Budget Help for a Reader – What’s Your Advice?

June 18, 2007

I received the following email from a reader. Although his situation isn’t good, it could be a lot worse. One thing he mentions in the email stood out to me like a sore thumb. Let’s see if you can spot it:

I was contemplating taking some retirement money to pay off some debt, which would reduce monthly payments so we will get out of the cycle of coming up short of money every paycheck, thus taking on more credit card debt. My debt started 9 years ago (mid-30s). Coincides with buying a house, getting married, and having children in fairly rapid order. Before that the only debt I had ever had was one car loan and a student loan. Well, when I bought my house 9 years ago I borrowed from my dad so I would have 20% down. That is long paid off. I have a wife & 3 children: 6, 4, 2.

I should add that since I wrote the first time, I cashed in about $6,550 in a 401k program from my current employer. The program was ended a few years ago when they switched to a new program, and I never rolled the old one over. I’ve set aside 35% of that distribution for taxes and the 10% penalty. I didn’t like doing that, but I’m running out of options, at least it seems that way to me.

Here is my financial info:

Debt:

  • Fixed mortgage 5.875%, $76.5k balance, pay ~$620/month. I bought the house in 1998 for $79.5k, refinanced 3(?) yrs ago for the lower interest and reduced payment (not really a significant decrease). Reportedly the house is worth $150K or more now, but I don’t trust that number.
  • $50k LOC variable 7.99% $43.5k balance, minimum 1% of total for payment per month. I got the loan a year ago, rate hasn’t moved (yet).
  • CC 17.5k balance, most is 4.99% fixed, some is 3.99% fixed (until I’m late on a payment of course). Payment currently ~$350/month.
  • Car loan – ~$1,200 balance, 5.something interest (6-yr loan, term up this December), ~$293/month. This is one that I want to pay off early. Even though it’s not the highest interest, the monthly payment doesn’t change and the balance is getting low, so the drop in monthly payments is significant).
  • $1,000 on a credit line, no interest if paid by January 2008.
  • $6,000 for my 4-yr-old’s pre-school, $3,000 due at the end of this month, $3,000 in December. This is our big extravagance. Education is a top priority, but our youngest (2-yr-old) isn’t going to pre-school because we can’t afford it.

Other monthly payments:

  • Phone (land & cell) – $40
  • Auto Insurance – $130
  • City fees – $45
  • Electric – $50 winter, $175 summer
  • Natural Gas (home) – $30 summer, $125 winter
  • We go through about 7-8 tanks of gas per month

Income:

  • One income, net $1,800 every 2 wks (while paying $333 health insurance, $13.75 optional life each check), plus quarterly bonuses that net about $1,100 each.

Assets:

  • SEP IRA $14,000 balance (from self-employed days)
  • Trad. IRA $1,300 balance (from self-employed days)
  • 401k matching $10k balance – my current job. I haven’t taken advantage of the program in three years, since we learned we had a third baby coming. I anticipated financial trouble coming as soon as I found out. I keep hearing what a sin it is not to take the free money, but it seems worse to incur high-interest debt just to contribute to an IRA.
  • no savings.

I would appreciate your highly esteemed advice! If this is a bad idea, what to do? My wife hopefully will be back to work in a year or so, but probably needs some training to do what she wants, so it may take longer and require more payments for training first.

Where to start?

This reader didn’t give me ALL of his information but here’s what I gathered from the information above:

Monthly Cash Flow

The first rule in personal finance is you have to live within your means, which means you have to SPEND LESS than you EARN. Although this might be hard to stomach, the FIRST thing I would do is give up the $6,000 per year preschool. I understand that education is important but things like preschool are luxuries and should be used ONLY if there are means to provide them. This family cannot afford it. That $6,000 per year would go a long way towards getting this family back on the right track. Besides, I seriously doubt that forgoing preschool will have a negative impact on the child. Take them to the library and museums instead.

Based on what I can tell, this family’s immediate needs are:

1. An emergency fund. They have nothing right now, which means any emergency that comes up will have to be funded with credit cards or debt of some sort. I know from experience just how tough it is to be struggling to pay off credit card debt only to charge an emergency back unto the very card you are trying to pay off. Emergencies will come whether we are prepared for them or not.

2. Controlling their spending. According to their cash flow information from above, they have a positive cash flow of around $600 per month. However, he told me in the email that they are actually spending more each month than they earn. They could have even more if they dumped the preschool. He told me in an another email that his wife has trouble controlling spending. If this is the case, I would sit down with her, show her the budget and emphasize the importance of staying within the budget. If that doesn’t work, I would then give her the cash she needs to meet those needs.

3. Once the emergency fund has a balance of at least $2,000, I would then concentrate on paying off the credit card balance. Additionally, they will have another $300 per month once their car is paid off.

4. I would get back into the 401(k) as soon as possible. Although forgoing a long term goal sounds legitimate when times are tough, you have to realize just how much you are giving up. That $6,500 he cashed in could have easily been worth $65,000 – $113,000 in 30 years.

Finally, I would like to tell this guy to not lose heart. Although his situation isn’t good, it could be a lot worse. He could owe a lot more on his car loan and he could also have a lot bigger mortgage. So, it’s not all bad unless they don’t get things under control now.

Now, I would like to open this up for input from everyone else. Do you have any suggestions for a fellow reader?

37 responses to Budget Help for a Reader – What’s Your Advice?

  1. As I was reading the email, I could feel my anxiety level and blood pressure rising, and breath shortening, just imagining myself in this financial predicament. As I type, I’m telling myself to breath deeply… inhale… exhale.

    True, it could be much worse, but it looks like quite a squeeze. Unfortunately, I think a lot of couples with kids in this middle income spectrum are under the same pressures. Fortunately, it looks like there are a couple of immediate changes that could make a big difference to this couple.

    I’d note a couple of “luxuries”: As JLP points out, the $6000 pre-school is a no-brainer. Looks he can either have a SAHM or pre-school for the kids, but not both. After all, with a SAHM is pre-school absolutely necessary? Much as I can appreciate that staying home with kids is hard work and the wife needs the break from the older child, the preschool is simply not affordable, and eliminating it would free up substantial cash flow.

    The other scary part is the lack of emergency fund. The availability under the LOC is essentially the emergency fund. Agree with that priority.

    Lastly, much as I’m sure they’re both working hard raising a family, they are going to need more INCOME. It’s difficult to ignore that part of the equation of digging their way out.

  2. @JLP, The income of $1800 every two weeks is probably based on 26 weeks (i.e. he gets an extra paycheck every few months), plus quarterly bonuses ($1100 x 4 = $4400).

    Smoothed out, that monthly income looks more like $4265/month, which generates a “surplus” of $602/month. But, that said, that “surplus” could easily get eaten up by all the many misc. living expenses not detailed.

    Also, one other problem this family could face is the high level of variable-rate debt (the $43.5K on the LOC). They could get really walloped by rising interest rates.

  3. Miguel,

    Dang. You are correct. I’ll fix it. Geez…

  4. This is obviously pure speculation.

    $280 per month for gas? At $3 per gallon and 20 mpg, that’s 62 miles per day of driving. Can’t they cut 1/3 of that, to save $90 per month?

    The pre-school has to go. No question. $6000/year? What were they planning to do when their 2-year old gets older? These costs aren’t going to *decrease* as their kids age…

    Anyway, if I were he, I’d use the money he took out of his 401k to:
    1) Set up an emergency account
    2) Pay off the car loan and the small loan.

    Now he has a cushion both for emergencies and in his cash flow. But don’t get greedy. Use that cushion to start plowing into high interest debts. And STOP USING THE CREDIT CARDS. Don’t promise to “be smart” about using them. Clearly this family has good intentions, but they have a credit problem. Stop feeding the problem.

  5. I’d forget the energency fund. While you have CC debt, why have an emergency fund?

    1) Single income with 1 income means there is the other parent at home. They should be “home-pre-schoold”
    2) Then, take the 401k money out and pay off highest debt.
    3) contribute a 401k ammount up to gettign the full match. Then, withdrawal as soon as the match is posted. After taxes and penatlies, this can give youa 50% immediate return.
    4) Then hit the highest rate balances first. Make sure to pay off something quicker if the current rate will expire soon.

  6. I agree that the preschool needs to be cut. I think cashing out the 401k was a huge mistake. Out of the $6,500 after taxes/penalties he is going to end up with $3575? What a rotten deal!

    If I was in his shoes looking at that debt and seeing that I am paying over $1,800 a month on debt payments, I would sell the house. With the roughly $20-30k he could get, he could pay off all his loans (and of course the mortgage and equity loan would be gone – that variable rate isn’t going to stay put and with their finances already as tight as it is, I can see it pushing them into bankruptcy) and start fresh.

    Now he has $1,800 in monthly cash freed up to rent a good sized apartment (not sure where he lives) and start saving for a down payment on a house (and an emergency fund). While doing that he can cut up the cards, live frugally on cash, and change his spending lifestyle.

    If education is really important, he should realize that fixing his problems NOW when they are young is going to help them much better because he will be able to start 529s to help them pay for college. A college degree is going to benefit his 2 year old far more than pre-school.

    It may be 5-10 years before they can get back into a house, but I think they need to cut their loses, dump their debt and start new. Beats the alternative.

  7. Wow I feel for this family. I’m in pretty much the same predicament, except I’m not paying for any luxuries like preschool.

  8. Maybe ask his wife to get a part time job; where I work I see this often. Fore go for a while any training for a better job sadly until the situation levels out a bit. Make sure you tell the workplace your scheduling limitations and work around the husband’s hours so he can watch the kids while she puts in some hours. I won’t be much depending on what job you get but $200-300 per month extra at the low side still keeps them out of the red.

    Just reread, his wife is expecting another baby. Well that alone is going to be costly so a few months down the line this might be an option to keep afloat.

    Yup, get rid of preschool. See what they are spending on groceries and get rid of any splurges there. I did that during college; ramen noodle soup is now my #1 worst enemy; can’t stand the taste anymore. When my finances did get better during that time period I did waste more funds on eating out though. But seriously he needs to get rid of preschool; education is important but losing your home has to be worse. Maybe time to hit up your dad again; turn some of that interest debt into non-interest…

  9. 1. Yank you kid out of preschool TODAY! Don’t pay that $3K for the next term. Drop that $6k for preschool and read to your kid at night. A library card is free!

    2. Car insurance seems really high. Maybe I am an anomoly, but my car insurance is $50 cheaper while my car costs about the same. Might be able to pick up some change there.

    3. Six months of skipping preschool gives you $2k for emergency and $1k for the small loan. By then you will also have your car paid off.

    4. After you quit preschool, save for emergency fund, pay off the small loan, pay off the car, and look into cheaper insurance (ETA: February 2008), you will be spending between $950 and $1,000 less per month.

    5. Once you reach that point in February, DO NOT increase spending on anything, but DO increase savings gradually over the course of the year until you are at the matching level for your 401K, but keep living cheap! For emphasis: KEEP LIVING CHEAP!!!

    6. You need at least 3 years of being positive $600+ after savings to get out of CC debit.

    7. Three years and six months from now when you are CC debt free, getting the full match from your 401K, driving a car you own, with about $600 in the positive each month, start paying off the LOC and saving for your children’s college.

    that is how I would do it.

    good luck.

  10. JTC alluded to it, but it is worth noting that once the car is paid off, he may qualify for cheaper car insurance. It is certainly something to remember as soon as the car is paid off. Most auto finance companies (I work for one) mandate that your deductibles stay low. After the car is paid off, you can up them, and potentially save a little each month.

    It is also quite possible that the finance company did not ‘mandate’ low deductibles, but rather ‘strongly encouraged’ them, in which case, he may be able to up those deductibles right away and take advantage on car insurance payments.

  11. Car insurance depends greatly on where you live. I know in TX, car insurance is high and therefore his $130 per month didn’t seem high to me. My wife and I are currently paying $185 per month for our car insurance with $1,000 deductibles.

  12. Trade babysitting w/another SAH Parent so the days you are free of children you could work a part-time job… OR do babysitting from your own home to generate some money…

    Often community colleges offer childcare/daycare programs if you’re taking classes or working there. I’d certainly check that out to get future needed job-skills jump-started.

    Re: your Federal tax situation, do you get tax refunds or do you end up paying? If refunds, adjust your withholding and apply this to your highest debt…depending on how long your credit card rates are fixed…perhaps you’d choose the equity line debt since this has a variable rate. How often can this adjust (ie 2% a year?) and what’s the lifetime cap? This could be your largest financial enemy in the future…be careful!

    RE: car insurance…what’s your deductible? How much could your insurance go down if your deductible is higher–could you afford this if you ended up having an accident?

    RE: the recommendation to sell the home and get an apt.: Harsh, but may give more peace of mind. However, factor in any real estate commissions…perhaps this should only be a last resort if you can rein in spending/generate more cash flow.

    GET THE SPENDING UNDER CONTROL–any post-partum blues to blame for the spending? Talk it over w/your wife to get to the root of it. Is she getting a break from the kids? Maybe she can start a “playgroup” w/some other moms. Social interaction trumped my need to spend during those dark days of having too many toddlers and not enough sleep! Have you checked out Freecycle or Freesources for your children’s clothing and toys needs? Garage or tag sales? Give a wish list to family for needed items to be received as kids’ birthday gifts? No need to be spending much money on any of this “stuff”–the rest of us can’t wait to get it out of our homes now that this stage has passed (thank God!!)Often, it’s free for the asking!

    Good luck and keep the faith…but make the hard choices now while you have time on your side.

    And yes, preschool HAS to go!

  13. broke from comment #5 said:

    “I’d forget the emergency fund. While you have CC debt, why have an emergency fund?”

    Because it is probably the lack of an emergency fund that got them into CC debt in the first place. An emergency fund, if used properly, can give them some piece of mind and allow them to raise their car insurance deductibles.

    If they watch their spending, they should be able to pay off their CC debt AND save up an emergency fund.

  14. @ JLP
    I too live in Texas, and I used Insurance.com last month to switch from Geico to Travelers. I knocked nearly $200 a year off my rate, and I am young, single and still paying on my car. They are a consolidator site that will analyze all companies’ offerings based on one’s particulars and location. Since there are no switching costs involved, it might be worth the reader checking it out just in case he can get lucky and find that one company looking to penetrate his market by offering much cheaper rates. Also, since they also search for home insurance, there is an option to search both at the same time to see if a company will give you a discount for carrying both policies with them.

    Every little bit helps!

  15. Jordan,

    We also have Travelers and have been pleased with their service. We also have our homeowner’s policy with them, which entitles us to a discount.

  16. Oops! I forgot the most important comment: make sure you have a disability insurance policy. If YOU can’t work…how will you keep the apples in the air? Start shopping for one today and make it a priority–you can’t afford not to.

  17. been said, cut preschool and you’re now positive $1000 p/m. which is real real good. (obviously, you didn’t buy a home in california.) 5k this goes into 401k. remaining 6k into 2 – 3k each roths for you and your wife. on weekends, you watch the kiddies, and your wife gets a weekend job – which earns money and gives her a break from kiddies.

  18. @13 JLP:

    I think that broknowrchlatr was saying that they might as well pay off CC debt instead of the emergency fund. If an emergency comes back up, just put more back on the credit card. Worst case scenario (an emergency) you break even. Best case scenario (no emergency), you pay off the CC and it doesn’t jump to 25% causing a much bigger emergency.

    I’d focus on the LOC as long as I can keep the credit cards to the rate you have them at. As far as debt goes the 4.99% and 3.99% is actually not bad. The 7.99% LOC is twice as bad as the 3.99%.

  19. I agree with what has already been said, except for the selling the house part. Yes, I agree that selling the house is probably the smart thing to do, but psychologically I doubt that this family is ready for giving up the security of their home.

    This is going to sound like a bit of a self promotion, but I don’t really mean it that way-I think beyond the regular personal finance stuff, this gentleman, who obviously already reads blogs, needs to start reading about frugality. Once he gets rid of the obvious things, like the preschool, he needs to look at ways he can start cutting down his daily living expenses.

    This probably looks like an impossible task to him now, because his lifestyle probably mirrors those around him. But by reading about frugality he would start seeing that there are many people out there who chose to do things a slightly different way who are not necessarily “weirdos” or living an uncomfortable, mean existence. I would be willing to wager that this family eats out a lot, be it drive through or restaraunts, and that the wife cooks at home using a lot of convenience foods. The grocery bill is one of the easiest things to start paring down in any household–there usually is a lot of fat that can be worked off.

    Also, if he has a spender on his hands, by learning about distinguishing between a want and a need (big big big in the frugal communities) and buying second hand they can start saving a lot. Again, not really knowing the situation I would guess that someone who sends their kid to a $6000 preschool probably has bought their children all new clothes and doesn’t realize that at consignment shops, yard sales and thrift stores you can buy name brand stuff for your kiddos (and yourself) at a fraction of the cost. Sure, it is a lot more hit or miss, but doesn’t that add to the “thrill” of shopping? I once bought a $500 Jones NY wool pea coat in my size for $20. SCORE!

    I would highly recommend this gentleman and his wife head on over to some of the frugal websites. On mine there is, on the right sidebar a consolodated “frugal blogroll” that is run by Life in a Shoe. Even if he doesn’t like my site and never visits again, there is likely to be someone on there who strikes a chord and has some good practical day to day living and expense cutting advice.

    Good luck!

  20. There are people in far worse shape than this… I know one… who is looking at bankruptcy due to divorce, financial problems from the marriage and health issues. Generally, the only thing that turns these situations around are complete mindset to spend far less than one earns and save and invest wisely the difference. While this is not rocket science at root it requires will, discipline, persistence, and lots of on-going hard work.

    Good luck.

    I have been online for many many years, but never read blogs until recently. Thanks JLP. NICE SITE!

    What an enormous source of information and HOPE for those who are really willing to look themselves in the mirror and then BE DIFFERENT.

    Good luck to all who CHOOSE to make a difference for a better future.

  21. I agree with most of this, except for 2 things. First, I would keep the house. The rate is good and having to move and deal with real estate agents won’t be worth it.

    Second, if you want your children in pre-school, find a reasonably priced pre-school. It’s been shown that children that go to pre-school do better in life. But considering the price of the house, this individual lives in an area where $6k for pre-school would be putting the kid in one nice place. There are definitely cheaper places that will have the same benefit. Wait until high school for private school.

  22. the family is in pretty good shape actually.

    1. they definitely do not need to cash out the 401K and IRAs.

    2. They do not need to sell the house.

    3. they should definitely stop the pre-school. homeschool get the tax credit/deductibles for doing so.

    4. they should definitely stop using their credit cards.

    5. within 6 months the family will have additional $460/month when the car and the small loan gets paid off.

    6. use the current $602 overage plus the $500 freed from pre-school over the next 6 months (until the car and the small loan are paid) to establish an emergency fund of $5000 putting it into a high yield savings account. Use the $1612 difference to pay towards towards the cc debt.

    7. i would only pay the minimum on the $1k loan, b/c it is interest free until JAN 2008. use the difference to pay off the car loan. this will allow you to pay the car loan in 3 months. use the 3 months of car payment you would have had to pay, towards the $1k loan to pay off in december.

    8. by january you have $167+$500+$602+$293=$1562 free to use towards paying off the cc and the LOC. you will have the car paid off, the small loan paid off, and $5k in emergency fund. on paper, it is wiser to use the $1562 towards paying off the LOC since it is higher interest rate. pyschologically, it may give you a boost to pay off the cc after a year.

    9. the $1562 could also be split. use $1k towards either the cc or LOC extra payment, and use $562 towards 401K. i would probably opt more towards $1k into matching 401k and $562 towards the debt, though. remember putting towards 401k will decrease your tax burden, which will also free up money. plus you are getting double your money in the 401k. i would also use the $562 toward the cc even though it isn’t optimal, just so you can focus on the one big debt, the LOC.

    10. also you might need to take a look at part time work from your spouse doing something just to get extra cash. you can also take a look at what you own and perhaps downsize.

  23. You know, I am a big believer in education. My daughter is in a $500/month preschool for 3 half-days per week (if she were full time, the cost would run us around $1200/month). We are stretched to afford it. however, we are not in the dire situation these people are.

    I think the comments here are good. However, I can tell you that I would do a lot of things before cutting my daughter’s preschool (note: if you MUST have a preschool, look at church preschools – since they don’t have to pay building overhead, they are MUCH cheaper). So, with that in mind…

    Some comments.

    1) The very first thing I would ask, assuming that they are unwilling to give up some kind of preschool, is whether this person has a dependent care account available at his employer. Many employers will match part of the money that goes into this fund, and the money comes out BEFORE TAXES. This money can then be used to reimburse yourself for educational expenses for preschool (note that it is not available for private school for school-aged children, only for before and after school care; however, for preschool, the full tuition is eligible). If this is available USE IT.

    2) I suspect we are not seeing everything. With the numbers provided, they should be able to chip away at their debts even in the current cash-flow situation. however, they need to trim in the little places. I agree with the previous comments regarding checking rates for insurance. A lot of companies give rate breaks to people who have both their homeowners and vehicle policies with one carrier. This is DEFINITELY worth checking out as it could (a) reduce the insurance on the cars and (b) reduce the house payment.

    3) I saw no numbers on grocery bills or eating out or things like that. this is a place where you can save a good bit of money. coupons, sales, etc. are your friends. It’s really amazing how much these things add up.

  24. They are probably not budgeting since they didn’t write to you about firm numbers about the groceries, etc. I would hope the wife would work part-time on the weekend if they want preschool for the children. She could easily make $500/month if not then it should be cut.

    Big glaring mistake? Cashing out the 401k. I can’t believe people do things like that. Sigh, DH and I are working like mad to build ours up. Why would you take money away?

  25. The latest research shows 15-30 hours of preschool per week improves math & reading skills but negatively impacts social & behavorial aspects. The boost in math/reading is most pronounced in low income families. Middle class families get a slight boost while upper class families show nearly no difference. The math/reading bonus is usually gone by the 3rd grade but the social impact remains a while longer.

    My current thinking is to skip preschool for my kid and just be more involved as parents.

  26. There is little justification for pre=school in their situation. The kid will not be set back in life. I didn’t have pre-school, and I have engineering degrees from MIT and UC. My parents valued education highly, and that rubbed off.

    To track their expenses and keep a budget, I would suggest what a young lieutenant and his wife did: They had non-fixed-bills cash budget posted monthly on their fridge. As they purchased groceries, gas, clothes, and sundries, they subtracted it. It was easy to see where you stood relative to your budget relative to the month! I thought it was brilliant.

  27. they did mention groceries $600/mo.

    auto insurance seems high, but may not be reducible. what i didn’t see was home owner’s insurance, but it is hard to think that they don’t have it considering they have a mortgage.

    value of the house. i’m concerned about not knowing for sure about the value of the house. the house’s value determines taxes and insurance. over paying is a waste a money when the house is only worth $80k but you are valuating at $150k.

  28. I hate to say it, but he needs to give his wife an allowance and take away her credit cards. Start her on the envelope system since “normal” budgeting doesn’t work. Or set up a bank account for her and put the money in it every month. Use the CC for emergencies only. They won’t get a better deal on the CC debt. Drop preschool and look into the parks and rec or church for an alternative. Look for alternative driving situations – carpool, bus, walk to the grocery store (everyone needs to excercise), etc. Lastly, I’d put something away in savings/retirement and make it automatic. the $450+ they’ll have coming in January should put most of it to their LOC (find a way to get rid of that variable rate!) and a little towards emergency funds. Shop around for insurance or pay it off in lump sums to save a few more dollars.

    CONTROL YOUR SPENDING! Stop drinking your starbucks, or stopping at mcdonald’s for that big mac. Don’t buy books or movies, get them from your library. buy clothing and other supplies from the salvation army. Turn those lights out early! unplug your computer it still uses energy. Open up the window or adjust your clothing instead of turning on the A/C or heat.

  29. I like what Tim No.22 says. Except, having your pregnant wife work weekends and leaving you with two small children to care for sounds like stress city. Don’t do it. People under stress without down time spend, spend, spend. If the wife is a spender, get a budget that works and then give her the job of finding ways to get things lower. She gets to spend 50% of the savings. Think of it as a paycheck for her. She can find the lower car/house insurance and pocket 1/2 the savings to spend not apply towards debt. The money is put in a separate checking account for her to spend. This won’t require her to work outside the home. Give her one to two items to work on each week. After all, chasing two preschoolers while pregnant is tiring.

  30. i’m not a fan of the use cc only in case of emergencies. that really makes no sense to me. i think you should use cc for the discounting benefits of the credit card on things that you normally consume regularily. if you use a cc in an emergency, then you are essentially putting yourself in a worse financial situation–that is, you obviously do not have cash around, so you are going into debt to fund an emergency and will have to repay for that emergency. build up an emergency fund for the emergencies. use cc responsibily within your budget. for this family, stop using them until the cc are paid off and then only use them for budgeted purchases.

  31. Lisa, there are payoffs for everything; however, she can do something part time that doesn’t necessarily increase at-home stress but still reduces financial stress. heck, if they really wanted to reduce finances quickly, i’d even stuff envelopes at home. there are plenty of part-time jobs that have minor impact. heck, i know a couple that deliver newspapers every morning. i agree about changing the family’s spending behavior. having that much cc debt didn’t happen overnight…well, as far as we know from the limited history provided.

  32. I’m not a pro or anything but I think it’s important to figure out exactly where everything is going first (as has been said by others). So my suggestion would be for the next month pay all your bills as ou do but then everything else in cash based on your budget. Run out (of cash that is)and then you’ll find out where all the holes are. It’s a good exercise and look at it as fun… if possible. At the least it will be very educational.

  33. I feel for this family as well because I’m in a similar situation. Besides from the obvious that the other posters commented on, I would focus on the leaks in the budget. This family has $600+ vaporizing in thin air!

    I suggest going back to the basics and keeping a daily spending journal for a month to find the leak(s). And plug them quickly. Ordering lunch at work or eating out for dinner a couple of times a week can add up. Brown bag it at work and cook dinner for a change.

    As far as the debt? After fixing the budget I would focus on the variable interest rates first (i.e. credit cards, LOC). The auto loan and the “small” loan will be paid off in December and January respectively. No need to mess with those. Selling you house is extreme but if you can rent a home for less it may be time to sell and lock in your equity gains…

  34. –Valuing the comments & post, especially the clear benefit of building cash reserves.

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