My Husband Needs to Make More Money
Q: Thank you for writing about the fact that sometimes a person’s financial troubles are due to underearning. I am a stay-at-home mom with three children and my husband does not make enough money. As a result, we aren’t saving anything for retirement and college and in fact we’re going deeper into debt every month. He does not understand how much kids or for that matter life costs where we live. His solution is that if I want more money, I should go back to work, but that was not our deal. How do I get him to realize that he needs to generate more income?
A: Hold your horses.
You may be right that your lives would be easier if your husband made more money, but that does not relieve you of the responsibility of living within your means. The fact that you’re not saving and piling up debt shows very clearly that you’re not taking that responsibility seriously.
You have choices about how much to spend, and if you’ll look around in your community you’re likely to find families surviving on a lot less than your family makes now. You may have to make sacrifices, get creative and stop keeping up with the Joneses, but you can do it.
If you aren’t willing to make that effort, then your going back to work may be the only solution. It doesn’t matter what “deal” you made back when you decided to stay at home; that was then, this is now. The agreements couples make about money often have to change over time as circumstances change. If you demand a lifestyle for your family that exceeds your present means, then you need to help finance that.
Either way, you may find that your taking responsible action has a positive effect on your husband’s earning ability.
Right now, he may feel like every dollar he earns goes into a black hole; why should he work harder or look for a new job if the extra money he makes will disappear into that maw? If you switch gears and become an effective money manager, he may come to believe the extra effort is worthwhile.
In any case, you need to stop rowing against your husband and start rowing with him. Lay off the poor guy, and take care of your end of things.
Should we use savings to pay down debt?
Dear Liz: My husband and I are far from “drowning” in debt, but we’re trying to pay off our credit card bills by Christmas because we would like to buy a house by next summer. We have a good-size savings account but I hate to use it for credit card payments. On the other hand, we are living like paupers trying to pay down this debt. Any idea how to make life a little easier?
Answer: Sure. Get over your hate.
It makes little sense to have money sitting in a relatively low-rate savings account when you’ve got credit card debt that’s almost certainly accruing finance charges at a higher rate. Use your savings to pay down your cards. Once that debt’s been paid off, you can beef up your savings again by redirecting the cash that had been going to pay the credit card companies.
If you had been planning to use your savings as a down payment, you may need to delay your home plans by a few months as you rebuild the account. But it’s important for you to get in the habit of paying off your credit card bills in full every month for your financial security and your future peace of mind.
Buying Home with No Down Payment a Bad Idea
Answer: Anyone who buys a house with less than a 5% down payment is immediately “upside down” on her purchase. That means she owes more on her mortgage than she could net from selling the house because the costs of selling a home typically eat up at least 5% of its value.
Being upside down wasn’t a big deal when home prices were soaring and quickly building equity for us. Now that prices are dropping in many markets, however, those with little or no equity can be in a world of hurt if they can’t make the payments or need to sell. Today’s rising delinquency and foreclosure rates are testament to that.
Another downside of buying a home on a shoestring is that you may not have the resources to cope with the inevitable stuff that goes wrong: the furnace that breaks down, the roof that needs replacing or utility bills that suddenly soar. First-time home buyers are particularly vulnerable because they often have little idea of how much it costs to maintain and repair a home.
That’s why it’s a good idea for all home buyers, particularly novice ones, to have at least three months’ worth of mortgage payments in the bank after accounting for a 5% down payment and closing costs. That may mean waiting longer to buy a house, but you’ll increase the odds of being able to keep the home once you get it.
Dealing with Multiple Debts
Dear Liz: I just graduated from college and landed a job that pays $43,000 a year. Three years ago, I purchased two houses as rentals. To tell you the truth, my mortgage debt is high, but I have only $5,000 in student loans and about $3,000 in credit card debt. The mortgages have fixed-interest rates that are low.
Should I focus on paying down the mortgages or is it a big mistake to do that and lose the tax deduction? What do I do if the housing market crashes? Have I taken too much risk?
Answer: What’s important is not how much debt you have. It’s what kind of debt and how well you’re managing it.
Credit card debt, for example, is almost always a bad idea. The interest typically isn’t deductible and can be jacked up if you make a single misstep (such as paying late or maxing out your cards).
Many people erroneously believe that credit card debt is normal in America, but in fact Federal Reserve figures show the majority of U.S. households have no credit card debt, and the median balance among those that do is just $2,200.
Student loans and mortgages, meanwhile, are usually classified as good debt because the things they buy (education and homes) are considered investments.
As long as you haven’t overdosed on such debt � by buying too much house or borrowing more for your education than you’ll make in your first year out of school � you don’t need to be in any particular hurry to pay down this debt.
In fact, most people find there are much smarter uses for their money than paying down low-interest, tax-deductible debt such as mortgages and student loans.
You, for example, should be contributing at least 10% and preferably 15% of your gross pay to a 401(k) or other retirement account. You probably should have a fat emergency fund as well to cover those inevitable months when you’re between tenants and your homes sit empty.
Now, all this assumes that your rental houses are paying for themselves � in other words, that the rents you receive cover your mortgages and other out-of-pocket costs. If that’s not the case, then your homes may not be building wealth: They could be eroding it.
Some people bought money-losing rental houses assuming that double-digit appreciation would bail them out, but those days are over for a while. If these homes are money pits, you may be wise to sell them while you can.
Credit card tax burden can be on employer
Saying No to Hand-Outs for Adult Children
Q: We have bailed out our adult son and his wife so many times that we are dead broke. Our savings are gone and so is most of our monthly income. I bring home $1,000 a month and my husband is a disabled vet with an income of $2,000 a month. My son has a good job and his wife works, but they think it’s more important to have fun than pay bills. Unfortunately, there is never enough money after the fun to pay the bills. It’s always, “The lights are going to be shut off” or “The car is going to be repossessed” or “There’s no food in the house.” They have two kids and another on the way. Do we let them go without electricity and food for our grandkids or do we just keep shelling out?
A: Here’s what you probably already know: if your son has a good job and his wife works, your grandchildren are not going to starve. Yes, the lights might get shut off and yes, the car might be repossessed and yes, those consequences might be the best things that ever happened to this pair of overgrown teenagers.
Your son and his wife know they can push your buttons with these tales of dire “emergencies” created solely by their own irresponsibility. It’s long past time for you and your husband to disconnect the wiring that has caused you to impoverish yourselves for their benefit. Saying, “No, I’m sorry, we can’t help you” may not cure their free-spending ways, but it will keep your financial ship from being sunk in their wake.
