Living just off her Social Security income, a 72-year-old woman asks columnist Alan Klayman how to go about paying her property taxes on such a small fixed income.
Dear Maturing Loans,
I am a 72-year-old single, retired woman who just bought a home in Texas a year ago to be closer to my daughter. When I bought the house, I chose to pay my property taxes myself instead of setting up an escrow account with my mortgage company so I could earn interest on that money throughout the year. Unfortunately, my life savings went up in smoke because I had my money invested in with a bogus investment firm in Florida. To make a long story short, I ended up having to charge around $4,500 in property taxes on a zero percent interest credit card. My only source of income is Social Security payments of $1,675 a month. I am feeling completely overwhelmed by my credit card debt. Not only do I have to save for next year’s property taxes, I now have thousands in credit card debt. Help!
Based on what you wrote, I’m led to believe that you don’t have any savings or investments to work with. So let’s work with your expenses and budgeting.
A good practice is to take all of your expenses and add them up. That means taking a look at your property tax, as well as your mortgage, your utility bills, groceries, clothing, water, heat, car, insurance, and any other expenses you may have and add them all together. If you know how much each bill is monthly that is great. If you know them annually, then divide that bill by 12 (like your property tax: $4,500 divided by 12 = $375/month).
The information you have given is as follows:
$375/month property tax
other expenses= ?
Next, you need to add up your sources of income and compare your income to your expenses on a monthly basis. Here’s what we know:
Social Security = $1,675
If your utility expenses are up and down in the summer and winter months, ask your local utility company to go on a ‘budget billing’ plan. This will give you the same bill every month and makes it easier for you to plan. Many utility companies offer individuals with a certain income a break on their expenses. Check with your utility and see if they have a ‘senior’ or ‘income hardship’ type of a plan.
Next, go to the bank and set up an account to pay into every month for your property taxes. Part of feeling overwhelmed is having this unexpected expense. Budget for it, and you’ll have it licked. From what we know so far:
Income ($1,675) – Expenses ($375/property taxes) = $600/month
What you need to do is to go back and look at your expenses in detail and see what is left over. If your expenses seem a bit out of line, then take a hard look and see where you can trim. Are you taking three trips to go to the grocery a week? If so, plan ahead and reduce it to one trip. End result? Save on gas, and trim a bit from the budget. Another tip to save on gas is to keep your tires properly inflated. Every couple of miles/gallons saved ends up in your wallet.
You may want to consider ways to increase your income. Perhaps you have an extra bedroom that you can rent out? You can ask a renter to contribute toward the utilities, too. Maybe you can advertise yourself for part-time work in the neighborhood, such as child-sitting or pet-sitting or something that you’d enjoy doing a few hours a day. Just bringing in an additional $1,000 a month (between a renter and part-time income) would certainly ease your worry.
With what is remaining after all expenses (clothing, groceries, entertainment and any others), you can then address your credit card debt. The fact that you are paying 0 percent on your credit card is very admirable. Part of your budget should now include trimming that debt. How long should you take to pay it off? You should pay off the debt prior to incurring any interest charges. Speak to your credit card issuer and see how long the 0 percent interest rate is good for. If you cannot pay it off in time, see if there are balance transfer offers to keep you paying 0 percent or as low an interest rate as possible.
Once you have your income and expense numbers together, I am looking for you to prune away at your debt. So before looking at any assets you may have or thinking about any future debt, your next steps should be:
1) Compare your income versus your expenses on a monthly basis.
2) Trim your expenses where possible.
3) Consider increasing your monthly income with part-time work and getting a roommate.
4) Inquire about budget billing and any other programs offered by your utilities.
5) Save for property taxes with a special account (setting up your own escrow).
6) Budget to pay down credit card debt over time.
7) Monitor your credit card interest rate. Here is a simple budget worksheet you can use.
See you back here next week, ready to answer your questions.
Alan Klayman is creator of MyIncomeStrategy.com and CEO of Klayman Financial LLC. Klayman specializes in retirement income planning, business management and planning, estate planning, tax-advantaged investing, trust investment management, professional money management, insurance and annuities, mutual funds, fixed income securities, and institutional and personal retirement plan administration.