Finance Gets Personal

A few posts ago, I casually mentioned the savings we have in our basement fund, new computer fund and European vacation fund.

I’m not sure how much I’ve talked about this before, so I thought I’d explain before I start looking like a complete hypocrite (wah, it’s so hard to get out of debt while remodeling your house/buying new computers/taking trips to Rome!).

First, we’ve set up a basement fund, since one of my husband’s goals is to finish the basement himself for $3,000-$4,000. We are directing $150 per paycheck to this goal.

The new computer fund is my husband’s personal account (currently, $750 in a Body Shop tin hidden in the bedroom). He’s saving part of his personal allowance/blow money each paycheck, as well as any money he gets for Christmas and his birthday. Normally, this would be something we would work toward together, but since we got his computer as a wedding present (his parents let us choose what we wanted) and my current computer is older than the one he wants to replace, well…
I only mention this fund because we could use it if he lost his job and we were desperate for cash.

The third “special” fund is the European vacation fund (my personal favorite!). For the past two or three years, my husband has secretly been saving part of his allowance/blow money to take the family to Europe for my 30th birthday next year (well, not too secretly - I knew the account existed, but I only knew that he was saving for some special “surprise”). By the time we take the trip (probably Spring 2010), he’ll have $4,000 saved. Now, I know this doesn’t seem like enough to take three people to Europe, which is why we’ve also started working credit card-frequent flier magic, which should completely pay for our flights (more on this newest hypocrisy in an upcoming post). We’re thinking of visiting parts of England, France and Italy for two weeks.

So, those are the “secret” funds! We’re going to continue to contribute to them as long as they don’t get in the way of regularly scheduled programming. And, you can be sure that I’ll be looking for advice on visiting three of the most expensive cities in the world (London, Paris and Rome) on the cheap!

Well, fate has decided which vacuum we’re going to get.

Thanks to my husband’s employer’s plans to lay off 20% of its workforce, it looks like we’ll be buying a cheap vacuum with our American Express card (for the additional one year warranty) and paying it off immediately.

That’s right - my husband thinks he’s going to get laid off.

And this time, I actually believe him.

Even if he doesn’t, things aren’t looking too sunny. All 401(k) matching has been stopped, raise freezes have been extended by another year and tuition reimbursement has been stopped. And get this - although his company no longer gives matching 401(k) contributions, any profit sharing (which occurs only if they meet specific goals) will be based on the amount of money employees put into their 401(k). What a crock of…

Needless to say, we’re preparing for the worst.

Thankfully, we’d already begun directing our extra debt payments to savings, so counting our emergency fund, European vacation fund, new computer fund and basement finishing fund, we have over $7,000 saved up. And with no debt besides our first and second mortgage, we should be able to live off of my salary if necessary (with mortgage payments at 49% of my monthly take home income, it will be tight, but do-able).

Of course, that will mean no more Netflix, no more newspaper subscription, no more landline, no more clothes, no more gifts, no more cable, etc.

So we’re going to go ahead and start cutting back a little.

I’ll cut our weekend newspaper subscription down to just Sunday (for the coupons), we’ll cancel Netflix, stop our 401(k) contributions and look into getting a cheaper Internet/cable package (or maybe just a slower Internet service with no cable). We’ll also be looking into other ways to cut the budget, like ditching our landline and reducing our discretionary spending to the bare minimum.

So folks, I’m off to watch some free movies online with Netflix…while I still can!

The phrase “living paycheck to paycheck” gets thrown around a lot, but the truth is, I don’t really understand what it means.

Here are some possible definitions:

1. Not having enough money in savings to survive for a reasonable amount of time without a paycheck (i.e., not having a three-month emergency fund)
2. Spending your entire paycheck (or more) and not saving any money (i.e., not making any financial progress)
3. Commiting so much of your paycheck toward debt-repayment and/or savings that you are dependent on your next paycheck to pay upcoming bills (i.e., me)

I’m inclined toward the first definition, but I’m not sure. What do you think?

(This post was included in the Carnival of Personal Finance, hosted by Lazy Man and Money.)