Thursday, February 28, 2013

Negligent Infliction of Emotional Distress #21: Monthly Expense Project and Moral Hazard

NIED #21: Monthly Expense Project and Moral Hazard
By Christopher J. Knorps

                On January 25, 2012, I had an inspiration.  The germ of this idea came from a period in early 2008.  I had recently gone on a road trip and managed to spend about $10,000.  While I could track most of my expenses through credit card statements, obviously I had not been diligent about keeping receipts from cash transactions.  Thus, I became paranoid that someone was taking money out of my account—recognizing that I was traveling (filling up my tank about once a day, paying for a hotel almost every night, buying snacks and meals) and incurring heavy expenses, and believing (perhaps correctly) that they could slip a withdrawal or purchase under my nose. 
                But it took four years for me to realize that a more eloquent system had to be constructed for personal finance.  Starting on February 1, 2012, I kept track of every dollar (nearly every penny) that I spent.  On February 1, 2013, I had completed one year of what I called “Monthly Expense Project” (or MEP).  Here were my totals (for the 5 main categories out of 16):

Total: $27,207.15 ($2,270.46 per month average)
Transportation: $2,344.75 ($195.40 per month average)
Food: $3,820.72 ($318.39 per month average)
Recreation: $4,923.93 ($410.33 per month average)
Academic: $1,877.67 ($156.48 per month average)

                More important is the disparity between “fixed” expenses and “discretionary” expenses.  Here, my 1 year MEP shows an interesting trend—as my fixed expenses dropped, my discretionary expenses grew (the disparity arose from a summer spent in Chicago, where I paid about $450 per month in rent as opposed to about $1,000 per month in Brooklyn). 
                On a very general level, I can tell that my fixed expenses come close to equaling my discretionary expenses.  Of the $27,207.15, about $11,000 of that is attributable to rent.  Thus, my total income after taxes should be about $33,000 (applying the general principle that rent should equal 1/3 of net income).  My total expenditures after rent totals approximately $16,000.  Thus, I would have roughly $6,000 to dispose of in other ways—it could go into savings, but after graduation, a good portion of that should go to loan payments.
                But more interestingly, how do these totals stack up to the approximations that Brooklyn Law School provides for its incoming students?
Add $49,976 to my total and you get $77,183.15 (the school estimates $75,536—not bad!)
                However, the school estimates housing in the amount of $17,200 (probably the cost of a fairly nice room in Feil Hall).  Subtracting $6,000 for me, the school estimate drops to $69,536. 
                Now this starts to look fishy.  Am I really spending almost $8,000 more dollars than the typical law student?
                What about transportation?  The school estimates $950 for that category, and I spent $2,344.75, about a $1,400 difference. 
                A word about transportation: over the summer, I took the El Train to work every day, and had monthly CTA cards, but at BLS, I rarely use the subway (I walk to campus).  However, I have also taken a number of plane trips, and this is probably responsible for my high totals (though there is certainly an argument to be made that this transportation expense is misleading).
So now, we’re down to $6,600—but let’s get to my favorite category: living expenses. 
                The school estimates that the average student will spend $5,880 on miscellaneous and living expenses.  Now, I did spend roughly $3,800 on food, which leaves about $2,000 for recreation, toiletries and various household expenses like cleaning and laundry. 
                If you add my recreation and food totals, it equals a whopping $8,744.65—almost $3,000 over the school estimate. 
                Still, there is about $3,600 difference lurking in the shadows.  My academic expenses equaled $1,877.67 and the school estimates “books” at $1,300.  Down to $3,100. 
                You could take out another $1,400 for health insurance—which I was on last year until I realized I could qualify for Medicaid (the school factors $0 into health insurance and does not widely distribute information about Medicaid—perhaps an attempt to drive up business with their provider, Aetna).  Still, there is a $1,700 shortfall.  I would imagine that cell phone and other utility bills makes up this difference.
                I advertised MEP as best as I could.  One other person participated in the November MEP.  My total was $1,999 and “Jackie Chan’s” total was $1,955, so the average was $1,977.
                My goal with MEP was to show that the school’s estimates were inaccurate and misleading.  People often criticize for BLS for its massive tuition and the expense of living in what is perhaps the most expensive area in Brooklyn. 
It is questionable what kinds of figures the school is “estimating” for food and recreational expenses.  It is not surprising that MEP has failed—but I am not a quitter and I demand that one more attempt be made.  The point of MEP was to write a scholarly article about personal finance, and to send it to Elizabeth Warren for comments.  In Chapter 13, disposable income is separated from fixed monthly expenses, and the debtor pays the court each month, and the court distributes that amount to creditors.  The point of the article would be to see if those amounts allocated by the court ($280 for food per month, for a single individual, from what I recall…) matched up to reality. 
Of course MEP is a larger project, but it has its seeds at BLS, and my experience of going from “fairly wealthy” to “broke” from 2007-2013—and I do not think my experience is unique.
I urge you to join me in the March 2013 MEP.  I know I will have at least three other participants, but of course greater participation equals greater accuracy.  Please visit this link to watch a 28-minute video of the MEP Presentation.  I will e-mail you the slides from the Powerpoint if you prefer not to see the comedy.  I realize that MEP can be a tedious exercise, but it has been a valuable one for me (it has helped me figure out what kind of salary I should aim to earn), and I would be very pleased if you join me in this endeavor.

Christopher J. Knorps is a 3L.  He enjoys studying Bankruptcy and Constitutional Law.  He is organizing a Monthly Expense Project “reporting” for March of 2013—please e-mail him at if you are interested in participating.  He is also organizing a 2nd Annual Open Mic and seeking performers so please contact him if you are interested. 

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