Saturday, August 29, 2009

How Do You Mentally Prepare For 4 Weeks Without A Paycheck

--Due to taking four weeks of family leave this issue is upon us.

Prepare ahead of time
1) Take the rest of the paychecks and make up the difference. For example $26,000 per year becomes $24,000 per year. During the weeks without a paycheck you need to draw from previous paychecks. If you normally live on $500 per week you need to live on less, approximately 7 or 8% less. For every thousand dollars you make you need to save $80 or 8%.
2) Assuming you do not know ahead of time regarding the non paid leave or you are not prepared you need to draw from a separate source of funds. You need to repay that source within a set amount of time. Use the money to pay expenses. Return a set amount each paycheck to the borrowed upon source. This method would work best if you have some type of savings or emergency fund. A key is to pay back the source so your source of extra funds is not depleted next time you need to use the funds.

Cut down on expenses.
If you need to fund certain weeks with other weeks paychecks try to cut down expenses. Do you regularly donate to charities? Obviously you can't contribute without the necessary funds. But if the transfers and payments are automatic withdrawals you need to consider changing these before the transfers and withdrawals are set up for payment.
In our case this would mean revisiting saving accounts and retirement account transfers. In addition, charities and church donations need to be evaluated. Due to our family leave situation, we would not want to make any or as large a donation or transfer in the weeks where the paychecks were not present.
Now that a few weeks of no paychecks is looming upon us the time to prepare ahead of time is past.
We decided to take the unique opportunity of having both parents at home while caring for our newborn twins and their three siblings.

Financial Makeover

It is always good to revisit your finances when changes in your life occur. In our case, we need to adjust for additions to the family, paycheck changes and school tuition increases.

Snowball Payments
Recently we bought a new house and set up snowball payments. Should these weekly payments be stopped because of a lack of paycheck? This dilemma is greater because this will affect when our home is paid off. My gut reaction is to definitely make the snowball payments because more interest accrues without the payments being made. Snowball payments are certainly voluntary but they are a form of debt reduction and still considered important to pay on a regular basis to pay off our house early.

Church Donations
If we regularly contribute a portion of our income (ex. 10%) to our church; what should we do during the weeks without a paycheck? Do we not make payments at all or do we reduce our payments by a percentage because our total income for the year has decreased? Our options are
A) No payments for 4 weeks
B) Reduced payments for the rest of the year
C) Combination of A and B

My instincts say that B is the best option. This way the church maintains a steady stream of income and there are no additional decisions to make such as when to start making the payments again.

Savings Transfers
We make 2 savings transfers each week. $40 for a savings account and $120 for future tuition payments, pool membership and funding a retirement account. Since the bills are going to be the same (no reduction); these transfers need to remain the same. The $120 amount needs to be revisited because this weekly amount was based on a lower tuition amount. Now we need to adjust the amount based on the higher tuition rates and based on additional students in school.

As we go further into this discussion, another item comes to mind. The reality of the downturn of the economy is that everything cost more. Many of us have broken the rule of spending less than we make. During this overall financial transformation we need to keep in mind that for the last year we have been regularly supplementing our income with our savings. Rather than waiting for the breaking point, lets prepare now for the ultimate goal.
Spend less than we make ALWAYS!


A couple years back, Americans were afraid to open their retirement savings statements for fear of knowing how much they lost. Was that true? Wouldn't you want to know if your statement said zero? Is now the time to revisit those statements and try to pick up the pieces? Many people reported that their retirement accounts were not as much as they anticipated and they would need to work for a longer amount of time.
How can we learn from the turmoil of the last few years? Are we ready for more risky investments or should we stay with small but practically guaranteed returns? Should we continue to be risk averse?
Normally it is a good time to buy when markets are down if there is going to be an upswing in the near future. Has the economy rebounded enough to start investing again?

Monday, August 24, 2009

Brother John

Are you sleeping, are you sleeping
Brother John? Brother John?
Morning bells are ringing, morning bells are ringing
Ding, dong, ding. Ding, dong, ding!

We all love baby, yes we do. Yes we do.
We all love baby, yes we do. Yes we do.
Baby is going to sleep now.
Baby is going to sleep now.
His belly's full. His belly's full.
His diaper's clean. His diaper's clean.