Favorite Good Cause

In the budgeting post I said that there were a few important things I would come back to later. So here we are!

• Variance analysis
• Annual expenses
• Seasonal variation
• SURPRISES!

Well dear friends, I’m seeing some traffic on this site. I’m not sure where it’s coming from, but I thank you for being here. The blog is new, but the long gap between posts was while I was away at a conference presenting my research project. Still trying to cure blindness. Still have an eye on the cancer connection. Setting my sights on the genetics of premature birth. Biology being what it is, at the molecular level, in a certain sense it’s very much the same thing. I’m interested in the wiring, the infrastructure, the way things talk to each other.

The conference went very well and work is more exciting than ever. We’re writing a new grant, the proof of principle on one project is looking very good, and new data on another project is hinting that answers may be closer than expected. It’s a golden time.

Ahh, things are almost perfect.

And yet I’m filing this post under catastrophe, as in the financial one that is almost done looming and nearly ready to pounce. Somewhere back in the cash flow section I think I mentioned how they pay me–rarely and not well. I’m counting the days. Forty-nine days until I get paid again. One hundred eighteen days since they paid me last. Ouch.

Science is more or less funded under a patronage model–academic science, that is. The lions share of the money comes from the National Institutes of Health (NIH). Tax dollars very well spent on research that is important to everyone, in my opinion. Thank you for that. These are the grants that keep labs alive, buy supplies and reagents, and pay salaries, such as they are.

We supplement with grants from organizations like the March of Dimes, the American Heart Association, and many others. If you’ve ever done a walk, a bike ride, any kind of fundraiser, a part of the money you earn and donate is used directly to make grants to researchers trying to solve problems. Again, thank you.

The NIH budget is a huge part of the federal budget, and it yields good results. Work is published and shared, both inside and outside the academic community. That is the foundation for a large part of the discoveries that are translated into treatments, usually by industry. I’m sorry they charge so much, I don’t think it’s fair. I’m glad things move forward though. I would like to see more equity and the benefits shared more evenly. It’s a trickle down model of health care and it needs fixing, but I don’t have the answer to that today. I work where I think I can make the most progress, which is in the lab.

Most people don’t realize it, but the NIH budgets have been in bad shape for about four years now. It’s independent of economic cycles for the most part, but heavily linked to federal politics. We’re waiting for a change in administration to see if things will get better. For now, I’m lucky and my lab is in good shape, but one can never take that for granted. It’s odd that medical research seems important to nearly everyone I talk to, but it’s viciously underfunded compared to how important it seems to be. As in any good catastrophe response, most labs have adapted and we just have to ride it out. Research is slower than it was, but fortunately not where I am.

My issues are completely independent of all that, but I just thought I would share the financial model. One reason NIH money is such a great way to spend federal budget dollars is that the return on investment is great. Salaries for graduate students in Manhattan are in the $28,000 per year range. Most of the rest of the country is less, we get a little bit of a cost of living boost. Still. Once I graduate, I can look forward to making $35,000 to $40,000 per year as a post-doctoral fellow for a minimum of three to five years. Sigh. As a parent, I am unusual in that I have student loans too.

As a graduate student, my tuition is covered, which is no small thing, but I can’t work outside. At this point that wouldn’t prohibit me, and I’m going to have to do something, but finding the time to look for jobs as a bartender while pulling fourteen hour days has been a bit prohibitive. I do make a great mojito, though.

I have a million spreadsheets that I’ve used to show myself that I can eventually pay off my loans and become solvent again, and even retire at a reasonable age without resorting to eating pet food. Which, I might note, is not at all cheap anyway. If my plan doesn’t hold up, I can always bail on the idea of doing my own research and go to work in industry, where I think I could be paid a living wage. I wonder often how selfish it is for me to keep pursuing something that is really satisfying to me…at such a cost. Last year I got as far as applying to consulting firms and threatening to call it quits, but among other factors, my kids scolded me into staying, which was the right choice. They have borne most of the sacrifice, so it means a lot to me that they would say that. It’s not only important to me. I’m glad it’s important to them. I got a call in the lab the other day from a man about my age, slowly going blind, asking how the research is going. it’s important to him too.

But please…if I hear one more mainstream conversation with university administrators wringing their hands over why women are underrepresented in the sciences, I’m going to choke. Or choke someone. For smart people, they really are clueless. Just ask, I have the answer to those questions.

The next 49 days are going to be interesting, so if you’re looking for cost cutting measures, look no further, I’ll have plenty to share. I know everyone is hurting right now, hang in there. Batten down the proverbial hatches, the storm will pass. Just be smart in the meantime.

Enjoy the things that are free or already paid for. Pass up the things you can’t afford. Be creative. Be grateful, and don’t sacrifice joy in worrying over things that worry won’t change. Worry over everything else. My motto: Panic early and often. Then go out for a nice run in the sunshine.

I know for some people, one of the big problems of a down economy is where to invest money where it won’t disappear. I’ll have more to say about this later for anyone with that problem, but I just wanted to say that after every burst bubble there seems to be a tendency to look to biotech. I’m waiting for it now. I love to see the investment, but I want the expectations to be realistic. The business models are very different than for other ventures. I think green technology investment is going to be very similar to the biotech model. In short, it’s a horseshoe game, so proceed with caution.

The blockbusters will be enormous, and I promise you there will be some. Most won’t be. Investors look for the next Google, Microsoft, Apple. I’m not sure how Netscape shareholders fared in the long run…or if any stayed in for the long run…but think Netscape. The biotech funding model, from an investor standpoint, looks exactly like the prime time network series business model. If you don’t make syndication, it just doesn’t matter. Yes, I’ve had too many jobs. In short, don’t look for short term returns unless you think you can spot the next Google…and differentiate it from the next AskJeeves.com. I wouldn’t be able to call it, and I’m in the know. Keep in mind, R&D is already priced into the IPO. If you’re not in before that, look way out to the horizon. Also don’t invest in any company that claims they can test your DNA and tell you if you could have been a dancer/painter/olympic curler. Unless you’re betting that the general population is, umm, slightly gullible, in which case go for it…but don’t do it because of the science.

Alright, that’s it for my long rambling words of wisdom for tonight. I have a grant to write.

I am feeling very Buddhist these days…I feel like I’m in the right place doing the right things…I just haven’t figured out how to stay here and keep doing them for much longer. So while I continue coming up with ideas, in the spirit of submitting myself to the will of the universe, I’m going to ask my dear readers and friends to feel free to share the link to this site, and if anything I’m doing is meaningful to you and you would like to support your very own researcher, here’s a way you can do it…

And if you’re just trying to figure out how to make your own ends meet…keep checking back here and let’s see what we can do together.

In the meantime, be well, be good to each other, and remember that money is a means to an end. Do something extraordinary.

 I told you about my plan to attend the Citi annual shareholders
meeting, last Tuesday here in New York. It was all the spectacle I
hoped it would
be and more. I have to say, until two days ago I never, ever
imagined myself attending one of these meetings. It just had never
crossed my mind, and until I moved to Manhattan, most meetings
would never have been within striking distance anyway.

The place was packed. The meeting was in the Grand Ballroom of
the Hilton. When I got off the escalator I realized I was standing
in the same room where the final scene of Michael Clayton was
filmed. Kind of eerie.

My world is changed, let me tell you. This was amazing. The
shareholders were angry, the executives were holding their own, but
I do think I saw beads of sweat on the forehead of Sir Winfried
Bischoff, the chairman. Vikram Pandit, the new CEO seemed to be
trying to strike a balance between a positive outlook for the
future, an apologetic stance for catastrophes that occurred before
he took the wheel, and some sort of stretch for humility over
the…wait, let me check the numbers…1,094,098 shares of common
stock excluding options, $2,500,000 retention equity award, and the
gajillion bazillion dollar rest of the package that has been
reported href="http://www.iht.com/articles/2008/03/14/business/14citi.php">elsewhere.
The total package is in excess of $200 million.

I hate to say it, but at times he came off as rather flippant,
for example when he was confronted by personal stories of long time
Citi employees facing layoffs, and was asked to return some of his
salary to save their jobs. “These are hard decisions,” didn’t quite
play. He could take some lessons from Win Bischoff on appearing
sympathetic while dodging the issue. That’s only partly tongue in
cheek, because in truth there were no answers to some of the
questions in the blame game, and Bischoff did bring an air of grace
to the otherwise ugly, and sometimes comical proceedings.

He also impressed me by appearing genuinely sympathetic to the
corporate responsibility concerns that were put before him. I would
very much like to think that having human rights and environmental
issues presented by shareholders at an annual meeting can sway
corporate behavior in the long term. I have no illusions about
immediate action, but bringing it to the table seems like a great
first step.

And bring it, they did. In a room full of angry shareholders
asking for the heads of the directors on silver platters, the
voices that stood out with calm, eloquence, and forceful courtesy
were those of people like Amy O’Meara, speaking for Amnesty
International, and Maria G., talking about the destruction of her
hometown by mountain top removal coal mining.

Being totally new to this, I had no idea that by owning a single
share, you buy the right to stand face to face with the chairman
and the CEO of a company like Citi and speak your mind. Indeed,
that is exactly how it works.

Any shareholder can put forth a resolution, which the company
responds to in print in the proxy statement. The deadline to submit
a proposal for the next annual meeting is November 18, 2008. Any
shareholder holding stock on the date of record, which this year
was February 25th, receives a ticket to attend the meeting in
person, or vote their shares by mail, telephone, or over the
Internet. As I understand it, resolutions are not binding, but they
can send a strong message. There are plenty of examples of
shareholder resolutions that have been proposed year after year and
eventually adopted.

In the meeting, someone takes the floor and presents the
resolution in a prepared statement. Anyone can comment on that
resolution. Everyone votes, and then there is a question and answer
session. Microphones are set up in the hall, and if you have
something to say, all you have to do is get in line and say it. You
have the floor.

I listened to a lot of calls for change in executive
compensation, stories of long time employees who are being laid
off, an elderly man in retirement who has seen the income from his
stock cut in half. There were stories of devastated pension
plans–and of course a lot of blame being passed around over the
subprime losses. The general feeling was that those loans never
should have been made in the first place, and everyone should have
seen it coming.

About halfway through the Q&A, I realized I had something that
needed to be said. I’m not exactly a wall flower, but my knees were
shaking nonetheless. Here’s what I told them:

I offered a different perspective on the subprime situation. I
told them that there was a href="http://en.wikipedia.org/wiki/Moral_hazard>moral hazard
that should have been recognized across the industry, but it was
missed. Most of the people who signed on for these
loans were people who had been completely disenfranchised from the
wealth building system, people who had been renting and never had a
hope of owning their own homes. When they qualified for a loan, they
were buying a lottery ticket, in hopes of being able to build a
better future. In a foreclosure, the burden is in stress and in
transaction costs, but in the end, they go back to renting.

I told them that it is human to help someone live in a house that
they own, but what is not humane is the predatory lending practices
that went along with these loans. Subprime may be dead, they may
not be issuing any more of these loans, but there are still loans
that are held, and now we are hearing about predatory foreclosure
practices. I suggested that they need to act now to stop the
bleeding.

But more than that, there are lessons to be learned from this.
These loans are high margin instruments, that is why everyone is
holding them. There was a lot of money to be made. I said that it
was being made on the backs of the most disenfrachised part of
society. What I didn’t say, but what is true, is that many of these
loans were made to women and single parents trying to raise a
family.

I told them that I support the people who spoke on issues related
to human rights and the environment, and I commended them on the
commitment they expressed toward those issues. I suggested
that social justice and social equity can be profitable–and that
when social justice is ignored, it can lead to the kind of
catastrophe that we are now experiencing.

I asked them to keep these lessons in mind in the future, and to
dedicate themselves to making Citi a leader as a company that holds
itself to the principles that profitability is not only financial,
but also reflect the principles of environmental protection and
social justice.

Win Bischoff responded very graciously, and acknowledged that indeed
lessons do need be learned for the future. Not all comments were
responded to, and I respected him taking a moment to do so.

The angry mob in the room clamoring for profits gave me a very
warm round of applause.

I have to say, I’m really sort of amused, in a serious kind of way. Here’s the deal. I’ve been playing with my little itty bitty investment portfolio for about six years now. It’s done great actually. It would have done so much better if I hadn’t raided the Apple stock that I bought at $57…track back to that cash flow post. Anyway, it’s all small but it keeps my attention on the future. I invest not more than I would blow on a few small end splurges in a typical month, so if I were to get creamed, the rent isn’t in there. I’m not sure where the rent is, but I know it isn’t in there.

Anyway. Tucking away just a little tiny bit makes me feel better about shaving the budget very, very close to the bone. For one thing, when I want to snap and spent something…occasionally I buy a couple shares of something that looks good to me. I get the spending fix, and barring stupidity or catastrophes (both of which come with the territory), I still get to keep the money (watch the transactions fees). I’m also taking baby, baby steps in building my retirement fund. I’ve done the math. Time actually is money. But most of all, it makes me feel good to know that I have something that has the possibility of earning for me without me having to put my hands on it. The idea of potential returns makes the future look brighter.

Late last year I started tracking and researching Citibank. Now you can read twenty articles a day from people who are in love with banking stocks. Herd mentality scares me more than a little, so for that reason only, I’ll say I was country when country wasn’t cool. Now, chaos will probably ensue, but we’ll see. For the record, I don’t anticipate quick returns, in fact I was expecting s short term beating, which still may come.

In any case, I am now the very amused owner of ten shares of Citibank stock. What’s the point already? I got the annual shareholders report in the mail a few weeks ago, along with my proxy card, and proceeded to let it sit on the kitchen table until last night when I got ready to throw it out.

But wait! The shareholders meeting is on 6th Avenue tomorrow morning, which is just a hop, skip, and a subway ride from where I hang my hat. I already bought my ticket, I’m not sure I have a ball gown, but what the heck? I love New York.

It’s all a learning experience, and as much as I love the Internet, there’s nothing like getting the information first hand and coming home to read about second hand it in the financial pages. I decided to go and see what I can learn. I figured I might as well read through the corporate governance statements, and compensation tables, and audit, and indemnification, and…oh I’m sorry, you’re asleep! Right. Well yeah, me too. So I skipped to the resolutions that I actually get to vote on. Not that the numbers aren’t important, but I’m not an analyst, I don’t believe analysts, and the numbers have been all over the press anyway.

I expected the resolutions to be equally boring, and for the most part they are. But there were some surprises! For one thing, I had no idea that Richard A. Dee, beneficial owner of 120 shares, could submit a proposal for consideration at the annual meeting, but indeed he has. In fact, he states that he originally submitted the proposal in 1994, and for all I know, he may or may not have submitted it every year since. His proposal has to do with giving shareholders more power to elect directors. it caught my attention, because I had no idea that someone with 120 shares could bring anything at all to the attention of monolithic corporate America. It doesn’t mean they’ll do anything about it, but they had to print it and respond to it.

Okay, I’m curious, in a nerdy sort of way. There’s more.

The Teamster Affiliates Pension Plan, beneficial holder of 12,969 shares, asks for transparency in political contributions.

The Free Enterprise Action Fund, owner of 2,607 shares, asks for a report on compliance and outcomes with the Equator Principles Report, “guidelines developed to manage environmental and social issues.”

Boston Common Asset Management, Catholic Healthcare West, and Pleroma Inc., collectively representing 293,517 shares call for a drastic response to climate change by asking Citigroup to divest itself of mountain top removal coal mining and the manufacture of new coal burning power plants that emit carbon dioxide.

Amnesty International USA, beneficial owner of 90 shares, along with Northstar Asset Management, Office of the State Treasurer, State of Vermont, and the Marianist Province of the United States, collectively voting 32,100 shares in addition to the 90 owned by Amnesty International USA, call for Citi to prepare a report on human rights issues.

“Proponents believe that institutional investors including asset management firms such as Citigroup, bear fiduciary and moral responsibilities as owners of stock in companies that may be connected to human rights violations. Thus we encourage our company to report on policies and guidelines that address these issues. This report can address how Citigroup as a shareholder can most effectively respond to these human rights issues, including strategies for shareowner engagement with the companies and/or divestment of stock as appropriate.”

My ten voting shares aren’t going to change the world, but I wonder how many of those proxy packets are still sitting unread on kitchen tables. It’s election day–get out and vote!

Last week’s project was to track any and all fees that you’ve paid in the last month. What did you come up with? I am officially at war. Now, I was expecting a spike this month, due to my aforementioned bizarre and inhumane pay schedule, and this more or less encapsulates the Problem I’m Trying to Solve. That said, there were a couple fees I could have avoided. Here’s what I noticed:

1. Now not only do I pay a fee if I use an out of network ATM from the bank that owns the machine, but I also pay a fee to my bank. As dastardly as this is, I remember now that I called my bank about it the first time I saw a double charge on my statement, and they told me that is their new policy. So I pay at least $3 every time I use the ATM, since my bank has none in my neighborhood.
2. Late fee on my cell phone bill. More on this later, this was just stupid because I didn’t know which day the bill was due. Goodbye to nine bucks.
3. Credit card fees. These fall into three categories for me.

• Late fees
• Finance charges
• Participation fees

Okay so now let’s break it down, what am I going to do about this?

ATM Fees

Well, I could have chosen a more convenient bank in the first place, but other than this I’ve been happy with them. So I need other strategies. Now that my memory is coming back to me, after that conversation with the bank, I made a list of my bank’s ATMs in places I go frequently. I keep a journal book with me to track expenses (though I’ve been backsliding lately), so that was a convenient place to keep those locations handy. But despite my best intentions, that doesn’t always work out. Other strategies…

• Cash back at the grocery store or other places where I can pay with a debit card. I don’t get charged for those transactions.
• Withdraw my cash budget at one time rather than making multiple smaller transactions. If I’m going to pay, I might as well do it once rather than over and over again.
• Use my debit card instead of cash. Or, in theory, I keep a cash budget, and my grand plan was that when there is no more money in my wallet, I don’t spend any more money, because I’ve spent my budget. I think I’m going to revisit this idea, simply for the discipline involved.

And in case you were wondering, I really, really, really did not want to do this project this week, because I knew it was not going to look good…but you’re keeping me honest here and I feel much better for facing it. So thanks!

Where to begin? Everything is connected. If you’re reading these posts and trying to solve a problem, I would bet that you probably get to the end of a post on, say, budgeting, or cash flow, saying BUT that’s all great but I can’t do THIS because I can’t change THAT, whatever this and that may be. An example would be “I can’t reduce my budget because I can’t cover my expenses as it is,” or “I can’t improve my credit rating by paying on time because I have to pay the rent first,” or “I can’t use credit to cover a short term cash flow problem because I’m already maxed out and I can’t get any more credit.” Or my personal favorite, “If I could make more money and increase my income to cover the budget, I wouldn’t be reading this stupid blog to begin with.” Or how about “I would put the money into savings for retirement so that it could compound so magically if I had any money that wasn’t already allocated to keeping my rear end out of the fire.” In one of the early hell-years, I kept asking my dad how to get control of my money, and he always told me to make a budget. The problem was I was doing hourly work and I never knew exactly how much I was going to be making. I got stuck cold when he asked me to write down my income. I kept trying to tell him that if I knew how much I was going to be making, I wouldn’t have a problem. That was the problem.

The interconnectedness of things tends to stump people, even experts. Worse, experts, well meaning family members, people who aren’t trying to solve complete chaos problems, tend to look at you like you’re a complete moron. It doesn’t really help.

So you get to the end of a nice article or piece of advice thinking great, thanks, but I can’t put that to work for me because there are three elements there that are completely out of my control. And if you check back with the person who was giving what might have been really great advice, and they ask you if you did it, you have to say no, which can lead to the impression of being either stubborn or irresponsible…which tends to dry up the source of advice. Grrr!

So what do you do? The basic problem is that every factor depends on every other factor, and if you could fix one, you could fix them all, and you would be magically solvent.

Just begin. Begin anywhere and everywhere, and have some faith. There are things you can’t change all at once, but you can become aware of them and how they affect the bigger picture. You have to begin by knowing the connections and how they work.

This is the main reason I started the weekly projects section, a small task in the sidebar that can be done. I said start anywhere and everywhere, but refurbishing a financial house is hard work–it can be exhausting and overwhelming, so it helps to break it into small tasks. Focus on what you’ve accomplished and what you’ve learned. Focus on the progress. If you work on the big picture but accomplish one important task per week, you will be moving in the right direction. Patience and faith.

Awareness is the most important thing I can encourage. Sometimes we just don’t want to look because we know it’s bad. Look anyway. Get over the panic and face it. If you can’t fix the problem today, you can at least know what the problem is today, and if you keep pondering it and looking for solutions, you will eventually come up with one that works.

Financial stress comes from the connections between things–problems do not stay contained, they seep out into other areas of our finances, and not surprisingly into the rest of life. The one thing I have absolute faith in is time. It’s free. Small things add up, and over time they can add up to something really great. Patience and faith.

I look at cash flow from two sides. The long term tells me where I’m going–am I eventually going to build any wealth, or am I continually digging a deeper and deeper pit? The short term has to do with crisis management. I think of it as two separate but similar tools.

First the short term. On paper I make enough money in a year (with the student loans included as income) to cover all my expenses and feel modestly comfortable. In reality, that hasn’t been the reality, so what’s going on?

I have a cash flow problem. I actually have two cash flow problems. The second one (the long term pit digging problem) comes from the first problem, which is that bills come due before I get paid.

This problem took me a lot a head scratching to figure out, but I finally get it. Here’s what it is and how I’m tackling it…

This problem can take a bunch of horrible forms. In my case, because I’m a grad student (more later on man’s inhumanity to grad students), I get paid three times a year, at the beginning of each term. This creates the opportunity for a big problem. In theory, it should be alright…I should pay out all of my expenses for the term when I get paid and live on what’s left. The problem is that I start each term in the hole, and after I sit and think hard about paying all the basic expenses, there’s nothing left. Note I said think about paying. Still, on paper, I should be able to cover everything, so clearly I have a problem. The main problem, I finally figured out, is that when I moved here to start school, my savings didn’t cover the whole cost of the move. I feel the need to insert here that I have a family (one adult, one income), so I’m always talking about the expenses of a household, not an individual, which are indeed bigger, but the stipend is set for one person in their early 20s to live on meagerly. It makes it easier to understand why my math might seem weird, and, well…that’s my windmill to tilt at.

Back to the move. It took me forever (let’s have a big duh) to figure out that I made up the difference in the cost of the move out of my first stipend here, and I’ve been carrying over the deficit ever since. Which is why I’m always in the hole. Sounds stupid? That’s negative cash flow. Most people probably have some. I should qualify that. People who are not increasing their wealth have negative cash flow.

Carrying a deficit means you’re paying expenses from a previous budgeting period out of a new budgeting period, so even if things look alright on paper for one budget period, they’re not alright. The deficit is always following you. This could be a late credit card payment, utility payment, rent…you name it. You’re always borrowing from your future self. Not good. You have to pay yourself back. That’s my deal right now.

Step one is figure out how much of a deficit you’re carrying over. That is going to have to be factored into a new budget to pay it off. I hate to say it, but it’s probably going to hurt. For awhile. Then it will get better.

The next part of short term cash flow is tracking when money comes in compared to when it needs to go out. As I understand it (which is admittedly limited), corporations deal with this too, and they sell bonds to cover their short term cash flow needs. I’m very disappointed that I can’t issue commercial paper in my own name, but whatever. It helps to know I’m not alone, I just don’t have access to capital markets.

The next step is to make a calendar showing when money is coming in and when it has to be paid out. This will reveal the cash flow crisis points.

Two points here. If you’re cutting it really close to the line and going actually negative, as in no money, 1) it bites, 2) it’s expensive. It’s expensive in fees, over limit fees, overdraft fees, loss of dignity, and usually a ruined manicure. Those fees would be better spent elsewhere. If you’re not actually going negative in terms of money you can get your hands on, but you still have a negative cash flow, you’re probably making up the difference in credit and debt spending. For that reason, it’s an excellent idea not to gauge your financial health (or self esteem) on how other people look like they’re doing. It’s a great idea to let go of the idea that you need to spend according to someone else’s standards. You have no idea what kind of hole they may be digging.

Back to the tools at hand. I keep it simple and use Excel. I’ve used Quicken too, and that works for me. The key is simple. Paper and pen and a ruler work too.

Across the top of the page (spreadsheet, whatever), mark the dates. It’s usually good enough for me to do it by month. If you get paid bi-weekly, use your pay dates. Note that if you do not get paid on a calendar date (the 1st, the 15th), that can really mess with your cash flow and budget. Bi-weekly pay does not exactly match to a monthly budget. More on that elsewhere, but consider it.

On the left side of the page, make a row for income. Below that, make another row for expenses. Now fill in exactly when you get paid and how much (after taxes), and exactly when things need to be paid and how much. It’s a good idea to make one sheet that has all the days of one calendar month, so that things are clear. If you get paid on the 15th, but a credit card bill is due on the 13th, and you’re waiting for your paycheck to pay it, that will incur a late fee, and that’s probably not in the budget.

Make another row below the others. This will be your running balance. Subtract your expenses on the day they are going to be paid from your balance. If at any point the numbers go negative, then you have a negative cash flow situation.

This can be dealt with by checking to see whether any of the dates can be altered. If a payment can be delayed without incurring a fee, that is one option. Some utilities and credit cards will let you choose your due date. If you can make the dates match, you can avoid the fees. If you can’t, you have to consider where you will make up the difference. This will mean revisiting the budget.

The long term aspect of cash flow is actually much simpler, because it emerges from the short term. If you finish a budget period with cash left over, you have a positive cash flow. Woo hoo! Invest that. If you end a budget period underwater, you are borrowing from yourself somehow to make up the difference. Your future self should be a bit upset. No good comes from that. Positive long term cash flow comes from consistent short term positive cash flow.

Also, one other thing. Pay yourself first. During an all out emergency…maybe there are other priorities. But if every month is an emergency…well, that’s just too much stress. Back to the budget.

The problem I’ve had with managing my money is that in the short term, things often seem very futile. This mainly comes from the fact that I am in graduate school and my stipend in very inadequate. I’ve had a constant conversation with myself about opportunity costs and whether it’s completely foolhardy for me to be in school (from a financial perspective), but since I’m getting closer to being able to see the end, my current approach is to sit tight, work hard, and keep looking beyond the short term. That doesn’t mean ignoring the short term–on a poverty stipend living in Manhattan, that would mean sure disaster! But I’m beginning to accept that the short term doesn’t have to be the whole story.

Last week I had yet another good hard look at my student loan debt and realized that I’d better make a plan about how I’m going to pay this off one day, figure out how long it will take, and whether I will ever, ever in this lifetime be solvent.

The numbers looked surprisingly good–as long as I’m willing to accept that I’ll have to put a defined percentage of my earnings into both paying off the loans and investing in my retirement after I graduate. I have a plan. Given the magic of compounding returns, the sooner I start saving, the better. My plan has a mix of debt repayment and investment, but there is a point where my net worth will finally be positive! Hooray! It will come long before my student loan debt is paid off. When I get to that point, I’ll be comparing the rate that the interest is accumulating to the rate of returns on investments and make the appropriate allocations based on what the numbers show.

Throughout the last year I’ve been thinking that I was going to be priced out of the career that I’ve worked so hard to build, so a rosier long term projection is very good news. I should be able to retire very secure at a reasonable age–if I keep evaluating the plan and make sure I’m following it.

There is a point where my money will start working for me rather than against me. The sense of futility fades when I can see that I’m working for something.

Keeping cash flow positive is the big trick. On what they pay me, that is no small feat. For right now, I’m including student loans as income and not looking on that as negative cash flow, which is a bit of a cheat, but it is a conscious decision because otherwise I would have to leave school. Keeping the cash flow positive even with that assumption is still a trick. The number of impossible feats I can take on at once is limited, so I’m trying to work from where I am.

So for today…it’s time to go do work and do what I can. We’re trying to cure blindness. I think it’s a worthwhile thing to do. If I manage my money well, maybe, just maybe, I’ll be able to afford to keep doing it until the research pays off.

Money isn’t everything…but it’s what determines whether I can or can’t do the other things that are important to me. I think that’s a good enough reason to pay attention.

My grandmother was a tough, smart, obstinate woman who raised five children. She could organize the heck out of anything you put in front of her. She spoke her mind, usually whether you wanted to hear it or not. I had no idea, when she was still alive, how accomplished she was. I appreciate that my legendary stubbornness was probably passed down from her.

I don’t remember her doing anything without doing it as if she were a professional at it. My mother has claimed there was more than a little obsessive compulsiveness going on, but in any case, her mantra, “If a thing’s worth doing, it’s worth doing right,” has something to it. Along with that, “Can’t never could,” and “Where there’s a will, there’s a way,” which my mother cross stitched on a sampler for me during one of my hell-years. It still sits in my kitchen. I never got off easy when I wanted to give up at something.

I remember a conversation my grandmother had with me when I was twelve. It was one of her rants, brought on by god knows what, and there was no option but to simply nod my head and endure. Now I think I understand. She lived through the depression, she knew the value of a dollar, and I’m sure the pain of not having enough dollars. My generation was raised with a new economy mindset. If you grew up in the suburbs in a middle class family, you probably never truly wanted for much. The parents that raised our generation seemed to work from the mind set that they wanted their children to have more than they did growing up. Don’t we all? The consequence was that we were shielded from financial reality, there was a never ending toilet paper roll that came from the gods of somewhere, and we didn’t talk about how essentials like that were really paid for—except for the low level drone about “money not growing on trees” and “the roof over your head.” As well meant as these things might have been, they were complaints against our ingratitude, not education in how to make it in the world.

This was my grandmother’s rant, more or less:

“Your parents, they expect to have the best of everything, and they want it right away. When I was married, we had nothing, we rented cheap furniture, we washed our clothes in the sink, and we ate [whatever it was they ate back then that was cheap]. We didn’t go out to eat. We didn’t buy a television or a car just because we thought we had to have one. When your grandfather started making some money, we replaced the cheap furniture one piece at a time. We SAVED our money! Your parents, they buy a house and they think they have to go out and buy a whole houseful of furniture to go with it! Absurd! We bought things when we could afford to buy them! We worked for years to have the things we had, and your parents think that it’s their right to have everything all at once, without patience, without working for it, it’s just supposed to fall out of a tree and into their living room!

What was this, some sort of hinterland philosophy of good cave keeping?

The problem my grandmother was talking about, whether she knew it on not, was that she was talking from a depression-era mentality, and the parents of my generation—and all of us since—believed in the new economy, an economy of plenty. That also happens to be an economy of credit and debt. We feel entitled, and we don’t get it when the good job doesn’t pay for the good life.

We know what happened during the dot-com glory days. No matter where you looked, someone was saying that the old rules did not apply. Price to earnings ratios? Old fashioned. Earnings?! You didn’t even have to have a product.

Maybe the best financial advisors around for these times are in the old folks homes, ranting away at the foolishness of the generations, while no one really listens.

This is such a fundamental tool that it has always surprised me how seldom the basics are taught. Let’s work out a monthly budget.

Here are the basics…

A budget has two sides: income and expenses. The first thing to do is figure out how much income you have in a month. Pull out the pay stubs, check direct deposit records, see how much money is coming in. Make sure you use the after tax numbers.

The next step is to figure out how much you spend each month. Did this just get more difficult? Probably so. Let’s break it down.

First make a list of basic expenses by categories: rent, utilities, groceries, loan payments, car payment, insurance, gas, etc etc… Pull out old utility bills, statements, any receipts lying around. It’s probably still pretty hazy. How much did I really spend on groceries? What about eating out? Check bank statements and credit card statements to get more information. The first time around, the picture will probably be incomplete. Just go with it, you can be a perfectionist later.

Now you should have a list that looks something like this, with totals for each category:

• Rent…
• Utilities…
• Groceries…
• Dining…
• Gas…
• Insurance…
• Savings (yes savings!)

 Now add up all the totals. This is a first pass at figuring out your expenses. How do the numbers look?

1. Which number is larger, income or expenses?
2. Do these numbers seem right to you? If your budget so far says that you should have extra money each month…do you really? Or is it disappearing somewhere?
3. If something seems wrong and there is money missing, where is it going?

Now it’s time to do some archaeology.

1.  Look for categories of spending that you didn’t think to include on your first list: coffee, snacks, lunches at work, fees, laundry, drinks, entertainment.
2. Total up the cash withdrawals from your banks statements. Can you account for where the cash went?
3. Make a separate list of expenses that only come up once a year, things like: car registration, holiday shopping, memberships, back to school expenses. Set that list aside for now.

Add up your expenses again. Do the numbers seem realistic yet? Whether they do or not, plan to spend the next month tracking where all the money goes. Pay attention to anything you pay for in cash.

Now you should have a basic picture of your monthly budget. Take a deep breath!

How does it look? Your income should be higher than your expenses, but for most people it’s probably not. So the question is, if your expenses are higher than your income, how are you getting by? Credit cards? Flailing? Stress and insanity? The next question is what to do about it?

 Like I said at the beginning, there are only two sides to a budget: income and expenses. You have to increase one or decrease the other. It usually takes longer to increase income; that is the long term goal. In the short term, here’s how to deal with expenses…

Divide them up into two categories: fixed and variable. Fixed expenses are things that you can’t easily change that are the same month to month. Rent is the big one. Utilities, groceries, memberships, car payments, insurance…these are all fixed expenses. Mostly, we’ll get to that later. Variable expenses are things that you can control, like eating out, entertainment, clothes shopping, etc.

Total up your fixed expenses and total up your variable expenses. If your budget didn’t balance to start with, you need to reduce your variable expenses. Now it becomes psychological, and that is the whole project.

Let’s go back to fixed expenses. If you can’t balance the budget by reducing variable expenses, you have to look harder at these categories. Let’s take utilities, for example. I put this in the category of fixed expenses, along with groceries. Formal definitions would put these in the variable category. I deal with them as fixed expenses because it works better in a household budget, and I’m not a CFO. The truth is they have both a fixed and a variable component. You need to have electricity and water, and you need to eat. The minimum amount you can possibly spend on these is more or less fixed. Anything above that is variable. If you can’t balance your budget by reducing variable expenses alone, then you have to look at these categories and find ways to save.

What if the budget still doesn’t balance? Now we start getting creative. The truth is that fixed expenses are not really fixed. Rent is fixed, right? Well…yes. Memberships? Netflix? Cable? All fixed. Car payment? Ditto. And if the budget still doesn’t balance? It’s time for some restructuring. You could ask for a raise, get a second job, get a new job, or cancel the memberships and find a cheaper apartment. None of these things are pleasant…unless you land a new job that you love and it pays more! But the sooner the budget balances, the sooner the stress will go away. I promise.

I left a couple things hanging for another post…annual expenses, seasonal variations in utlitities. What if your income isn’t the same from month to month? And the most important part of a budget…variance analysis…how to figure out whether your budget is working for you. More on these coming next…