Our Current Financial Situation (Part II)

So after closing on our house in September 2008 K and I moved in and immediately started working on fixing up the house, including adding in the kitchen. This was way more of a project than we had anticipated, but we managed to keep our budget very low, spending only about $10,000 in adding the kitchen.

Starting in January it became clear that the construction industry in Boston was taking a hit. However, K's company thought they still had enough work to last a few months. Through February and March it became clear that the jobs they had anticipated getting were falling through and layoffs started. K managed to make it until the beginning of May before being laid off.

At the time it was actually a relief for K to be laid off. The dread of being laid off had been building for months, so to me at least, it seemed that now that it had happened we at least wouldn't have to worry about it. For a carpenter in K's position being laid off wasn't unusual as most of the workers would often be laid off as jobs end. K had been laid off many, many times in the 10 years he's been a carpenter with the longest layoff lasting only a month.

When he's working K makes a lot more money me. He actually brings in about $90,000 a year, depending on how many hours he works. This is about twice as much as me. But fortunately Massachusetts has very generous unemployment benefits, covering around 60% of a worker's salary. So a short term layoff is not a problem.

But throughout the summer and fall it became apparent that the construction industry was only getting worse. As I write this, 30% of the carpenters in K's local are unemployed (60% of iron workers are unemployed), with the number only expected to grow. The pre-construction planning and permitting process has been so weak that the local expects no major jobs until 2011 at the earliest. And the jobs that are currently taking place will be ending soon.

In July my company laid off about 10% of our workforce (okay it was six people, but we're a small company) and dropped everyone's base salary by 2.5%. In August I found out that the raise that was overdue to me from the previous fiscal year would not be paid and that I would lose the $1,000 in commission that was budgeted as part of my salary because we had cancelled one of our spring events and it wouldn't be replaced.

So where are we now? The honest answer is I don't know. I've scrimped and saved everything I could out of my paycheck starting in January when it became apparent that K could be laid off any day. I now have an emergency fund of $10,000 plus a few other funds that can be tapped if it needs to be. K has gone through his state unemployment and his first federal extension should end within the next few weeks. We don't know if he will get a second extension. The rules are unclear and it's difficult to determine.

If he gets a second extension we'll be okay until either that runs out or K gets a job. If he doesn't the bad stuff really begins.

Ouch....

I just cancelled our Sunday subscription to the Boston Globe.

This was one of four small monthly expenditures that would save us money to cut but I've avoided making for various reasons. The other three are a monthly $12.95 donation I make to a charity, the $20 a month for our DSL, and the $16.99 a month for our Netflix account.

This hurts so much because I really want to support the newspaper industry. I'll miss the service, but really I just feel like I'm doing something bad by canceling the paper.

It will save me about $14 a month, which right now feels like a pittance compared to how much this one hurt.

I'm still planning on writing more about our current financial picture and will write about the major expense that I'm now realizing we need to cut as well as why I haven't cut the other three minor expenses. Looking at K's credit card statement has really thrown me off balance. I need to re-evaluate the financial picture and figure things out.

I still haven't talked to K about his bill and haven't figured out how to handle this. It will take more tact than I have in me at the moment to end up with a good result and get K and I on the same team financially.

Credit Card Debt

My intention was to post Part II of Our Current Financial Situation today and I might still do that but I wanted to post first about a credit card debt situation that just re-emerged.

There have been two instances when I haven't paid off my credit card balance as soon as it came due. One was when I was a Junior in college and needed an extra month to fully pay off my text books, and the second was about five or six years ago when I just forgot to pay the bill one month (oops).

K, however, has different ideas about credit cards. When we first started dating eleven years ago K was of the opinion that everyone ends up in debt anyway and what does it matter. He's come around a lot since then, but every few years/months he will run up credit card debt of a few thousand and then over a few months pay it off completely. He has become much better at not doing this over the years.

Probably about eight or ten months ago I looked at K's credit card statement by accident (I thought it was mine) and realized that he was in debt by over $2,000. At that time K had been out of work for a few months, but collecting unemployment. I talked to him about it and asked him to pay off the debt and promise me that he wouldn't run up credit card debt as long as he was unemployed because if he's not working his debt is essentially my debt and I'll need to pay it off using my savings when he runs out of unemployment and an emergency fund. He agreed and assured me that he wouldn't run up any more debt.

I took his word for it and haven't asked him about it since. Yesterday, K's credit card statement came in the mail. He opened it, looked at it, stated that he pays the bill online and doesn't need the paper statement, tore it in half and put it into the recycling.

Today I went through the recycling, found the two halves, and looked at his bill. And he currently has credit card debt over just under $2,000. I think he has been paying his balance off, but has been continuing to charge new things. I know he is also trying to stop using his credit card and is currently keeping it locked in the safe. A few weeks ago we both read Stop Getting Ripped Off: Why Consumers Get Screwed, and How You Can Always Get a Fair Deal and he's seemed to take on a bit of a new attitude since then.

So I'm hoping he's changed. I'm hoping I don't need to bring this up. I'm hoping we don't need to fight about it.

I get paid every two weeks and with as much scrimping and saving as I do I manage to be able to save between $150 and $300 out of every pay check to put into the emergency fund. The average is about $200 to save per paycheck. This means that when K's unemployment runs out in addition to the approx. $1,000 per month that we will fall short in our daily living expenses that will be coming out of my emergency fund, I will need to put 20 weeks worth of work towards paying off his credit card bills.

As I think more about this it's just devastating.... I'm not sure how to handle the problem at this point. Admit to snooping and talk to K about it, wait until next month check his statement and see if he is truly getting better, start smashing things? Any opinions are welcome.

Our Current Financial Situation (Part I)

In many ways my current financial situation tracks the recession very well, so it seems like the best place to start my story is at the start of the recession.

Around April 2008 my boyfriend and I realized that housing prices had fallen so low so that we could afford to buy a house! We had lived - as renters - in Boston throughout the real estate boom. In the area we were living (Brighton), prices had gotten so high that in 2005 one bedroom condos were selling for over $700,000. At that point I had just assumed that I would never be able to afford to own property.

In 2007 and 2008 I had heard vague rumblings from the media that housing prices had fallen and my reaction was good - but they still have a long way to fall. Then in 2008 a friend who was looking to move to Boston pointed out just how low prices had fallen. My boyfriend and I then realized that we could afford to buy a condo for less than we were paying to rent our small one bedroom apartment that was over a mile from the subway, or buy a house for slightly more than our current rent.

So after months of home shopping we found a fixer-upper in Dorchester (part of Boston) for $248,500. The house had been purchased for $400,000 in December 2007 and foreclosed on a few months later. It was then purchased by a developer for $205,000 in May 2008. The developer put a decent amount of work into the house, but had removed the current kitchen but not installed a new one when K and I saw the house and decided to offer on the contingency that the kitchen wouldn't be finished (his kitchen remodel plans were bad and K is a carpenter so we figured we could do a better job remodeling).

We paid 20% down, with my half of the payment coming from my savings and K's half coming from an annuity loan. We were scheduled to close on September 19.

On Monday, September 15, Lehman Brothers files for bankruptcy. At this point K and I just start hoping that the banking system keeps working long enough for our mortgage to go through. On Friday, September 19, the Fed meets with high-ranking members of Congress and states that the US economy could soon collapse if immediate government-backed action isn't taken to save it. And K and I close on our mortgage.

Why I'm Writing This Blog

I've always been a saver.

As a child I would keep my spare money in a treasure box next to my bed, not saving for anything in particular, just letting the money grow so it was there when I did want it for something. Unfortunately, I was not a very secure saver as my Mom and brother soon discovered my unsecured stash and started borrowing out of (my Mom at least would return the money).

But with the exception of one or two short instances in my life, I've always spent less than I earned and always felt that I needed to save. It makes me feel secure.

But since January 2009 it's become increasingly clear that the recession will be having a hard and likely long-lasting impact on my finances. Soon I will have to stop saving and start living off of my savings. And I'm not handling it well.

I think financially I'm doing well - I can justify basically every financial decision I've made in the past fifteen or so months. But I'm anxious and unhappy. All I can think about is what will happen in a few weeks or months when the situation starts rapidly getting worse. I'm out of my comfort zone and mentally I'm not doing well with it.

So, how does this blog come in? I'm hoping that if I can write everything down I will feel better about things. Perhaps it will let me start looking on this as a grand adventure, or find a sympathetic sole or two. At the very least I'm hoping that talking/writing about it will take the edge off.

As I write future posts I realize that many people will probably view me as miserly, and I admit that I am acting that way in many cases. But please realize I wasn't always this way and that this is one of my biggest weaknesses that is under stress right now. I don't ask for sympathy for my situation as I know that I am so much better off than many, many people, but I do ask for sympathy in evaluating my actions.

I hope that you enjoy reading this blog and find something useful or helpful from it.