Scraping By on $150,000 a Year
by Josh Hyatt

January 12, 2007

[Continued, page 2]

Find the Gorilla in the Room

Some cutbacks, of course, will be necessary to accommodate your now lofty savings goals. Most people trying to break the paycheck-to-paycheck habit focus, as the Schuetts have, on the "latte factor"—the little luxuries (like a daily dose of java at Starbucks) that add up over time. Don't fool yourself. Small economies are just that: small. If you're really serious about getting a handle on spending, you need to identify the big-ticket drains on your cash flow and there are always one or two—and do what you must to plug those holes.

If you're honest with yourself, you probably already know what you're spending a small fortune on. Maybe it's extracurriculars for the kids (try adding up the cost of piano lessons and the private math tutor, not to mention sleepaway camp). Or maybe it's your twice-yearly vacations (winter in the Caribbean? an Alaskan cruise last summer?). But whether you're genuinely clueless about where your money goes or just don't want to face up to the prospect of giving up or cutting back on something that matters a lot to you, consider avoidance time officially over. Carve out an hour or two to sit down with your spouse to go through your check register and your year-end credit- and debit-card summaries to see what big, discretionary expenses leap out at you. Then talk seriously about what you both can and should do to whittle those bills down.

A closer look at the Schuetts' finances reveals, for example, that a big chunk of their income is eaten up by two rental properties. Brian purchased them thinking they'd generate extra income, but he has yet to find tenants. Even when the properties are finally occupied, the area's softening rental market probably won't allow them to make enough to cover carrying costs. Meanwhile, the two houses are expected to appreciate only about 3% a year—the couple can do better than that with Treasuries (bonds, at least, will never need expensive new wiring). But the Schuetts haven't had a heart-to-heart about selling the properties yet because Brian has been so keen on making them work. "Our strategy has been to practice 'avoidance,'" says Amy. "But you don't have to be a psychiatrist to see that."

Tackle the Beast Head On

Once you've identified your budget busters, you have to devise a plan to cut them down to size. Don't try to deal with every aspect of the problem at once—a prospect so overwhelming that you're doomed to fail. Instead, St. Paul financial consultant Ruth Hayden suggests scheduling weekly meetings for, say, half an hour to talk about just one slice of the financial challenge or task at hand.

During the Schuetts' first meeting, for example, the couple might discuss whether they want to keep or sell their rental properties and, if they decide to stick with landlording, what specific steps they should take to improve their chances of turning a profit. The second meeting might focus on setting up those automatic savings plans (Amy stopped contributing to her 401(k) when cash got tight; the Schuetts don't have college funds for the girls yet either). At the third session, they can talk about other systems they can use to help them economize. One simple trick, Hayden suggests, is to earmark cash in separate envelopes at the beginning of the week for expenses like takeout food and dry-cleaning; when the envelope is empty, you can't shell out any more on that item. "It forces you to plan how you'll spend," says Hayden.

Boost Your Top Line

After you've reined in spending to shore up your bottom line, it's worth thinking about how to fatten the top one. Can you make a reasonable case—either to your current employer or to a prospective poacher—that you're due for a raise?

What about taking on some freelance work to make extra money? Amy Schuett, for instance, says she could agree to an occasional speaking engagement or consulting job. Brian plans to ask two friends who own a home remodeling business if they'd consider giving him some part-time work.

Budget for Some Fun

"The feeling that you can never get ahead can be demoralizing," says Kaplan. So make sure in your zeal to spend less and save more, you still allow yourself a few expenditures that bring your family real pleasure. You just need to figure out in advance how you'll pay for them.

Last year, for instance, Brian's parents gave the Schuetts a horse named Red for their kids to ride. They think it will cost a few hundred dollars a month to feed and care for the animal, and they're willing to give up ballet lessons and gymnastics classes for the girls to pay for it. The trade-off is worth it, says Brian, because "the kids so love having a horse." In fact, Amy has already got a name if they get a second horse: Buttercup. "We'll probably have to wait a while for that," says Brian. "We've got another beast to tame first."

< Previous Page   |   1   |   2