Author Topic: Case Study -- low-income seeking Financial Freedom  (Read 1378 times)

violetfern

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Case Study -- low-income seeking Financial Freedom
« on: September 21, 2017, 09:50:24 AM »
Life Situation: Single mother of three kids (ages 12, 15, and 17), been struggling financially to get on my feet since 2007.

I currently live in Vermont.

I file as Head of Household.

My 17-year-old is now a senior in high school. Because she repeated 10th grade at another school, we thought she'd be a junior so we'd have a bit more time to think about college, but the school insisted she enroll as a senior. She wants to go to Art School. We'll definitely need a scholarship. I'm working with the school counselor for all of that. My 15-year-old gets mostly straight A+ grades in honors classes and is highly motivated but unsure of what path she wants to pursue in college. My 12-year-old is highly gifted in math and science but he's still quite young for planning his future.

Gross Salary/Wages:
$975 a month as part-time job as town clerk, 15 hours a week. $846 after taxes. This job may go away as the situation in the department where I am working has changed and they are unsure if they need me there. I walk or bike to work so there are no commuting expenses. I took a part-time job so I could have some steady income to cover basic expenses along with child support income while building my Airbnb and professional organizing business.

$1000 a month for child support but this will go away as the children gain independence.

$500 a month = average Airbnb income. I started in December 2016 renting a room in my house and it is growing wonderfully. In September I am earning over $900. But the income goes up and down. Average cost per night is $50. For day-to-day operations of the business, expenses are almost nothing. However, I am slowly renovating my house (an 1860 farmhouse that was badly neglected) and part of those costs are deductions for my Airbnb business.

$500 a month = average professional organizing business income which I just started in June 2017. I haven't put much work into it yet so I hope it will grow as I get stronger in marketing and networking. I currently charge $25 an hour but typical rates are $75-$150 an hour. I plan also on becoming a member of NAPO (National Association of Productivity and Organizing Professionals) for learning, networking, and marketing. That will cost around $500 including required courses.

Adjusted Gross Income: $2975

Taxes: I should pay attention to these but I usually get a refund of around $6000 (which I use to pay off credit card debt and do repairs on the house) so it's not been a big concern.

Current expenses:
Braces for daughter $110 (This will end in July 2018. There is no interest on this monthly payment.)
Electricity $60
cell phone $40
Internet and landline phone $86
Pet insurance: $26
Car insurance $61 (USAA)
Water/Sewer $50
Car gas $100 (average, depending on how much driving I do; about half of the driving is for business and will be a tax deduction)
Heating fuel $40 (2 cords of wood at $240 each, some of it a tax deduction for my Airbnb business)
Eating out $50 (average)
Laundry and cleaning supplies $5
Hair cuts $10
Toiletries $20 (shampoo, conditioner, skin care, soaps, toothpaste, etc. I rarely wear makeup.)
Dog (standard poodle) and two cats care $50
Medicaid copays $5
Gifts $20
Clothes and shoes $50
Wine $40 (two Bota boxes a month)
Entertainment $20
Food $550
SUBTOTAL = $1393

Mortgage payments: $670 Total (breakdown following)
P&I: $417
Property insurance: $81
Property tax: $172 (The full property tax on my house is $5223.04 but I get assistance from the state (calculated each year in the summer) lowering it to $2066.04 this year. Property taxes in Vermont are high, unfortunately, and I am very grateful for the assistance.)

SUBTOTAL WITH MORTGAGE = $2063

Expected ER expenses: I plan to have a smaller house (under 1000 feet) and a smaller food budget, and less mom-taxi-driving, but I'll be getting out more and traveling so costs will likely be similar.

Assets:
House value: $210,000
Car value: approximately $4,000 (2008 Honda CRV with 180,000 miles on it)
TIAA-CREF account: $5820
VT Teachers Retirement Fund: $1580
Redwood fund with Aspiration bank: $184
Aspiration savings back: $220 (earns 1% interest)


Liabilities:
Credit Card: Owe $8400.
It's 0% interest until March 2018. I earn 1.5% cash back on purchases on it. I have been putting as much money as I can each month toward paying it off, on average $1000 a month. If there's any amount still due in February I should have received my tax refund by then and will be able to pay off the rest. Most of this credit card is from renovation costs and will be tax deductible as an Airbnb business expense.

Mortgage: My mortgage principal balance is $125,200.
My house value is currently around $210,000. My interest rate is 1%. I bought it through USDA Rural Development for $140,000 (original loan amount) including funds to renovate it and closing costs. The closing cost of the house itself was $110,000 in May 2013. I put in tons of work on it! $670 is month payment including property insurance and property tax.


Specific Question(s): I have had many financial advisors look at my income and expenses and they all say I am doing very well with what I have but basically I need more income.

My goals --
#1 - Pay off credit card as fast as possible. There is no option to be paying it when I'll be charged interest.

Wild for me goal -- Be earning $1000 a week by December 31, 2017. And then gradually double that by December 31, 2018, through building my professional organizing business and venturing out into the world of lucrative blogs.

Much of what I read about gaining financial independence is based on investments earning 10% interest. How and where does one get 10% income? Please advise about that.

I may be receiving a large chunk of money in October, due to a car accident last October when I was rear-ended and got a concussion and whiplash. My last appointment with a neurologist is in two weeks and then I hope to close the case with my lawyer and receive compensation for injuries. I do not know how much this may be. I want to either:
- buy a rental property (I have an eye for good property, but I can be too trusting and sweet with people. However, I do have people who have my back now and who can stand behind me if needed.)
or
- invest in stocks.
What are your thoughts on that?

Thank you for your ideas and assistance.
I am tired of being poor and struggling. I am smart and capable but I have not figured out how to make income. There are many things stacked against me but I do not want to get into that. Being a victim is now in the past. I am empowered and competent!

I hope this is clear for you all to understand. Please let me know if you have questions and if there are things I need to do to make this clearer. I greatly appreciate your help!

CrispKale

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Re: Case Study -- low-income seeking Financial Freedom
« Reply #1 on: September 22, 2017, 02:09:52 PM »
With your two side jobs looks like your well on your way to increasing your income. Growing a business takes time its just a reality but I can see your determined and covering yourself by not just relying on one to be the golden egg what a great lesson for your kids to see. Other then continuing to expand your side hustles which I think your doing a great job of, the only expense that stands out to me is the Food $550, as you've broken out Eat Out in another category I assume the $550 is for cooking at home. I follow a couple of large family (8-12 member) vlogs on YouTube that share household grocery expenses/hauls and they are spending that amount on double the people. If possible research a little into what these family's are cooking/eating and see if its possible to incorporate a little into your household. That could free up a couple of hundred towards your savings rate.
Gathering the Nutrients of Financial super food.

My Status Report:  October 2017 Budget Expense Report http://financialkale.com/blog/october-2017-budget-expense-report

Meesh

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Re: Case Study -- low-income seeking Financial Freedom
« Reply #2 on: September 22, 2017, 09:19:53 PM »
It looks like your food and wine spending could be lowered. I'd also look into that internet bill. Why do you need a landline? Other than that, gas but you say its for work. Maybe look into getting a more efficient car later on.

I noticed you don't seem to have any emergency savings. I would recommend setting aside at least 1000$ before going at your CCs. You also have nothing in your budget for car maintenance and other irregulars like replacements and repairs. Is this a full budget?

If I were you I'd:
save 1k
pay off CCs
save at least 6 months(maybe even 1 year) for emergencies especially since your income seems volatile
Then do some hard research into investments. Try looking at index funds. If you don't like confrontation I'm not sure renting is a great idea but I am no REIT expert.

I also think you need to do some research on college. My understanding is most scholarships tend to be partial. I'd encourage them to get part time jobs and start saving up for it. Have you considered junior college? It's much cheaper.

ElleFiji

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Re: Case Study -- low-income seeking Financial Freedom
« Reply #3 on: September 23, 2017, 08:31:34 AM »
I'm not seeing a ton to cut. The haircut and drink half as much wine, and trim $10/week from groceries to get to an emergency fund. And then next July invest the $100/month.

I'm single and working up to your income. The other concern is for after your child support finishes, you need to tailor your income up. I'd start by increasing rates for your business. Maybe not all the way up to the accredited people, but getting close. On a tight income, things move slower. It doesn't mean financial independence is impossible, but it does mean we can't make 3 easy changes and retire in 7 years.

I also advocate ERE, it helps me to reframe my situation and remember that I could make a lot of hard choices and retire in 7 years. And it helps me spot areas I'm overspending because of my surroundings.

dcamnc

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Re: Case Study -- low-income seeking Financial Freedom
« Reply #4 on: September 24, 2017, 08:37:06 AM »
To be blunt and honest, in your situation, I would make the kids pay their own way through college if the scholarship(s) don't work out. Your budget is too tight to be paying for their school. If you receive the payout for your crash, personally I would pay off the CC, put a nice chunk in the bank as an E-fund, then weigh further options for the balance. It looks like you have hardly anything for retirement, you may want to start there, I would suggest a Roth account in your case. If you're good with real estate, you could do well with an investment property, if you know what you're doing (most RE investors don't, in my experience).

Sockigal

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Re: Case Study -- low-income seeking Financial Freedom
« Reply #5 on: September 24, 2017, 09:34:04 AM »
You children might be able to get almost a full ride through college. Go online to the colleges they are interested in and start using some of the online cost calculators. With your income and being a single mom, I bet almost 100% of college will be paid. Private art college is super expensive though and they might not offer as much aid as state schools. Sometimes they will give scholarships, but I would look into a nice state school, with a great art program.

Paul der Krake

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Re: Case Study -- low-income seeking Financial Freedom
« Reply #6 on: September 24, 2017, 11:03:32 AM »
Unless you find a prestigious college that will take your daughter under their wing, I would give up on the art degree and prepare her for reality.

Your situation is such that your children will be eligible for boatloads of aid IF they make the required grades. It's probably too late for the first one, but the second could be headed to the flagship state school if she keeps it up.

Your cellphone is too high. Unlimited talk/text and 1GB of high speed data is $20-25 with the right MVNO. See the telecommunications guide in the Share your badassity section of the forum.

civil4life

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Re: Case Study -- low-income seeking Financial Freedom
« Reply #7 on: September 28, 2017, 09:22:39 AM »
Personally, I would not consider the investment property.  You have 2 other businesses that you are probably better off spending your time growing.  Is it possible to rent more than one bedroom out occasionally?  Have your kids double up when the second room is used?

I am actually using a professional organizer in preparation to sell.  I am using an accredited one so I am paying the higher prices.  I think you should be able to charge in the $40 to $50 range right now.

As others have said the kids need to pay for their own schooling.  The only thing is since you are receiving child support I am guessing the father has a decent income.  It would be your combined income when determining financial aid.  In any case definitely consider junior college to get the general requirements. 

Otherwise great job on the limited income.