Andy Hough

Forced Frugality

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Back when I was getting over a problem with gambling I used a technique I call ‘forced frugality’ to help deal with it. Basically whenever I received money I would immediately spend it on a bill. This way I never had any extra money that I was tempted to gamble away. If I didn’t have any bills due I would just pay them ahead of time. I often paid my next month’s rent at the beginning of the month. I was giving up a little interest that I could have earned on the money but one gambling binge would wipe out all that interest and more. A major drawback to the technique was I could never actually save money just pay ahead on bills.

Now I don’t have a problem with gambling and can save money. The past couple of months though I’ve been spending my money unwisely and not paying down my debt or saving money like I should. I’m going to implement my forced frugality technique again. Any time I receive money it will immediately go to a bill,savings, or to pay off debt. I don’t have a problem with spending money once it is in my savings. If the money is just sitting in my checking account and I don’t need it to pay a bill I’ve been giving in to temptation lately and spending it frivolously. Until I feel that I have my spending back under control I’ll be using the forced frugality technique.

March Expenses

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Here is a breakdown of my expenses for March:

Household

$378

Utilities

$107.11

Transportation

$151.90

Entertainment

$335.85

Food

$121.96

Student loans

$100

Health Insurance/Medical

$170.22

Total

$1365.04

 

My expenses are too high mainly because of my entertainment expense.  I really need to cut that one back.  My health insurance is paid for three months so I shouldn’t have any medical expense this month. Other categories should be roughly the same. My goal is to get my expenses under $1000 a month not counting what I pay towards my student loans.

March Income

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Here is a breakdown of my income for March.

Online Income

$115.69

Survey

$5

Interest

$69.43

Tax Refund

$133.93

Total

$324.05

 

My online income came down a lot but I’m still happy with it.  I’m on track to make a lot more than last year.  My interest income is high because I’m including ING Direct referral bonuses.  April will be another low income month but in May I’ll return to work and start making some decent money.

The CCRAA and Law School Loan Forgiveness

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The College Cost Reduction and Access Act offers a loan forgiveness program for those who work in public service.  As I am strongly considering a career in public service when I graduate from law school I decided to do more research on the loan forgiveness program.

The details of how the program works are somewhat complicated but this fact sheet from Brooklyn Law School and this one from NASFAA give a good overview of the program.  First, you need to consolidate your loans(private loans aren’t eligible) with a Federal Direct Consolidation Loan.  Next you need to make payments for 10 years(120 payments) while employed in a public service job.  The remaining debt then will be forgiven.

In order for this to work you need to be on the income-based repayment plan.  Otherwise,under the standard repayment plan after 10 years the loan would be paid in full and there wouldn’t be any balance remaining to be forgiven.  The income-based repayment plan limits your annual debt repayment to 15% of your discretionary income-adjusted gross income minus 150% of the poverty level.  By my calculations this would result in $37,035.00 in payments for someone making $40,000 a year.  Since I expect to have around $70,000 total in loans I would have about half my debt forgiven.  Over the 10 years one’s income would most like rise though which would also increase the total of payments.

There are some drawbacks.  If you don’t stay in public service for 10 years than you won’t receive any loan forgiveness and any interest that remains unpaid because of IBR payments is capitalized when the borrower leaves the program. You don’t have to be in public service to use the IBR program though and it forgives any remaining debt after 25 years.  Another potential pitfall is that the amount of forgiven debt is treated as income in the year it is forgiven.  This could result in a huge tax bill.  They may address this issue but I’m not aware of any solutions yet.

All in all it is a good deal though and I’m worrying a little less about my huge student loan debt.  Make sure you get all the relevant information if you wish to take advantage of this program.

No Spending Days

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One way to help reduce the amount of money you spend is to have no spending days. These are simply days on which you don’t spend any money. Some will complicate the concept and state that you are always spending money since you use electricity and eat every day then you are spending. Or they will say you could just put everything on your credit card and then you aren’t spending any money until you pay the card. That is just being difficult and I think anyone should be able to grasp the idea of what a no spend day is without one having to go into details about what counts and doesn’t count.

A more valid argument against no spend days is that they simply delay spending from one day to another. To a certain extent that is true but I find that having no spend days does cut down on my optional expenses. I haven’t been using no spend days much lately because I do pretty well with my budget anyway but I’m going to start tracking my no spend days and then set a goal to have more of them to bring my spending down even more.

In the early 90’s I had a job that paid $350 every two weeks.  One paycheck went to pay my rent of $225 and the other paycheck went to my car payment of $260.  What was left over went to my $50 student loan payment,food, gas,insurance and everything else. I used a budgeting book back then and when I looked at it there would be lots of days with a $0 in the expense category. I’m not likely to get back to the amount of zero days I had then but there is plenty of room for improvement.