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Monday, August 25, 2008

The Answers to the Quiz

My commentors have all done a great job with the first set of quiz questions. I'm working to come up with some new questions which will be on a different note. It would be fun to make this a regular feature. I really loved seeing each and every comment.

1. This was a trick question of sorts, as we don't often think of paying off debt as an investment. But paying off debt will give you a large, non-taxable return. Paying off credit cards is basic common sense. I believe in paying down a mortgage earlier. However, I would fund an emergency fund of 3-6 months of necessary expenses first and a retirement account, at a minimum, prior to considering paying down a mortgage early.

2. Question 2 was for the accountants amongst us. In the second question I assumed that everything was equal (which we know it rarely is, but we can pretend for a moment) and that either the husband (current salary $75,000) or the wife (current salary $105,000) could take the job with no current or future affects. If the couple simply wants the most money in the present, the wife should take the job because she will not owe social security taxes on the $10,000 additional wages. I've noticed that many people forget about two types of taxes when making a budget:
A. Employment taxes (social security) and B. State/local taxes. Sometimes a reminder is good, especially at the end of the year when an employee's paycheck might increase. In the electronic world of finance, a person might think they got a small raise when in reality they really have just paid up the social security taxes. Check the paystub before banking on a raise.

3. The more I look at the budget presented, the more problems I see. However, the main problem I was driving at was that the income sources were not delineated as "primary" and "secondary," nor did the budget delineate what costs were associated with which sources of income. (Just a note: more than income can go into the decision of which income is primary and which is secondary, although income is often the most major factor).

Some of my readers took the question as a leading one, believing that I would reach the conclusion the wife should stay home. For all I know, the husband's income is the lower income and that he should be the more flexible one and explore his options. The options could range from shifting his work schedule to cut down on day care hours, to trying to telecommute if that is a possibility, to working a night shift if applicable, to leaving his work if that makes financial sense and he is in a field where you can return easily.

Please stay with me. Here is my theory on budgets on the brink (of course, not every possibility can be covered in one post):

When your ship is sinking, which I will loosely define as being in the red because expenses exceed take home income (i.e. they are depleting savings in your youth, or turning to debt financing), you must plug up the hole in the boat and plug it up fast. Usually plugging up a hole comes with a variety of solutions some long term (cost cutting) and some temporary (working different shifts, cutting/adding work hours). There is a time to think long term and a time to think short term. When things are going south budget wise, you just need to get above water quick.

Anyone remember this upside down budget in the Yated: a kollel wife of 12 years and 6 children who does not want her husband to go out to work. Part of her fear is that they will loose all of their government benefits. I remember when I read this, I said to myself, the current solution to their issue might be for the husband to leave kollel and become a homemaker for the time being. They will keep their government benefits and eliminate their daycare expenses. At $20K in debt and approximately $20K in income, they are in deep trouble . What happens to this kollel family if/when the schools are no longer able to accommodate their children despite lack of payment? What happens when the grocery says he can't extend them more credit? I know it isn't socially acceptable to make a change like this, but the ship is sinking and my own opinion is that you jump for safety.

Some other budget issues (thanks commentors!) for the Imamother poster's budget:

A. It isn't all inclusive. She doesn't mention clothing expenses for one. This sticks out in my book. I try to spend as little as possible on consumer items, but we socks, shoes, and underwear seem to wear out in my world.
B. She doesn't indicate how many car payments remain. Perhaps the car is almost paid for, in which case the family might be pulling their heads above water soon.
C. Some expenses seem too high: cell phones of $125 a month (although an employer might require a cell phone and he/she might need a lot of minutes), cleaning help, food + baby necessities. Food alone of $600 seems quite reasonable for a dual income family, but when you add in $250 for baby expenses it seems a bit inflated.
D. As 'ramseyfan' pointed out, they are missing life insurance and retirement savings are low (perhaps they are even passing up company match?).

Take note, beginner budgeters: include every single expense in your budget down to the last penny. My guess is that the small shortfall the mother admits to is actually larger.

Sadly, this budget which is *not* overinflated across the board, underscores a very real problem, i.e. (full) tuition is out of range for many young families that are soon to enter schools and are still growing their families. Just makes you want to cry.


SephardiLady said...

A note on my last highlighted note: this family also has a low monthly mortgage payment compared to many young couples. Ladies and gents, we have a problem. But, my readers are well aware of that, so I'm preaching to the choir.

tesyaa said...

1) If no one was willing to go into debt for the sake of future income, no one would ever take out student loans. I don't know if for this family, career advancement will result in future income.

2) As a mother who has worked full time and has been a stay at home mother, another observation: I frequently see mothers who can't bear to leave their children, emotionally. I have even been that mother myself! I do not see a big difference between this situation and the husband who can't bear to leave kollel. (In fact, spiritually, one can say, a woman's fulfillment often comes from raising a family while a man's comes from learning Torah.) I think both are luxuries that may have to be given up for the sake of finances.

Since single income families were the norm in the mid 20th centuries, we have still idealized the stay at home mother as the "norm" for American families, while economically, things have changed. Especially if yeshiva tuitions are factored in.

It goes without saying that having amazing childcare is a prerequisite for a mother to be able to work outside the home, so if it's unavailable or unaffordable, of course the woman shouldn't work.

Dave in DC said...

It's the last statement that struck me first. There is no gusher pouring out of this budget that can be patched, rather a series of pinhole leaks that only a diligent budgeter would methodically mend and tend over time. Given the general financial illiteracy in our community, that sort of budget hawkishness seems a worthy but unlikely goal. Where, oh, where is our access point to drive this message home before people create these spending habits?

aml said...

OK. So if tuition is out of range, is it better to put our kids in public school? What's the answer here? DH and I have had lots of conversations about this. We would be willing to try out a system like Ben Gamala (the Hebrew Charter School in Florida) and a serious after school program. But there are no serious after school programs and the school system where we live is less than 1% Jewish.

Do we skip day school, put them in public school and do our best to teach them the Jewish aspects of our lives? I have non-Orthodox friends who are seriously Jewish and have tried this but failed miserably.

SephardiLady said...

aml-(crying) I don't know these answers. I really don't. $115K isn't a bad income. The spending isn't out of control. The money simply won't be there if this family gets hit with $20-$24,000 in tuition bills.

More could be done to get couples (and singles) off on the right food. But at a certain point there is no a whole lot a family can do except turn to their own parents, who likely are strapped too or likely couples such as this one wouldn't have student loans, or not avail themselves of a day school education, which is also sad.

Wish I had answers.

Dave said...

Short term, the cleaning help is a "want", not a "need".

The adults can either put in the extra work, or live with a messy house.

But when you are spending more than you are taking in, and have no money being put aside for savings, you need to cut wants.

The land line also, is a want. With the money being spent on the two cell phones, there isn't any need to pay for a third line.

Finally, we don't know where this couple are in their salary curve. Is there income flat, keeping up with inflation, or rising in real terms. All of this determines how they should be budgeting.

rachel in israel said...

SL and aml; an alternative is making aliyah. Yeah, I know it isn't for everyone, and some people wouldn't make it. But public school isn't for everyone either. If people are reaching the point to seriously consider public school, then also consider aliyah before that. It will not solve your life problems and someone who can't budget won't make it here either. But it will really help with the tuition/public school issues.

thegameiam said...

In my area, $15K is a typical annual tuition rate. What I haven't figured out is this: why don't two or three families of similarly-aged children get together and hire a single full time teacher (or a pair of half-time ones)? It would certainly be cheaper, and the children would get a lot more individual attention.

Ezzie said...

What Game I Am said. I've long thought about this, especially when one thinks about the incredible amount of quality young teachers that are looking for positions. This is especially true for younger kids.

As noted previously I don't think $125 is outrageous for two cell phone bills when one factors in taxes et al. My wife and I pay about $130 on our two cells including taxes/fees. This includes 450 minutes each + unlimited text + insurance on her phone (she is an independent contractor, has a small tichel business, and does a few other small things on the side; I am often making longer calls in the search for better jobs, phone interviews, etc.).

Anonymous said...

younger families really cannot keep asking parents for money to pay for their lives. people are outliving their money, and more and more 85 to 90 year olds and older need to be cared for as well with very little left in their bank books.

ProfK said...

Re the land line phone in the house, if the day care takes place in the home then the land line is a necessity, not a luxury. Don't assume the sitter has a cell phone to use for emergencies that might arise. And as the kids grow older they, too, are going to be using a phone to call friends on. Are we going to add in cell phones for them too? Or would a land line make more sense?

No amount of nickle and diming of this couple's budget will get them to the point of affording tuition as tuition is presently structured. As others have pointed out, there are items already missing from the budget without counting tuition. The question will be will a yeshiva be willing to take only what was alloted for day care as their tuition payment, and I don't see that happening.

Dave in DC said...

Hey Game - good to see you on the board ;)

thegameiam said... Why don't two or three families of similarly-aged children get together and hire a single full time teacher (or a pair of half-time ones)?

A simple solution... but not feasible - a few points.

- A qualified, talented teacher cost much more than $45K. (Remember it costs much more to hire someone than their salary when you pay taxes and provide benefits.)
- Most families want more from a school than one teacher can provide. Math, science, reading, writing, Hebrew, Torah, davening, music, art, gym, chagim, computers --- all in one package? If that person exists, I guarantee a school has already scooped them up.
- Good teachers want colleagues, mentors, mentees, opportunities for growth, training, time to prep their classes and competent administrators to take care of all the logistics. They also want greater job security than a class of 3 kids can provide.
- Kids benefit from larger social groupings and from experiencing different teaching styles.
- Most parents aren't qualified to provide curricular oversight, evaluation, or direction to a teacher to know if their kid is getting everything they need.
- This is not a scalable solution... we as a community need schools as an institution. Opting out doesn't solve the communal issue.

I could go on, though you probably get my drift by now... Keep the creative ideas coming!

Dave said...

If the need is for a phone to contact the parents in emergencies, rather than spending monthly for a land line, buy a disposable cell phone with a limited number of minutes.

Yes, they may revisit this decision as the children grow older.

Yes, this isn't enough to cover the cost of day school.

But they are already spending more than they are making, with no safety net. They need to cut costs now.

aml said...

I think if we're looking at this one case study, we can all pick out places where these folks can cut. But there is a much, much larger problem that is being ignored and its a problem that no one seems to be dealing with (except us on this blog) and that is how are just regular ol' middle class folk supposed to send their kids to day school? The system is folding in on itself and its happening slowely enough that its easy to ignore. Day schools cannot survive and function properly with the majority of students on aid. Families cannot afford the schools in the first place but we all line up to get our kids registered believing (knowing?) there is not suitable alternative (except for perhaps aliyah).

Dave said...


The system is going to collapse. I don't see any way that that isn't going to happen.

The only question now is what the collateral damage is going to be, and what the next step is.

ProfK said...

I can guess where some of that "damage" is going to be. The school day will get shorter again. Sunday classes will have to be eliminated. School lunches will once again be brought from home. Small yeshivas, which still attempt to give "big yeshiva" education will fall by the wayside or they will have to be aggregated together into mega yeshivas. Parents will demand more oversight in yeshiva finances. Teacher's salaries, already paltry by comparison to the public school salaries, will drop even further. Only those who are "idealists" or who have less training and qualifications will be teaching. Parents will also have to expect that any "frills" will be eliminated and will need to be provided by the parents if they so choose when they have to pay for it. And yes, kollel couples will have some really hard choices to make when they can't claim poverty any longer and send their kids on full scholarship. And for some people afternoon cheder will make a reappearance as parents opt for public school in the a.m. and limudei kodesh studies as an afterschool program.

JS said...

I'm convinced the high tuition prices are to extract as much money as possible from those capable of paying it (or incapable but finding the money through borrowing against the house or relatives). Those capable would be unwilling to give tzedaka or extra to the schools. They'd more likely give it to other charities in Israel or America.

For those that can't pay, the high amount doesn't matter. They can't pay $5000 a child let alone $15000 a child. These people will be on aid regardless and asked to pay a minimal amount.

So, the high tuitions are just a way of forcing the subsidizing of those on aid - because if those paying full tuition (even a lower full tuition) were asked directly to contribute another few thousand dollars to help out others most would say absolutely not, I'll give tzedaka to those I feel like and I'd rather give it to feed and shelter homseless Jews (for example).

Dave said...


That would work, now.

But I don't think the changes will happen now. I think the changes will happen only after things fail catastrophically.

And that means a lot more people bankrupt, foreclosed on, businesses destroyed and so on.

And I fully expect to see a front page story on "families that avoid work so they can live on Welfare, but vote Republican" one of these days.