Budgeting Primer: With the Savings, You Can Pay for the Next (Used) Car in Cash

There is a new blog on the blog, and one I'm watching with interested. Struggling Who is attempting to make the case for the so-called "strugglers" after another blogger made quite a splash making a case for the "Chumps."

Quite frankly, I have no interest in class warfare, even though it seems to be the hot topic of the week. What I do have an interest is seeing people prosper! Struggling Who comments, in regards to tuition discounts, states the schools tell us [those on discount] what to pay and what is left is for extra. Personally, I'd like to see the "extra" used to get ahead. Unfortunately, it seems that the "extra" is all too often used to fund increased consumption.

To make a case for the Strugglers, Struggling Who posts Yoni's budget. He doesn't want readers to pick it apart line by line, but it is really hard to ignore a budget of $6,900 that includes too much house ($2,761 mortgage payment, 40% of take home pay, granted that is after salary cuts), too much car ($625 in monthly payments bringing payments to 50% of take home pay) and too much food ($1,050 for food, including Shabbat).

I have consistently found that the difference between those who prosper and those who struggle has less to do with income, and more to do with spending habits. It breaks my heart to see families that could be comfortable or even prospering, struggling because they didn't get ahead when they could have. Let me demonstrate by using Yoni's own budget.

Yoni spends $1050 on food per month for a household of 5, including 2 school aged children and a pre-schooler (my assessment from the description). Anyway you cut it, $1050 is a lot of money to spend on food. Let's say that Yoni decides to really attack this line item of the budget and through a combination of different eating and shopping habits, lower the food line item to a still generous $650.

For the next 3 years, the $400 difference is locked into a savings account called "car." In three years, Yoni will have $14,400, a rather generous amount, which he can now turn around and spend on a quality (used) van, eliminating another massive line item, the $625 in lease and car payments (presumably the car payments will be complete, or almost complete in 3 years and the now owned car will be ready to drive into the ground).

Should Yoni continue to manage the grocery budget ($400) and eliminate the car payments ($625), there is now over $1000 extra to work with.

Now, Yoni and others like Yoni are fighting an uphill battle as school aged children are already in the picture and it still remains a mystery to me how scholarship committees come to a decision as to how tuition is charged. But, those who are starting out should take note. Controlling costs, even without high salaries, can and will result in real savings. Savings work for you. Debt works against you.

Orthonomic Poppouri

More Fundraising
YWN reports that the Chinuch Atzmai system in Eretz Yisrael is broke. Per protocol, rabbis flew from Israel to Lakewood to draw attention to the urgent situation and an asifa was held in Lakewood. The solution (drum roll please) more fundraising. The address where you can send donations is at YWN.

This article has made HonestlyFrum scream dayenu! He writes at YWN:

"Where do they expect the money to come from? We are going broke trying to send our own kids to Yeshiva. The unfortunate reality is that in these tough times after we finish paying our own bills and tuition (those who pay some or all) there is no money left."

And on his own blog:

"The schools cannot, and have not been able to for a while, sustain themselves without looking outside for funding sources. The problem is all those sources are currently, and for the foreseeable future, dried up. Both the MO and charedi system need to be revamped and overhauled, and they need to be done together without senseless bickering about hashkafah. The current model needs to be broken down and in its place something different and better needs to be built. It's time that our community left its comfort zone and began radically rethinking the model of Jewish Education. "

I find it ironic that the meeting was held in Lakewood, the city that saw their own teachers go on strike due to non-payment only 2 months ago. Perhaps they found a hoard of money somewhere and can now go on to not only support education in their own city, but education in Eretz Yisrael?

I don't want to be rude, but it seems that leadership is not in touch with the plight of the average American tuition paying parent.

Speaking of appeals, yet another (very needed) appeal.
YWN is reporting that this Shabbat all Young Israel, Orthodox Union and Agudah affiliated synagogues will be making an "Emergency Parnasa Appeal." The press release reports the growing unemployment rates in cities such as Passaic and Brooklyn and the growing pressure on Tomchei Shabbos in Lakewood. It appears that funds will be designated to the same community as the donor. Monsey, Flatbush, and Boro Park have dollar-to-dollar matching funds available.

Bizarre economics are not surprisingly alive and well amongst YWN commentors. One commentor appeals to readers to keep making lavish simchas and keep shopping (by frum vendors). Another commentor believes we need to open our pockets more and shop at frum businesses so that they can hire more frum people. Another commentor yells "We must buy everything we can from [J]ews. This will help their family stay above the line, and then they will pass it on to another [J]ew."

In my (hopefully more educated opinion) the economic problems the frum community is experiencing are related to a low (perhaps negative) savings rate, high consumption lifestyle, and too much dependency on the frum community. Yes, we should patronize Jewish businesses, certainly where the halacha requires such. But, what is very needed is OUTSIDE money coming in. Jewish business owners need to be seeking a larger client base that is not solely or even heavily dependent on the community at large. Cutting back is going to become a way of life out of necessity, like it or not. It is sink or swim time and business owners are going to need to find ways to diversify their client base so that you are not dependent on one particular type of client.

The latter commentor also tells business owners they need to hire Jews, even if you have to pay a higher rate. Perhaps this commentor isn't familiar with just how thin the profit margin is in business? I'm an accountant and will tell you that 1) hiring employees is very costly and 2) profit margins are thin and there often isn't much breathing room to start throwing more money at one employee over another, to say nothing of the potential legal liability. And, no, not *every* dollar you spend in a Jewish business will land in Jewish hands.

Sadly, we learn that a man who operated a 'free' grocery store in Brooklyn can no longer continue doing so as his rainy day has sadly come, may he have a refuah sheleima.

What is the State of the Union?
Meanwhile, Ezzie has put together a Jewish Economics survey. I'm not sure what he will do with it. But the survey is fairly comprehensive and I'm hoping Ezzie will send the date to the OU, the Agudah, Young Israel, and some day schools and yeshivot so that they understand the few are holding out, but rather trying to hold on (as I believe is the general case).

And speaking of dependency
Kiryas Joel is the most dependent locale in the United States. Yeah, not a badge of honor and certainly not good news as the American taxpayer gets increasingly tired of bloated social services budgets while their own kids are seeing classroom sizes increase, etc.

But Speaking of Badges of Honor. . . I'll Wear This One
Meanwhile, frequent commentor Ariella of Kallah Magazine kindly pointed an imamother poster to the Guest Post on a $3000 Brooklyn wedding. The poster writes that she and her husband both work, but between living costs and tuitions they have "NO" money to make a wedding. She states they have a large family and there is no way to make a small wedding (how can she not invite 1st cousins?) and is therefore looking to "find help in paying/arranging this wedding"

The ideas of the Guest Poster were dismissed out of hand by another poster who writes:

"as for the orthonomics post - half of the things she mentioned we dont even do (wedding cake, wedding favors, fancy kesubah) and half the things are not shayich (not everyone has a brogther who can videotape the wedding, a rabbi isnt an expense - anyone is siddur kidushin, you just tip them - , we dont do a bar, the badeken chair comes as part of the wedding hall package, inviting 100 people isnt shayich as our family is bigger than that), and there's a lot more to making a chasuneh other than the wedding itself - the gifts, theh furniture, the trousseau... "

I will tell you what isn't "shayich" having NO savings, especially in a down economy! The poster reports were daughter only wants the parents make a wedding, which is good, because quite frankly anything more for a large family living paycheck to paycheck that will likely be repeating this process in the not so far off future would be ridiculous.

Not that anyone is listening (the advice at this blog isn't "shayich"), but here is my advice. It is good advice for anyone lacking savings or in debt that senses the urgency of building an emergency fund and/or getting out of debt:

• Go on a complete spending freeze and place all saved funds into a separate, interest bearing account. Unless you absolutely need something, and by that I mean every pair of shoes in your closet has a hole through to the foot, don't buy it.
• Get rid of services you can do without from now until the wedding. Bake don't buy; clean don't outsource; and day camp is a clear winner over overnight camp. Should either parent be off in the summer-the kids stay home unless they are working.
• For everything else that you do need (food, utilities, etc), declare a 20% budget cut. Heat gets turned down; showers get taken in 5 minutes; laundry gets hung up to dry; coupons get cut; if someone can walk to do/get something, they walk; beans, rice, and vegetable soups become dinner staples.
• Negotiate, negotiate, negotiate. Will the caterer come down on the price? Would he come down on the price if you skip the salad course? Is a sheet cake less expensive than a plated dessert? (I know, I know, it's not "shayich).
• Decide what your top priority is vis a vis the wedding, and put every other want on the back burner until you have covered the cost for the biggest desire. E.g., if you want to feed 200, don't even think about renting dresses for all the sisters from a gemach when the dry cleaning bill will run the cost of 10 meals. Shabbat outfits will do. My readers tell me using a gemach can be expensive, so you need to be careful.

Hoarding Money

I haven't written about the Madoff scandal because I don't have anything to add that had not been editorialized, and also the story leaves me with tremendous sadness that I can't express well in writing.

However, I do want to discuss an attitude I have seen in many Orthodox blogs regarding the principal (and all of its future proceeds) that is lost forever. At the outset, I will just say that the lack of rachmanut/compassion is tremendously disheartening. The lack of respect for someone else's losses is quite astounding.

This letter to the editor in the Jewish Press expresses many of the opinions I've seen in the past month: the opinion that no person or organization should "hoard" money. Many commentors seem to take offense that not every penny is immediately given away. The choice of the word "hoard" is quite interesting because of it's definitively negative connotation. Halacha defines how much a person should give and keep of their own funds, and at least my own study of halachot on tzedakah and ma'aser seems to indicate that a person *should* have savings, and that lack of funds exempts one from optimal fulfillment of the mitzvot surrounding ma'aser. The halacha also does not require the wealthy to give it all away, although they are likely subject to a higher tzedakah requirement.

I have seen halachic sources throughout the years that endorse having an "emergency fund," and define one without liquid assets as "poor." Personal finance experts recommend having an emergency fund of 3 to 12 months of expenses on hand, depending on the vulnerability of one's employment situation. A person with larger obligations and responsibilities (perhaps a business owner with employees), will need a much larger emergency fund if he/she doesn't want to put their business at risk during economic downturns or make severe cuts in staff through unexpected layoffs.

Let's all take a deep collective breath and meditate on the latest goings-on ("Madoff Scandal Rocks Jewish Philanthropic world," news story, Dec. 19). The lives of the billionaires who've lost a couple million won't change much. As for the rest of us poor slobs who have taken to lowering the thermostat's temperature indoors due to the high cost of heating and today's precarious economic times, or who are wondering for the umpteenth time this year how our next month's mortgage payment will be met, we could sure do with some of that pocket change.

The language expressed also is that of envy and class warfare, an "us vs. them" mentality. Those millionaires and billionaires were not born as such. In fact, given their ages, many of them lived through The Great Depression. They worked hard, they took risks, and, yes, they probably turned down their thermostats to get themselves started in business. And while they were in business, they probably continued to scrimp and save to ensure that their businesses have two legs to stand on because the larger their businesses became, the more they needed to "hoard" because their obligations and responsibilities became larger. Their risk taking in starting businesses, their investments, their charitable giving, their tax paying, and even their spending have 'created' thousands on jobs. Perhaps some of us can credit a current or past job or client, directly or indirectly, to someone with wealth.

Truth be told, some of us are finding it difficult to muster much sympathy for the synagogues, organizations and institutions that decry their tens and hundreds of millions that have been sucked up in a whirlpool of fraud. Perhaps it is because of the ordinary folks we are personally acquainted with - like the ones who are spending sleepless nights over their children's school tuition that's been in arrears for too long now; or who are weighed down by the expense of an upcoming child's wedding that is an onerous burden to bear, to say the least; or who were recently laid off due to the sluggish economy and are now left wondering how long they have before their meager savings are depleted.

Passive income is the secret to a healthy budget, and perhaps the secret to getting a good night's rest. A budget that does not completely depend on what might come in tomorrow to pay yesterday's bills is a healthy budget. I don't want to see any one's "meager savings depleted" because what comes next is the exercise that too many Orthodox institutions, businesses, and families do every month. That exercise: let's decide who gets paid and who doesn't. Those who "hoarded" some funds along the way, don't have to do this dance month after month and can weather a down economy, at least for the short term.

I wish more "ordinary folks" had a little something "hoarded" in the bank so that they could get a better night's sleep.

So while all the big losers cry foul and shout "ganif!" at Bernie Madoff, forgive me for asking, "Why did you hoard that stash? Couldn't you have at least invested it in any number of free loan institutions that help alleviate the monetary hardships of the many needy among us?"

The answer, of course, is greed - and, ironically, investors are now mad at Madoff for his greed.

The investors with Madoff are reported to be generous donors. Many of the investors carefully set up foundations funded with the "[hoarded] stash" so that the money could continue to provide dividends for many generations to come. Perhaps their causes were not her causes (or my causes), but making sure that your tzedakah funds will continue to give many times over, certainly isn't my definition of "greed."

I too find it hard to relate to a multi-millionaire who has lost a sliver of their wealth (although there were also reports of individuals and families who really did loose everything and must start from scratch). But, the budget struggles in the frum community are not the fault of these wealthy individuals either and it is a low blow to suggest such.

The letter writer would do far better learning about how "The Millionaire Next Door" lives his/her life rather than stewing in anger that the wealthy are not doing enough for "us." If you want to sleep like a millionaire (even a millionaire who took a hit, as has everyone with nearly any investment aside from Walmart stock has), chances are the answer isn't buying a better mattress, but hoarding saving a little money.

Note: the book I link to above is an excellent read and worthy of a book review sometime in the future.