Well, seems like I messed up my April numbers big time.
I tend to invest as much money as I possibly can, by transferring money from my checking account to my brokerage account, in general on the last day of the month, as soon as I get my paycheck. I use very simple math to do that: I just keep roughly 2 months (a bit less) worth of expenses in the checking account, everything above that threshold is immediately transferred to my brokerage account.
I like to do this manually’ I feel a certain satisfaction of transferring huge chunk of money to the brokerage account every month. Many people in the financial blogosphere advise to automate that process in order to not feel the “pain” of saving. I’m on the other side of that fence: I feel joy and pride whenever I save such a big amount of money, and seeing it and doing it myself is part of the joy process.
So, following my monthly habit, I transferred a lot of money from my checking account into my brokerage account at the end of March, and within a few days had bought a mix of Bonds and Stock ETF, in line with my portfolio goals.
And then, I suddenly remembered that April is one of those months where I have to pay estimated taxes for my side gig. Dang! My side gig has been doing pretty well over the past 12 months, and this means my estimated taxes for this quarter will need to be roughly equivalent to 1 month of our expenses. With my cushion of “a bit less than a month”, I’m screwed.
As I looked at my numbers for the month, my heart started racing. “Crap, how am I going to get myself out of this situation?” And I guess I experienced a light equivalent of what some people who live paycheck to paycheck might feel on a regular basis.
I have a few options, of course, so don’t worry 😉
I could sell some stock this month if the balance on the checking account gets dangerously close to 0. Of course, I’d like to avoid that.
Another option would be to pay slightly less in estimated taxes, wait until the next paycheck at the End of April, and pay the difference for taxes as soon as possible. The tax penalty would be close to 0, but I don’t like the idea of having to report 5 estimated tax payments in my tax report next year, that would needlessly complicate a process that is already not so great.
A third option would be to use our credit card a bit more. We tend to use 100% debit card, mostly because I don’t trust myself to not forget to pay the balance each month. I know all of this can be automated, but I’ve lived most of my life without carrying a credit card, and I would regret having to pay some interest just because I failed to understand how to set that up properly. But it’s an option, and potentially a good one.
But of course, the path I’d love to choose is to use the opportunity to make this a challenge for myself and my wife to spend less this month. We feel we’re already pretty frugal, but do we have room for more? Baring any urgency, a few of the items we could save on are groceries, unnecessary treats (we love chocolate and candy), and other “wants” that could be delayed by a few weeks (or canceled whatsoever).
I’ll run this plan by my wife over the weekend to get her feelings about it. Most likely we’ll go with a combination of all the options above, depending on how things pan out, but I’d love to see if we can go even more frugal for a few weeks.
With that being said, we’re already saving a lot (67% of after tax income in 2016) and I feel there’s not much fat we can cut at this point. Our rent represents more than half of our monthly normal expenses, and there’s no way I’m reducing that instantly (plus it’s already been taken for April).
Have you been in situations where money was tight, and your emergency fund did not provide enough? How did you handle it? Any suggestion for my situation?