small change toward a rich life

Less income, more savings

Yesterday I promised to give an update on our personal financial situation and how it’s changed over the last half-year.

In November I wrote that we were down to a quarter of our prior income, as Jak’s employer had cut his hours by half just as I’d been summarily dismissed from my full-time job.

I am happy to report that this situation didn’t last long. After just a few weeks Jak was able to ramp back up to 30 hours, and eventually took over a project for a coworker on maternity leave that brought him back to 40 per week. On the down side, Microsoft cut their vendors’ rates by 10% across the board, so Jak got an anti-raise. (What is that, a ‘fall’?)

For my part, I put together a portfolio and spent several months applying for jobs. After the first few weeks, during which I covered the existing backlog, it became apparent that there were hardly any full-time salaried positions available in my field, for people of my skill level. I kept seeing the same dozen or so postings over and over again, and couldn’t break through on any of them.

I had a little more luck on the freelance side. The first big project I got was both exciting and potentially lucrative. Sadly it fizzled very early due to an unexpected change in the client’s circumstance — but at least they did pay me for the work I’d done so far. Then in February I answered a craigslist ad and landed another gig. The down side is a lower hourly rate than I’m accustomed to for freelance, but on the other hand it’s been steady at around 20 hours a week for four months now, and the client pays promptly.

The end of 2008 was cushioned by vacation payout from my ex-job, which carried us through November. December was bleak. But since the first of the year I’d estimate we’re pulling perhaps 60-65% of mid-2008 net income, which is a lot better than the 25% we feared. (Part of this is because I’ve dropped an entire tax bracket, so that even though my gross is much lower and I owe self-employment tax, my net income has fallen less than you might expect.)

On the spending side, we made some large changes. All major house-improvement projects came to a sudden standstill. Vacation plans for 2009 were abandoned. We slashed our Christmas and birthday gift spending to the bone.

Then we pared back the smaller, frequent things. As luxuries go, my biggest weakness has always been restaurant food (and drinks), which typically cost $80-100 per dinner for the pair of us. We cut that indulgence to 1-2 times per month, down from around twice a week while we were both working. I also severely reduced our alcohol purchase and consumption at home. We agreed not to buy any books, music, or movies, making do with the public library and Netflix. Clothes purchases are limited to absolute essentials (mainly replacement underwear).

We’ve had some windfall income from non-work sources. Between the two of us, we received $4800 in federal tax refunds — possibly the only perk to having a lower-than-expected income for 2008. I also sold some reprint rights to my “How to Toilet Train Your Cat” article for an extra $1700. And finally, we’ve gotten a few hundred dollars from online advertising and interest on our savings.

I’ve been able to sock away all of those windfalls, and a bit more besides. Altogether, over seven months, I’ve managed to grow our savings from $30K to $40K, despite our slashed income. In addition, I put an extra $2K this month toward the principal on our second mortgage.

The two mortgages are our only debt, but they’re still crushingly huge. I’ll talk more about that in another post. Otherwise we’re doing quite well, considering. I’m proud of our restraint — I think we’ve done a great job of ‘tightening our belts’ without overreacting and denying ourselves absolutely everything. Swing that pendulum too far and you grow bitter and depressed.

I have no idea how much longer this economic trough will last, but if this is as bad as it gets for us personally I will be ecstatic. Onward!

(Photo by alancleaver_2000.)

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