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.
Entertainment, Hobbies, and Misc, etc. – $250.
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.