Pay Dirt is Slate’s money advice column. Have a question? Send it to Athena and Elizabeth here. (It’s anonymous!)
Dear Pay Dirt,
My currently affluent and debt-free household is about to experience a major household income reduction to the tune of about $300,000 annually. I’m wondering how best to deal with it.
Currently, we do everything “right”: We save for ourselves and our kids, we invest, we pay all bills in full, etc. Life is very easy, and we don’t really “budget”; we spend indiscriminately because we can. This will obviously have to stop.
I think we can keep doing everything right and still break even (or even a bit better) after the shift with just slightly more conscientiousness regarding spending. But I still don’t want to really budget (e.g., set hard spending goals, track spending in an organized way)! Instead, I’d like to reduce our household monthly expenses with as little regular effort as possible.
How can we budget without budgeting? Are there ways to increase our monthly income/reduce monthly expenses that we can just set and forget? Should we recast our mortgage? Water our lawn less frequently? Contribute less to non-matched retirement accounts? Find cheaper life insurance? Join Costco?
—Budgeting Without Budgeting
Dear Budgeting Without Budgeting,
I think your best route here is to think of budgeting as a one-time thing you do once a year or so. Don’t think of the belt-tightening as giving up everything you love to spend money on, because it doesn’t have to be. But you do need to identify the high-priority things that materially affect your happiness. Maybe it’s eating out at restaurants occasionally, or a subscription service you use all the time. Then take everything that’s not going to materially change your quality of life and eliminate it, which means canceling recurring expenses, and identifying what you will not spend money on going forward. See where you are after you do that. It may be that once you’ve done that one exercise you are OK, and then you have something close to a set-it-and-forget-it budget that doesn’t require you to constantly track expenses.
If you still need to make cuts, that’s where you may have to be strategic about economizing. Everyone’s budget is different and varies by size of household, needs, regionality, and so on, so without knowing more I can’t give you very specific recommendations. But look at where you can cut the most on a marginal basis. If your food expenses are particularly high, then you might get some big savings from buying in bulk. If you’re paying a lot for transportation because of where you live, what you drive, and gas prices, then figuring out how to carpool, consolidate trips, and utilize public transportation might help.
Unfortunately, there’s no magic way to determine all of this without going through some kind of process, but if you’re developing a set of rules for when and how you spend, you will save yourself the stress and necessity of having to minutely track your spending all of the time.
Dear Pay Dirt,
I was married for 10 years, with two children. My husband passed away at 31. A couple of years later, I met my partner, who I remained with for 35 years in which I maintained the major portion of our financial life. During those years, I loaned him substantial amounts of money of which none had been repaid. His father died and left him a substantial inheritance. He started acting weird!
At some point, I asked when I could expect repayment of his loans to begin. Our life became very unpleasant and I asked him to leave and begrudgingly he did. We no longer have a relationship. What are my options to reclaim any of the financial support and loans I gave him all those years?
—Apparently, I Was a Sugar Mama
Dear Apparently I Was a Sugar Mama,
One of my recurring talking points in this column is that any time you loan money to family or friends, you need to be prepared to consider it a gift because the dynamics of accountability are not the same with people you’re close to. If you take out a loan from a bank and don’t pay it, they are usually prepared to go after you with every measure available to them to get that money back. You wouldn’t necessarily do that with friends and family because you ostensibly care about them.
That may not apply to your ex now, but generally speaking, in the absence of any formal contract between you about the loan amount and terms of repayment, I’m not sure you have much recourse. In some states, there are regulations around private loans and there may be tax consequences for both of you. You can take your ex to small claims court (or civil court, depending on how much money we’re talking about) but you will have to present evidence there that you both unambiguously understood that the money was a loan that you expected to be paid back and that your ex’s failure to do so was a breach of that. (This is why written contracts are important.)
If you believe you have enough evidence to pursue a claim, or you do have a contract somewhere, then your remedy is straightforward and you should go to court, but understand that it may create more acrimony with your ex and you probably want to factor that in. Before you pursue a legal claim, however, you need to ask for the money, formally, in writing to document your expectations for repayment and give your ex a chance to pay you back. Sometimes people can’t pay a debt all at once and just need a plan and a reasonable schedule for repayment. I would try that first, even before considering any legal action.
It’s also worth considering whether a legal battle (if you even have the grounds to pursue one) is something you’d like to get wrapped up in. Otherwise, it might be best to accept this loss and move on.
Dear Pay Dirt,
My dad has been incredibly generous with monetary gifts for our two daughters. He gave them money when they were born and at basically every holiday since then (Valentine’s Day? Here’s $5,000). He explained that his estate planning attorney told him it was complicated to leave money to minors and he wanted them to enjoy some of it while he was alive and also have money to save for college. Well, unfortunately, Dad passed away last year and that led to our current dilemma. The older kid has about $20,000 more than the younger kid in the savings account we set aside for Dad’s gifts to them ($100,000 versus $80,000). They don’t know how much is in their accounts. Should we even things up a little? Just leave it unequal since the younger kid’s money has more than a couple of extra years to grow? Stop worrying about it?
In today’s inflationary environment, we think we ought to do something with the money other than parking it in a savings account where it’s losing to inflation every day. But every time I start to move the money, I worry that kid 2 isn’t getting a fair deal. We assume that if Dad had lived longer, it would have worked itself out in the end, but who knows?
—Who Gets the Bigger Pie?
Dear Who Gets the Bigger Pie,
I think ethically, you need to use what you believe to be your dad’s intentions to guide your decision in the absence of any formal documents about how he wanted things to be allocated. If you believe he wanted the kids to have an equal inheritance, I think it’s fine to even up the money. Your kids will probably understand that.
Regarding inflation: A savings account in an inflationary environment is not a de facto money-loser; it depends on your interest rates and how they compare to inflation rates. (Keep in mind that higher interest rates in response to inflation can help your savings as well, but it depends on the particulars of your savings accounts.)
That said, there are other places to park your money that are specifically protected against inflation. Treasury Inflation-Protected Securities (TIPS) adjust the principal to reflect inflationary changes, and Series I Savings Bonds (“I Bonds”) have an interest rate that is tied to both a fixed rate and inflation. So if you are particularly worried about what inflation might be doing to your savings, these are both lower-risk products that might be a good alternative.
Dear Pay Dirt,
I have recently had success selling some of my artwork and each time, even if I have discounted the pieces, the buyers are saying they wish to pay full price. Most recently, a buyer actually paid me double the full price!
My husband feels that they are doing this because they want to support someone who may be a struggling artist, but as I do art as a hobby and have a full-time job that pays well (i.e. not a struggling artist), he feels I should return or donate the money to the arts when someone pays me more. I feel they are valuing my art and that I should accept it and reinvest it into my artistic endeavors. What’s the right way to approach this situation?
—First World Problems
Dear First World Problems,
I think you have to respect the intentions of the people who are paying more for your art, which appears to be to support you as an artist, even if you don’t particularly need the money. You are not ethically obligated to donate it just because you don’t technically need it.
Also, as anyone who works in the art market professionally will tell you, the value of art is very subjective. What your buyers may also be telling you is that they believe you’re underpricing your work. You absolutely should not return the money, which would be akin to questioning your buyer’s judgment on the issue. If you want to donate it, by all means, do so, but you should feel no guilt about keeping it either and investing back in your work. You made the art, and you earned it.
—Elizabeth
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My spouse and I each own our own businesses. One of our businesses is a pretty traditional professional services firm (think: accountant, architect, or lawyer), and the other one is a more creative business (think: artist, musician, or writer). We both love our jobs, but one of us makes more than $400,000 and one of us makes around $40,000. To do our jobs well, they both require about the same amount of time. That means each of us needs to work for 40–50 hours per week. We have two young kids. Our conflict is over who needs to be the primary caregiver during the 60 hours per week when we don’t have child care.
