Living on a Budget, Saving Money/Where to Start???
QUESTION: Dear Ms. Cross,
I am 49 and my new husband is 43. Combined, we earn approximately $80k per year. We have no savings and we live paycheck to paycheck. We are currently paying off credit cards and medical debts; and are scheduled to have those paid back sometime in 2018. (We are doing it ourselves, not using a service.) My husband has psoriatic arthritis and takes two medications that will likely decrease his life span substantially. We need to pay off the bills. We need to purchase life insurance. We need an emergency fund. We need 3-6 months of living expenses saved up. And one of our vehicles' transmission just went out! So, my question to you is, where do we start and what sort of plan do we need?
ANSWER: Dear Lisa,
Thank you for your question.
I am sorry to hear about your family's situation and the stresses you are facing, and I know that with the right plan for you, you can get things to a place that are manageable.
I would like to look at this thoughtfully, and can do so in one of two ways. If you would like to provide more detail on numbers, I can give some ideas on strategy. Or if you are comfortable in sharing what you have sent only, I can give to you some general idea on a starting place.
With option 1: a) What take home salary are you bringing in each month, b) what are your "must needs" totaling each month in living expenses, c) what are your "discretionary needs" totaling each month, d) what are your credit balances and interest rates, e) what medical debt amount are you required to pay each month and is it being charged interest, and f) have you looked into life insurance options and premium amount choices?
With option 2: You can begin by simply organizing your numbers, which can be the hardest thing to do when facing payoff needs and no savings and an even more difficult medical fear and emotions that might accompany all of it. I say this only to recognize that looking at the numbers is not easy.
And, what you can do is look the above a-f numbers that I asked before to get an idea of how much you really need and how much your really can manage. And then lay it all down on paper to get percentages of what each expense or need is compared to your net income each month or each week. Then I generally say it is helpful to have several checking accounts open perhaps at a credit union or somewhere where low balances are not an issue, where you can move money in and out and keep things separated instead of one or two accounts where it can get overwhelming.
And then after determining how much you need and can really afford to pay, then there is determining how much you can afford to put away, which may not be as much as you'd like, but doing even a little bit each week can be empowering.
Getting organized and getting a plan down are very often the biggest hurdles, and certainly the most empowering and comforting practices as things will not turn around overnight, however with diligence and light on your path it will not feel impossible.
If you want to let me know which option is best I can help guide you through more specifics on how to move forwad with a plan.
---------- FOLLOW-UP ----------
QUESTION: Thank you for your detailed and thoughtful reply. I have answers for all of your questions and hope you may be able to help us further. I cannot see how to contact you privately, but I may want to do so since you are obviously very knowledgeable and so willing to help. If we might work together in the future, please provide me with the best way to contact your business. I should say at this point that I own my own business (sole proprietor and it is an LLC), so that makes things more challenging for us, financially. I work from home and have no employees or much overhead.
My answers to your questions:
Q. What take home salary are you bringing in each month?
A. My husband nets about $1400 a month and I net about $3100, so our combined monthly take-home is about $4500
Q. What are your "must needs" totaling each month in living expenses?
A. About $4400
Q. What are your "discretionary needs" totaling each month?
A. About $1000 (yes, I see a clear problem here!) :)
Q. What are your credit balances and interest rates?
A. $277 balance at no interest rate; $700 balance at 25.24%; $1900 balance at 23.25%; $4626 balance at 23.15%; $432 balance at 21.25%; and $2940 balance at 0% until 9/17 and then it increases to 23.24%. That 0% card is a new one I just obtained and transferred the balances of two other cards onto.
Q.what medical debt amount are you required to pay each month and is it being charged interest?
A. Our medical debt totals about $1250 right now and no interest is being charged on those. $57.87 balance that will be paid off in July. $220 balance. $100 balance. $872 balance. I should note here that my husband's medical condition requires him to see his rheumatologist once every couple of months, which typically costs us about $150-$200. We have not been paying this at each visit, and we're unsure whether we should try to pay it or just let it add up and pay "what we can, when we can" on this bill, in order to get the high-interest rate credit cards paid off sooner.
Q. Have you looked into life insurance options and premium amount choices?
A. Yes, I have been researching this in the past week. And while I feel strongly that we need to purchase life insurance ASAP, I don't see how we can possibly afford to.
Thank you Lisa. Because this is much more involved and not private, would you like to email me personally with your email address? I will respond to your reply via your email in the next 48 hours after giving it a thorough assessment. My email is (forgive the spaces and obvious additional at signs and dots, to avoid spam)...
m e g h a n @@@@@ f r e e f o r m f i n a n c e s .......com