos. If you can't stick to this or keep yourself from splurging, you will have to rethink your option.
Best of luck! Everybody's human, which means that nobody is perfect, and this experience shows us all how fast money problems can arise in our lives and you've set a great example to calmly assess your options. Thanks again.
1) Not perpetuate your revolving line of credit, in other words don't take out more money.
2) Is this really and emergency now that you've only got $4000 instead of $11,000? I save leave those emergency funds alone...
3) Which leaves the credit card option. I myself am incredibly leary of these plastic bad boys, I only have one as is--and that's because every dollar I spend gets me miles on United Airlines and the bill is paid monthly via an automatic transfer from my bank. But, if you and your husband have stable jobs for the next 6 months and you both are willing to live a little tighter through the holidays, it might just be the trick to charge and pay-off. But, I only can completely recommend this option if you are BOTH going to be diligent about really and truly paying off everything in the next 3 mos. If you can't stick to this or keep yourself from splurging, you will have to rethink your option.
Best of luck! Everybody's human, which means that nobody is perfect, and this experience shows us all how fast money problems can arise in our lives and you've set a great example to calmly assess your options. Thanks again.
Written by Laura, November 25, 2009
Thanks for sharing the lessons you've learned with us. It's very helpful to see this real life example in the process. I look forward to reading the outcome!
Written by Linna, November 25, 2009
I enjoy reading your e-newsletter and for input into your situation, I would just use the emergency fund. $4,000 is not the original $11,000 which is really good. I would not tap into a HELOC, what's the interest rate on that? And I would NOT charge all that amount on my credit cards, unless you have 0% interest because why would you pay to use money that you actually have that is sitting in your savings or checking account and probably not really growing with the low interest rates that are out there? You'll rebuild your $4,000 from the account and then some.
Written by Kate, November 25, 2009
I'm glad to read that you were able to reduce much of your bills due to errors and other allocations. Surely, that is a huge relief! I know my mailbox has been inundated with many 0% balance transfer offers from credit card companies, and perhaps yours has as well. If I were in your situation, that would be my "life jacket" with the understanding to pay off the balance before the 0% rate expired. The last comment I posted was crass and reactive, I know, and I apologize. Your numbers just have a few extra zeroes than mine do, so I was having a hard time relating. MP Dunleavy's more my speed, and I'm glad she is part of your columnist team. Best wishes to you!
Written by Beth, November 25, 2009
Thank you for being so honest and showing us how you are working out what is an all too common situation for many people. I have two specific thoughts:
1. Good for you for investigating! Too many people just pay bills - especially to the tax man - out of fear or the inability to wind through the bureaucratic maze. We see this happen so often with seniors and medical bills. Always make sure you understand where your money is going.
2. Be careful of using credit to pay for the other expenses. Why not tap into the emergency fund with the intent to pay yourself back, maybe even with interest. Calculate what you would have to pay if you used the LOC or the cards and just pay that back in the next three months to your emergency fund. If another true emergency comes up, then you can revert to an interest bearing option.
Just my two cents :))
1. Good for you for investigating! Too many people just pay bills - especially to the tax man - out of fear or the inability to wind through the bureaucratic maze. We see this happen so often with seniors and medical bills. Always make sure you understand where your money is going.
2. Be careful of using credit to pay for the other expenses. Why not tap into the emergency fund with the intent to pay yourself back, maybe even with interest. Calculate what you would have to pay if you used the LOC or the cards and just pay that back in the next three months to your emergency fund. If another true emergency comes up, then you can revert to an interest bearing option.
Just my two cents :))
Written by Pegg, November 25, 2009
I applaud your desire to pay off all of the bills immediately - and that is as it should be. But, if the $4,000 now due can be broken up into equal monthly payments, perhaps you can pay them, without interest and without tapping into your savings or lines of credit. How much interest are you tapping into if you do use your line of credit or credit card? Weigh the possibilities. PS - thank you for sharing. It lets us know that we aren't the only ones that monetary surprises happen to.
Written by Amanda Steinberg (DailyWorth founder), December 03, 2009
@Niclole --exactly-- that's been one of the biggest lessons here. Don't fall asleep. Just make a few calls.
@Cara - HELOC is for personal only and honestly we're trying SO hard not to tap it but just to pay it off.
@Kate - no apologies -- a lot of people agreed with you. DailyWorth should be a place for honest conversation, even if it doesn't always *feel good.*
@Pegg - yes -- moved the $625 to January and might be able to move some of the accounting bill to January as well. 100%. Definitely lessens the blow.
@Cara - HELOC is for personal only and honestly we're trying SO hard not to tap it but just to pay it off.
@Kate - no apologies -- a lot of people agreed with you. DailyWorth should be a place for honest conversation, even if it doesn't always *feel good.*
@Pegg - yes -- moved the $625 to January and might be able to move some of the accounting bill to January as well. 100%. Definitely lessens the blow.
