Since the beginning of 2017, we have been living paycheck to paycheck. The other night, Mrs. MilitaryFIRE asked how much we were making after each paycheck. “Zero,” I said, “we’re essentially broke.” We started the year with our checking account below its normal level due to some 2016 year-end IRA contributions and we haven’t been able to bring it up yet. A higher than normal heating oil bill set us back even further this month.
It’s a tough situation to contemplate, but for the first time since my FIRE conversion I’ve come close to tapping into our emergency funds to make the next few months easier. I feel very blessed to have the ultra-stable income of a military service member, which at least give us the comfort of knowing there is another paycheck coming. This experience has been similar to when I took Financial Samurai’s challenge to drive an Uber- it reminded me how much hustling people have to do outside our profession.
Our paycheck to paycheck situation has been self inflicted.
In December we set up our savings and debt pay-down goals in a way which would maximize our debt pay-down, allow us to invest for retirement, and drive our tax rate to zero. We planned on maxing out my TSP before November, contributing to Mrs. MF’s 403(b) and capturing her company match until she has the baby, and even converting some money to a Roth IRA while our tax rate is low. Because the weighted average interest rate of our debt has fallen below 4%, we are no longer putting every penny towards it, which has extended our debt pay-down schedule. However, we are still crushing our debt.
What I had not planned for was the lack of wiggle room our 2017 plan would leave us. It has been a test of my attitudes towards a frugal lifestyle. Several things have made this test easier:
We have an established emergency fund:
Thanks to our reliable paycheck we don’t have to worry about cash flow, but we still keep a chunk of cash in the bank. This fund allows us to keep an even lower amount in our checking account, usually just enough to write a rent check at the end of the month plus any recurring payments- for example, utilities. Because we have the cash-flow and can use credit cards to cover any unexpected expenses until the next paycheck, we only have about 1.25X monthly expenses in our “emergency” account. We have never touched this fund.
We meticulously track our expenses:
The only way to be comfortable maximizing our money is to know exactly how much we need each month. While I use Personal Capital to track our net worth and investments for free (and if you have $100,000 of investable assets you really need to check out their investment fee analyzer), I use a homegrown excel spreadsheet to calculate our spending and predict our money needs for the month. I’ve planned our money in minus money out (spending, saving, tax, debt) to pretty much equal zero each month. It’s been a scary ride so far.
We have Health Insurance through Tricare and its equivalent, US Family Health, and Life Insurance through SGLI. We have a small amount of Rental and Valuable property insurance, but mostly self-insure our personal belongings. Our car insurance includes both comprehensive and collision coverage at a relatively high level. We lower the cost by having a $1000 deductible, which is high. In sum, we are insured against a catastrophic loss but self-insure against minor incidences. For a long time, we were way over-insured. Since we don’t have a lot of new, valuable products lying around, a lot of insurance was wasteful. We were paying hundreds of dollars a month to protect against the eventuality that something would be broken or stolen. Because our stuff is old (thanks, frugality!) insurance probably would have only covered a small portion of the original value. Ditto for our cars. As they get older we carry less insurance.
We have talked about our goals and plans as a couple. It is important to us to buy our freedom. We are willing to sacrifice convinces and luxuries now to ensure our financial security, now and in the future. Without a united front to be frugal and have a high savings rate, I wouldn’t feel this good about being “broke.”
As disconcerting as it is to live right on the edge of our self-imposed money minimums, so far this year I’ve been happy that we haven’t been tempted to increase our spending at the expense of reduced savings. It would be so easy to justify, especially with a baby on the way. But we are staying the course with the knowledge that our plan will bear fruit in the future.
As I said to Mrs. MilitaryFire when she asked how much we were making each month, every new paycheck shouldn’t indicate an increase in buying power. Instead, each paycheck should be another rung on the ladder to financial independence. If you know your expenses and plan on maximizing your money, each new paycheck should be automatically (and satisfyingly) slammed into your debt, crammed into tax-advantaged retirement accounts, put to work generating other income, and finally, spent.
*I realize this post comes from a place of incredible privilege, but I thought it was worthwhile to explain how we handle our money.