Expert: Gina Boykin - 7/30/2009

Question
Hi Gina:

I am a 49-year-old middle manager for a large corporation; father of two teen daughters.  I need to find some help.

I make a low six figure income and have always considered myself a good manager of money.  However, the last three years have witnessed an alarming degradation in our family’s financial position.  This was primarily driven by two significant health problems experienced by my wife in 2007 and 2008. Despite our best efforts, the associated costs and lost income drove me to increase our debt far beyond what I had ever intended.

Total assets = $273K (house, $190K; retirement, $75K; liquid, $8K).
Total liabilities = $200K (1st mortgage, $110K; 2nd mortgage, $50K; debt, $40K).
Net worth = $73K.
Annual gross salary = $112K.

There is absolutely no extravagance in our budget, and I work constantly to keep expenses down.  However, I am being strangled by constant cash flow shortfalls.

I feel like I need outside help desperately.  I have tried to fix this problem myself, and it just keeps getting worse.  I am a disciplined person and I just feel like I need to have a pro access the details and provide me with a program.  I know that I can stick to that program.  I would gladly pay for such help.

However, I am completely clueless on where to go.  Financial Planners only seem interested in clients who are awash in cash for purchase of product.

Any advice would be appreciated.


Answer
You may actually be a good candidate for consumer credit counseling with the NFCC.  They offer financial education and counseling.  Most people think of them as the company that helps people negotiate with creditors and pay down debt, but they also help people get on a reasonable budget, and could answer any specific questions you have as you work through your budget, and as you run into any difficulties month to month.  The NFCC (National Foundation for Credit Counseling) is the name of the overall agency, and they have locations and affiliates throughout the country.  This is the ONLY agency I would recommend.  If you try to google "credit counseling" you may end up with scammers.  The website is nfcc.org.

With your salary, there really should be no problem paying regular expenses and your debt.  The only way to really figure out what is causing the problem is to track ALL of your expenses, be truthful with what you are really spending and not just what you planned to spend in your budget, and take some steps to ensure that your costs do not get out of hand.  

Correcting your budget: It is possible that your budget is not realistic.  It doesn't account for things that you really will spend money on at some point, or nonrecurring expenses.  For example, some people don't put anything in their budget for clothing, which is impossible for a family with teenagers.  Did you include your annual property tax or insurance bill?  Annual amounts should be included in your budget as 1/12 of the amount, and it should be set aside to savings so that you have the full amount when it is due.  These are just some things to get you to think about your budget again.

Correcting your spending: You mentioned that there is no extravagance in your budget, but it sounds like there must be some in your spending. You may do well with an envelope system.  Some people divide the money for their expenses (other than bills which hopefully you pay online) into envelopes, and once the money is gone the spending stops.  This can work great for things like eating out, groceries, drycleaning, etc.  The family will be forced to use what they already have instead of spending more money.  The reduction in spending should be a family goal - which means getting your teens involved as well. They may need to work and be responsible for some of their own expenses, or you could reward them when they find ways to save the family money by giving them a percentage of the savings.