Every Day

Family Number One

I told you previously that I have agreed to give advice that hopefully will help two families who have asked for my help with their finances. Both families have asked that I keep their names anonymous. I have agreed. 

So couple number one are Bruce and Noreen(not their real names). They are in their mid- forties and have one son who they would like to see go to college. Bruce has a professional office job and Noreen is a stay-at-home mom. They live in a home in suburbia in one of the Northeastern states.

I am going to give you their net income and expenses after Bruce’s Federal and State taxes, Social Security, Medicare taxes, 401k deposits, and healthcare payments through his employer have been taken out. They have $ 55,397.  yearly left for all other expenses.

I want to remind everyone that this is a no judgement site. I and you are here to help with suggestions not criticism. Bruce and Noreen have told me that they made some bad choices in the past so they have $21,000. in credit card debt. They have consolidated them onto the lowest interest card and they pay $1500. a month towards paying them off.  

Their monthly spending that is deducted from the $55,397. figure is as follows(all numbers have been rounded):

Mortgage and Property Taxes:  $1298.
1 Car Payment:  $ 570.( a second car is paid off)
Groceries: $ 300.
Restaurants and Take out: $150.
Clothing: $100.
Entertainment, Hobbies, and Misc, etc. – $250.
Household: $160.
Travel Savings: $120.
Car Insurance(2 cars): $160.
Gasoline and Oil: $ 121.
Car Registration and Inspection: $ 19.
Car Repairs, Tires and Other Maintenance: $100 
1 Cellphone: $60.
Home Telephone: $43.
Electric and Gas Bills: $ 183.
Cable TV, Internet: $123.
House Insurance: $ 71. 
Credit Cards: $1500.

Total Monthly Spending: $ 5328.
Total Yearly Spending: $ 63936.

They have $125,000. in 401K savings.They have drained their bank savings to help with their credit card payments. They only have $2,000. left which is $500. more than one monthly payment. They have no emergency fund. 

Any spending that they can’t account for they have added into their entertainment, miscellaneous figure above.

They are spending $ 8539. more per year than income. Hence they have asked for advice on how to fix this. They were absolutely shocked once they started tracking their income and expenses to find how much money they were in the negative. This is the reason why everyone should track this every month. Otherwise you have no idea what you are spending and for what.

I asked how they have kept afloat and they told me by spending down their savings which was an inheritance they received. But as you can see they don’t have much left.  They also rob Peter to pay Paul within their budget.

My first look at this told me a few things. They are paying too little on their debt so the interest is eating them alive. They must cut expenses and Noreen needs to make some income by either finding a job outside the home or finding one that she can do from her home at least until the credit cards are paid off. They need to sell anything in the home that is not being used to help pay their debt. I don’t think their grocery spending is out of line for a family of three. But with careful use of every morsel of food and all the other tips that I will give them via the blog this month, they should be able to knock $100. a month off of that spending. The restaurant and takeout and clothing budget spending needs to stop until their credit card bills are paid. The miscellaneous budget needs to be reduced. 

I asked them what the household amount encompasses. They said it is everything for the house inside and outside except for food. So basically it is HBA, cleaning products, personal care and yard and house maintenance. That probably can not be reduced by much. But they can try.

I also noticed that they had no money shown to pay for garbage pickup or water and sewer. They told me that it is included in their property taxes. 

The monthly travel savings needs to be stopped until their debt is paid. 

They can research other auto and home insurance companies to see if they can lower those amounts. The gasoline and oil figure is reasonable since Bruce commutes to his job and Noreen only runs local errands. 

Perhaps they can cancel the home phone since they have two cellphones. Bruce has one that his work pays for and Noreen uses the one they pay monthly for.

I will show them how to reduce their gas and electric bills. 

Can they look at cancelling cable and using some other services that are cheaper until their credit card debt is paid?

The lack of an emergency fund is one of the reasons that their credit card bills became so high. Every time prior to the inheritance, they would use the cards when an emergency came up.  

I also see no money spent on gifts and I asked them why. They said they charge them especially at Christmas. 

They have to do everything they can to reduce expenses and bring more income in to the household to pay off credit cards, bring spending into line so that it is less than income coming in. They have no choice or they will lose everything in the long run. They also need to do this so that they can save an emergency fund and save some money for their son’s college education.  

Being in their mid forties, they also need to ramp up their retirement savings.

These are my quick thoughts. This month I will show them how to cook cheaper meals at home and never get takeout or eat at a restaurant. They do have a stockpile and are doing the stockpile challenge this month along with me and others.

Anyone that has any quick thoughts for this couple, please feel free to comment.   

I will introduce the other family in my next post.

32 replies on “Family Number One”

Their car payment is awfully high- is this a luxury vehicle ? Get rid of car and buy a less expensive model slightly used. They are paying off the cc debt pretty fast st $1,500 a month. That’s $18,000 a year so the debt should be retired in about 15 months. That frees up a lot of money!

It is not a luxury vehicle but a large vehicle. They have told me that they can not get rid of it for anything near what they owe on it. I have already discussed that with them. As far as the debt, you are not considering how fast the interest is adding up.

Maybe they need to suck it up and dump the car for something with a smaller payment. I suspect this car was bought new. They are not frugal, as you said. They can get rid of it, they just have to want to badly enough. They can make excuses for all their expenses.

Ok, since you asked LOL here's my 2¢.

They are living too far above their means and they need to find a new "normal" as far as their lifestyle goes.

Continuing on at this rate, even after the c/c debt is gone and they will be hurting once Bruce retires, IF he can afford to retire. But it's not too late even at 40-something to keep the bus from going over the cliff.

They need to suspend spending in the following line items asap for the short term–eating out/take-out, clothing,entertainment/hobbies/misc., travel savings, home phone and the cable component of the internet/cable line item. That would give them approx. $725-$750(depending on how much the cable bill is)off the top to throw at the credit cards in addition to their $1.5K per month. Adding that almost 50% of what they pay now on the c/c would help accelerate the pay-off from 14 months+/- to about 8 months(off the top of my head calculations here w/out knowing the interest rate they are paying).

Since they have $2K in the bank(which can be their emergency fund for now)throw EVERYTHING they can at the c/c debt.
Once that is gone then sit down to rejigger the budget and decide where and how much of that $750 per month to put back into the budget and how much should now go into an emergency fund going forward and/or into retirement accounts.

How old is the son/how close to college age? This will affect where some funds after the debt is paid off will need to be allocated too.

The food budget looks quite reasonable so don't touch that just yet.
But if you are going down for the third time, no budget line item is sacrosanct.
Getting a small job to throw at the debt will help immensely too. When Hubs and were first married all my income went to pay off his student loan debt and we paid if off in 3 years(lot less $$ back then that they seem to be now tho).

This is a hard situation to be in but it's fixable but they have to sacrifice for the short term and really want it to change.
I am here too if any one wants another nickel's worth of advice. 😉

Hi Sluggy,

I am always interested in your $ .02! I agree with most of what you have said. One of the problems is that their CC interest rate is 17.9%. So the interest charges each month are high. I believe that everything needs to be looked at including their grocery budget. They could easily live on $200. per month or less with the stockpile they have. Their son is 10 years old and in the 5th grade.

I 100% agree with your second to last sentence and I have told them what needs to happen. Noreen has actually been looking for a job for a few weeks now. She was worried about childcare for her son when he gets home from school. However, a neighbor that she trusts has said she will watch him after school for just a loaf of homemade bread a week. That is a great deal! Noreen is looking for both a part time and full time job. She will take which ever comes to her first. But she is relieved that she has after school care for him.

That is all good to see about her job search.

I don’t know what their credit rating is but I think they should be looking for a balance transfer to a lower interest card if at all possible. That high interest rate is going to be hard to pay down.

Yikes! I had no idea that a $21000 credit card balance would require a $1500 monthly payment.
They were doing great with their food budget already.
I agree that the vacation, clothes, anything miscellaneous needs to stop while they are making those CC payments.
Best wishes to them and to you as they help them.

The $1500. is what they have been paying every month. At their interest rate, they will be paid in full in about 16-17 months. I agree on the food budget but to get their finances healthy they need to cut everything that they possibly can.

It's going to be interesting to see how you approach this – Food budget is really low no – can't imagine feeding 3 adults for $300.00 a month especially with the rise in food costs. Noreen should definitely find some kind of part-time job and cancel eating out and travel fund – that would help a lot – I'll be watching to see what you come up with – you are always pretty clever..but it is easier if you have been living frugal your whole life – it won't be easy and that retirement fund needs to be boosted. Good luck – Mary Ellen

Hi Mary Ellen,

I can only teach them what I know. It is all up to them. They both know that either Noreen or Bruce( a 2nd one) have to get jobs. They cannot make it without them. It will not be easy for them because they are not frugal people. But the final outcome is not mine, it is up to them. They can take my advice or continue on the path they are on. It's all up to them.

Can their utility company do an energy audit. While the bill doesn't seem that high, are they doing the little things that can save energy like: LED light bulbs, t.v. on a power strip, insulated curtains drawn to keep out heat in summer and warmth in in winter, checking the weather striping on doors n windows, running appliances during non peak times?
Every little bit helps. Some energy companies will do free home audits.
It is wonderful that they are trying to get control of their budget. They have a terrific mentor in you.

Hi Ellie,

I have suggested an energy audit to them. They are contacting their utility company to see if they offer those. Their home is about as large as mine is but doesn't have the high ceilings. They should be able to lower it. We enjoy weather that is very similar. Thanks for your suggestions. I know they will appreciate everyone's help. They are very worried and stressed out.

Stop using the dryer! Hang clothes on a line outside or on a rack inside. If wrinkles are too much of a bother (they are for me) toss them in the dryer for just a few minutes. No spend days can actually become a competition…two days every week for starters. I hope this couple will soon be able to relax a bit; it's a terrible worry indeed, but they're seeking help and they've come to the right place. And they're young…they can do this. Knuckle down, buckle down. And keep loving each other.

While I do agree about the energy audit since every little bit helps, are they also tackling things that also really add up? Do they have little habits like getting the kid a coke and candy or burger after school? $5 a day x 30 days is a shocking $150/month x 12 months is $1800/per year, even more shocking.

If they have a stockpile, they can lower their food expenses and still keep buying best deals for stock up. $75 spent a week is going for more than milk and fruit/vegetables. Are they keeping a list of every penny spent?

Hopefully they will follow your advice. I have found lots of people want to be out of debt but take away their cable, eating out, hugh phone bills, and all types of spending they have reasons why they can't

Hi Liz, this is Chris. I had my granddaughter yesterday so couldn't answer until this morning. So far I agree with all the advice given. I thought of a few other things that weren't mentioned:

1. Do they need 2 cars? Consider getting rid of one of the cars if not a need.
2. Can they refinance their mortgage, or is it at a low rate now?
3. It looks like they have a growing child so may need to get clothes for him/her. Try to get hand me downs, and shop mostly at yard sales and thrift stores.
4. Does the wife absolutely need a cell phone? The home phone bill is cheaper per month, plus, if she ends up taking a job and the child gets old enough to stay home alone, he/she will have a line for emergencies.

I know some of these things are not pleasant, but they are all things my husband and I have done through the years to save. I love how you and the community here are so willing to help them, and definitely no judgement from here, I wish them the best, and hope you will keep us updated on their progress. I am pulling for them.

Hi Chris,

They will need the cars if Noreen gets a job. The mortgage interest rate is very low. Good advice on the thrift store clothing. Phones depend on whether she gets a job or not. Good advice thought if she doesn't.

I will be updating once a week on both couples progress.

This is Chris again. I thought of something else when I was reading blogs this am. Have them check their tax with holding. There is a "Paycheck Checkup" on the Irs web site. With the change in tax law, they may need to re-do their W-4s. We did this when we did our taxes and had to adjust our with holding. I would hate to see Noreen and Bruce get a big surprise at tax time next year, although, hopefully, their taxes went down and they can get more back in their pockets each month.

They NEED to sell that SUV (I'm assuming it's an SUV). That vehicle is what's known as a sunk cost–a cost that has already been incurred but which cannot be recouped. You should never use a sunk cost as a reason to make (or not make) a financial move–the money is gone and there's no getting it back.

That $570/mo is a serious bleed at $6840/year.

If they sell their vehicle and buy a used vehicle with whatever's left over after it's paid off, they can save themselves a huge chunk of money. Yes, that means buying a small, used car that has good Consumer Reports ratings. After all, how big a vehicle does a family of 3 need? The goal is to get out from under that CC debt, and getting rid of a money-guzzler like that is a needed step.

I am a wee bit concerned that Bruce and Noreen's anxiety over their situation may carry over to Little Son. I do hope that he is included in the general discussion of "bills to pay so we're cutting back a bit", but not burdened with the angst that Bruce and Noreen share. He's just a little dude and kids should still be kids. I say this with nothing but love; I've seen firsthand what sharing too much can do to a child.

This is Wendy (debtfreedetermined). I have been in their situation before. I feel for them. But I am testament that anyone can dig out of it.
-Turn water heater off until 30 minutes before it is needed. Electricity savings
-Beans, beans, and more beans. You can eat beans for every meal in some fashion and it is CHEAP. Wraps, beans and bread, beans in soup, bean burgers….
-Vinegar. For everything. Fab softener, cleaner, disinfectant, …
-Stay out of the store and away from people. The less the exposure the less the influence.

Hubs thought of this…..if possible(depending on their credit score and how much equity is in the house)take out a home equity loan to pay off the credit card debt. A HEL rate would be much LOWER than the 17.99% they are paying on the c/c. Get the loan and keep throwing that $1.5K at that and STOP using the credit cards! Since the debt is costing them so much in terms of their available cash this would be the best way to knock the debt out quicker so they can get on with saving for an EF, retirement, college, etc.

Hi Sluggy,

They actually applied for the home equity loan and are waiting to hear if they got it. Hubs is right the difference in the rates is huge. I have suggested they stop using the cards for everyday things. They want to hang on to them until they have their EF in place. They say it is there only choice if they have an emergency.

Thank Hubs for the suggestion.

Maybe Noreen can use this time while she is looking for a job to make sure she is caught up on household chores (laundry, cleaning, etc.). She could also try to make some freezer meals with the food that she currently has. She can also look through her closet and find outfits that she can wear to work using the clothes she already has. These things can help her when she first goes back to work since that will be a big change! If they can't cut eating out and entertainment expenses out completely, maybe they can set a goal to try and reduce the amount of money spent each month until it is down to zero. If they change things too drastically, they may not be able to stick with it. I'm not sure if the son takes his lunch to school but that could be another expense that they can cut out. Thank you for helping these families out and good luck to both families!!

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