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)
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 http://www.youtube.com/watch?v=NIznoCng3Oo
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 Christopher.knorps@brooklaw.edu 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.
No comments:
Post a Comment