Naked With Cash is the year-long series on Consumerism Commentary where seven readers’ households share their financial progress on a monthly basis. I’ve partnered with financial planners who will offer some guidance along the way. Read this introduction to learn more about the series.
LastDollar is thirty-three years old, an entrepreneur and single mom with two children with learning differences in private school. To learn more about LastDollar, read the bio published last month in advance of Naked With Cash. LastDollar is on Team Neal, with Certified Financial Planner Neal Frankle.
Continue reading this article to see LastDollar’s financial progress over the last year, with estimated figures from December 2011 and actual number for the past few months, culminating at the very end of 2012. Her net worth chart is followed by LastDollar’s own comments and analysis. Neal Frankle will follow with his suggestions, and budgeting expert Jacob Wade from iHeartBudgets will also provide insight.
Comments and analysis from LastDollar
I had to estimate previous months/last year’s columns for most categories because it has been over a year since I was keeping track of anything. I stopped keeping close track when my income wasn’t enough to pay for all expenses and was just sending what I could to each obligation every month and hoping for the best. I’m ready to break the cycle once and for all though, so will be keeping better track of it all moving forward.
My cash and savings line is a bit of a joke, since the money is spent before I receive it (bills are due faster than the money comes in). Any money you see on those lines right now is just temporary until I send out bill payments. I have two checking accounts (one online and one local) and a savings account that is just a holding account for money in between bill payments. I just opened a SmartyPig account to cover next year’s Christmas shopping to make sure I’m not using credit when the time comes.
I have no investments at this time unless you count life insurance. I have a 20 year term life policy ($ 100,000) and a $ 50,000 whole life policy. I have life insurance for myself, and 529s for the kids.
My car loan is 0% interest. My mortgage is 4.3% interest.
Not seen on the liabilities is last year’s taxes. I still owe $ 2500 and make payments each month on it, and I will owe again this year when I file as I did not pay enough quarterly to offset it.
I have been self-employed for 10 years — freelance — and for the most part my income has continued to go up each year, but because the money doesn’t come in on any predictable schedule (it’s not payday every Friday or the 15th of every month, for example) things start to get late, then all of the money I receive is immediately sent out for bills, groceries, and expenses as soon as it hits my accounts. (and there are usually late fees to pay).
I just also started a part time job with a radio station which I’m not sure if it will improve my income or not since it creates expenses to get there – commuting/gas/babysitter.
Fingers crossed that a potential gig will come through in Feb or March which would add $ 4,000 a month to my income, each and every month consistently. It’s along the same line of work I do freelance, but this particular client would put me on payroll (and I would still do my other work as well).
Feedback from Neal Frankle
I left a comment on your profile and I stand by it. You work very hard, demonstrate commitment and strength. You are an inspiration to me and all the readers. Thank you. After reading through your comments and reviewing your balance sheet, I have the following comments/suggestions/questions.
I didn’t notice that you included an income statement along with your balance sheet. Was this an oversight of mine? An income statement is really important for you because, over time, it will show you the opportunities. I’d love to see your income over the last few years and how your expenses have changed. I’m not asking you to go back and re-construct this if you don’t have it. But start for January if possible. This is really the key foundation upon which we build your financial freedom. We need to look under the hood to see what’s really going on and the income statement is the only way to know.
You are doing something really right. I noticed that your credit card and student loans decreased significantly. How did you do it?
I understand that it’s difficult to keep track when things are difficult. But the best way out of difficult times starts with having information. Your spending patterns are the information we need. If you don’t want to track every item using a software package, try using my 5-minute method to track your spending using bank statements. It’s easy and very powerful.
I’m glad you have $ 100,000 of term life. You have two children who rely on you. But it that enough life insurance? How did you come up with that figure? You also have some whole life. I am not a fan of this because it eats up the premium you could be using to buy more term. And term is something that’s very important for your family right now as far as I’m concerned. Why did you buy the whole life? Is there any cash value? What is the premium?
I would like you to update your balance sheet and include the tax liability in it. The more complete the information the better.
I know things are difficult right now but I see you work so hard and are so determined that with a little shift in direction, I believe vast improvement is possible. I’d like to know more about your business and if it’s paying off. What has been the annual income over the last several years? Is the radio job a good use of your time? I believe the big opportunity for you is to focus on maximizing your time to create more income and putting everything up for consideration.
Let me know your thoughts and good luck on the job you are up for!
Feedback from Jacob
LastDollar, thank you for sharing the details of your finances with everyone. It sounds like it’s been a really tough year, and as a single parent of two, you’ve got a lot on your plate.
First, I want to focus on all of the awesome things you’ve done over the past year:
You took care of your kids. You have made a financial sacrifice to ensure your kids are getting the education they need. That is an honorable and amazing thing to do for your kids. They are pretty darn lucky to have you as a mom.
You made ends meet. Though you still have some obligations and it seems like you are constantly behind, you are still in your home, you are still paying down your car loan, and have not given up. That determination is what is going to get you out of your debt and help you start building wealth.
You have life insurance. Nothing is more loving than taking care of those you love with a life insurance policy.
Moving forward, the first thing I would do is put together a budget. I wrote a 5-part series on budgeting that starts at the beginning and goes through how to put together a budget. If you want the short and simple version, just do this:
- Write out your income over the past 3 months. Find your average.
- Go through your monthly spending (bank and credit card statements will give you the detail), and write down your spending in categories (mortgage, utilities, loans, debts, food, gas, misc, etc.)
- Subtract spending form income to see the difference.
The goal is to find any areas where you can save a little money, and essentially give yourself a raise. You’re in a place where there may not be many places to cut, but you’ll never know until you write it out. Once you know where your money is going, it gives you the power to re-direct it if it’s going to the wrong areas.
As of right now, you can’t meet all of your monthly obligations. I wrote about what to do in this situation. Essentially, prioritize all of your monthly expenses from top to bottom and pay everything in order. Pay the top item first, then the 2nd, 3rd, etc. Once the money is gone, draw a line, and anything below that line doesn’t get paid. It’s the only way to stay sane as you try to get your finances in order. The only thing I would make sure of is to prioritize paying the IRS.
But here’s what I think. I think you’re doing a great job. You’ve got some major potential income coming your way, and you have the determination and strength to get through this. I know it’s been a tough road, but with some planning and some help from Luke and these awesome CFPs, you’re going to be in great shape. I look forward to following along and helping where I can.