Why Most Budgets Do Not Work!
The Budget Killer!
I think most of the budget plans started by people with (or even without) fixed incomes are like all the wishful diet plans out there that get a great start but end up failing to endure the realities of life. It takes a lot of discipline learning to live within one’s means. The desire for extra belongings and go-to events trash a newly installed budget before lifestyle changes take root. Overspending seems to be the norm for most households and extra funds (can you say S-A-V-I-N-G-S) are needed when regular income falls short.
Enter the budget killer: C-R-E-D-I-T! We all know the scenario. We don’t make enough money to live the lifestyle desired and extend ourselves beyond the paycheck. Plastic cards, home equity loans, pawn shops, you name it: “They send a budget out the window and debt takes over your life”. It’s like being an alcoholic, the more you get, the more you want. It starts out small, but you get used to it.
If you keep up your debt-reduction monthly payments, your credit score improves. You show favored status on your credit report. More credit offers come your way and now you have new opportunities to buy more stuff without laying out cold hard cash. Having any type of budget is thrown out the window. Your Budget is DEAD! RIP!
Looking Back At A Financial Crisis?
I spent most of my professional life as a general contractor. One thing I learned was that it takes a lot of finances to run a business like that. Not much is left after business expenses when you take out wages for yourself or just pay household bills with what is leftover. Credit cards start getting maxed out with the misguided concept of wishful thinking: “I will pay the debt down with the profits from my next job”.
When I got deposits for new jobs, I skimmed the cream off the top. I took some of the money immediately for myself. Since there was no leeway for a defined salary, no budget was laid out to control spending. I just wrangled my way towards the next “draw” against monies owed to cover completed work.
To help my cash flow situation further, I did something I now regret. I legally minimized payouts to my Social Security account. My budget needed help because I was in the hole with the IRS to the tune of $57,000, with a corresponding lien placed by them on me and my house. It was then necessary to seek professional help.
I located a Certified Public Accountant to help me organize my business in such a way as to allow me (with the approval of the IRS) to opt out of the yearly stipend of monies paid towards my retirement allotment with the government.
Over 70% of my federal tax payments were previously diverted towards Social Security. I could not continue in business paying that, after workman’s comp, liability insurance, and other major expenses. So my accountant made a request to the feds that I be taxed as an S corporation, even though I was structured as an LLC. The government allowed me to opt out of those SS payments and so I did not figure to collect much when I retired.
My temporary “budget saving” ploy became a severe threat to my planning for said retirement. My lack of foresight evolved slowly into a pending disaster that I could not overlook. Long term investments were not favorable and savings were nil. Credit became a way of life for me.
Can You Find A Silver Lining?
Eventually, I had to sell my house in south Florida after moving to New Orleans for reconstructing homes damaged by Hurricane Katrina. Unfortunately, the sale took place during the height of the real estate crisis and my potential profits were cut in half. Still, I was able to pull enough money out to pay off the IRS liens against me. However, there was no money left when the deal was done. No chance to start a budget here!
But something happened when I settled with the Feds! That big payment I had to make to have the liens removed off of me, actually was a “positive” event. It bumped up my future Social Security benefits. This eventually turned out to be an unforeseen blessing. I wasn’t planning to depend on those particular funds because I was geared more for making my business investments fund my retirement. That was another budget planning flop!
What did work out for my pathetic situation was that a large chunk of that money had been added to my SS account. I now was in line to get a halfway decent monthly payout, but I did not realize it until I received an updated benefits report. I just had to wait until the age of full retirement to get the maximum payout. So as I passed the age of 60, I began to monitor my periodic statements from the Federal Government. And I also started to do some alternative planning for how and when to collect those funds.
NOTEWORTHY: It pays to do early research when learning about Social Security Benefits. I later found out that I could have filed when I turned 62 and then suspended payments until a later date. Since my wife filed when she turned 62, I could have requested a “Spousal Benefit” under her plan, and collected a partial payout for myself. That payment would then be cancelled when I opted back into my full retirement benefits. Very few people know this and it is not broadcast upfront by the administration .
What! No Medical Insurance?
One thing that destroys a budget is the payment of medical insurance out-of-pocket. Premiums are sky-high enough when you are raising a family. As you get older, the costs require a payee to have a very high income to make those premiums. And those premiums begin to look like a mortgage payment.
More and more employers are opting out of coverage plans for their workers and you are then on your own. We benefited from the plans provided by various government entities my wife worked for, but it was not consistent.
My business did not generate enough profits to cover that expense. I had to pay for minor injuries to my employees from my own funds to keep workman’s comp rates from going up.
Beyond Medicare (which I will discuss later), I don’t have an answer for this budget nightmare. I would entertain some feedback on this subject in the future if any readers have some answers.
Can I Beat This Failure To Create A Budget?
What if you had to live within your means. You finally discover that large amounts of debt are suffocating. Your regular bills are so high that there is not enough left to try to pay off those budget killers. Or, even without excessive debt, can you get your necessary expenses in line with your inflow of cash?
I had previously settled all my debt problems before retirement. Yet, to be able to live on Social Security, I was going to have to survive a budget crushing scenario. I was dealing with the expenses that were part of my professional working life. Continuance would put me way above the restricted income I was going to receive. I now had to cut back on things like eating out, vehicle maintenance, vacations, and desirable household repairs.
As I thought back, I did not think then that there would be restrictions like I am facing now. I originally planned to use my retirement benefits as savings while continuing to work in a reduced capacity. But problems with my legs (now being affected by an airplane crash when I was young) finally forced me to face reality and enter full senior citizen status. I had to find a way to reduce expenses so that my small savings account would not get depleted.
Since I was still working my business, I decided to file at the age of 69 and put the monthly benefits into a savings account so I could use the funds to buy a house. This cost me a little per month in long-term benefits, but it turned out to be a great decision.
My first goal was to find a house that had payments well below area rental rates. A $1,200. to $1,500. payment to a landlord would not even begin to fit into my budget. My next goal was to fit utility bills, equipment storage fees, vehicle insurance, fuel costs, and minor expenses into the framework of my upcoming monthly stipend. I was beginning to see why my planned budget was not going to work. Something had to be done. A little bit of luck and hocus-pocus perhaps?
If you are retired and living month to month on limited funds, than I hope this series of interactive dialogs will help. How we all handle our budgets determines whether or not we will keep solvent. My next article in this series deals with the details of what I went through with vehicle insurance and hopefully shows what is possible in your own planning to make it all work out.