Single mom’s expenses leave no money for food

Dear Liz: I’m a single mom with three kids. My mortgage is $1,700. My other monthly bills include $355 for a car loan, $755 for school tuition, $350 for utilities, $790 for credit cards, $200 for gas, $208 for braces and $235 for a 401(k) contribution. This leaves no money for food. I get no child support. How can I pay down my credit card debt? I don’t have any money for a baby sitter or I could get a second job.

Answer: The way you pay down credit card debt is by reducing expenses and increasing income to free up extra cash. If that’s not possible, you may need to consider bankruptcy, given the amount of debt you’re carrying.

If you’re paying only the minimums on your credit cards, that monthly bill indicates you have close to $40,000 in credit card debt. Since you can’t cover your basic expenses, you’re probably adding to that debt pile every month. That needs to stop.

You don’t say why you aren’t receiving child support, but if the father isn’t dead or disabled he should be helping to support his kids. Your state has an enforcement agency that can help you. Child support enforcement is often part of a state’s social services department, although it may also be offered by the state attorney general or its revenue (tax) department.

One obvious, if painful, place to trim is private school tuition. If the school can’t offer you financial aid, you should consider placing your kids in the best public school you can manage.

What you don’t want to do is trim your retirement plan contribution. You’re probably getting a company match, which is free money you’ll need to sustain yourself in retirement.

In general, your “must have” expenses — shelter, transportation, food, utilities, insurance and minimum loan payments — should equal no more than 50% of your after-tax income. If your must-haves exceed that level, it will be tough to make ends meet, particularly if you’re trying to pay off debt and save for the future.

Holiday triage: How to get ready when you’re not

Christmas shopping woman holding giftsThanksgiving is so late this year that I’ve been drifting along in a lovely bubble of denial. Even my Jewish friends’ preparations for Hanukkah haven’t been enough to alert me that Christmas isn’t far off.

Today a TV crew from a local Chinese-language stopped by to record some tips for enjoying the holidays without creating debt. The key, I said, is planning. So now’s the time to take my own advice.

Holiday season is a busy and expensive time, one that for us includes entertaining, travel, several family birthdays and a bucketload of presents. So here’s what I’ll be doing this weekend to prepare:

Finishing the spreadsheet. I use an Excel spreadsheet to list who will be getting presents and a target spending amount for each person. The spreadsheet also includes an estimate of what we’ll spend on travel (airfare, hotel, gas, food), entertaining (drinks, food, centerpieces), decorations (tree and lights) and holiday tips for the people who make our lives easier (cleaning lady, gardeners, hair stylist and so on). I total everything up, gasp, and start making adjustments so that our spending won’t leave us with huge bills in January.

Going on a treasure hunt. I buy gifts throughout the year and stash them in convenient hidey-holes throughout the house. I’ll dig them out and add them in the appropriate cells on the spreadsheet so I don’t wind up buying duplicate gifts.

Cashing in. I’m not a huge fan of gift cards as gifts, but I love using them to buy real gifts. I also have a rewards credit card program that allows me to use points to get Visa gift cards that, again, can be used to buy gifts or given in lieu of cash as a holiday tip. My daughter and I will also take our coin jar down to the nearest Coinstar to get a fee-free Amazon.com gift card. (Coinstar also offers gift certificates to iTunes, Starbucks and a bunch of other retailers.)

Stocking up. I like to take advantage of holiday sales to buy an extra turkey (to freeze and use later), stock up on baking supplies and lay in a fresh supply of crackers, dips and other nibblies for drop-in guests. This is also a great time of year to double dinner recipes and freeze half for those days that are just too frantic to cook.

I plan to finish this weekend in much better shape for the holidays. How about you? What needs to get done now for you to be ready?

Automatic payments for charity: pros and cons

Dear Liz: You recently suggested people consider putting their charitable donations on automatic. While I have automatic deductions for savings because I do not want to constantly remind myself to do it, I want to remind myself of all other expenses. For me, prudent money management requires attention to all expenses. Your thoughts?

Answer: Many people find that automatic payments make their lives easier. They’re able to meet their obligations (and avoid late fees, in the case of bill payments) while minimizing time spent in repetitive tasks each month.

But none of your expenses should be “out of sight, out of mind.” Automatic payments don’t eliminate the need to carefully review your credit card and bank transactions each month. Reviewing your bills periodically, and making adjustments as necessary, is an important part of responsible money management regardless of whether you take advantage of automatic transfers.

Creating a budget that works

Dear Liz: I’m beginning to realize that I have no idea how to budget. I make plenty of money but always seem to come up short. I’m trying to find the best person to help me make a budget. Do I talk to a CPA or a financial counselor? If so, how do I find the right person?

Answer: Budgeting has three basic steps: figuring out where your money is going now, deciding where you want it to go in the future, and monitoring your spending to make sure you stay on track with those goals.

Just because something is simple doesn’t mean it’s easy, however. People often fail to account for predictable but irregular expenses, such as car repairs. Once those crop up, the budget is thrown into disarray and people often give up on the spending plan.

Budgeting also can be difficult if you’re overspending on your overhead. If too much of your income is going for basic expenses, you may not have enough left over to live a comfortable life, pay off debt and save for the future, regardless of how many other expenses you trim. People who spend too much on shelter (mortgage or rent) and transportation (car payments and attendant costs) in particular often find they can’t create a balanced budget. Your “must haves” — shelter, transportation, food, utilities, insurance and minimum loan payments — ideally should be 50% or less of your after-tax income to create a workable budget.

Some people find that online solutions, such as the Mint.com financial tracking site, are enough to get them started with a budget. Other people need hands-on help. If your tax pro or financial advisor has experience helping people create and monitor budgets, that’s certainly one place to turn. Otherwise, check to see whether your local community college offers basic money management courses. Another option is a nonprofit agency affiliated with the National Foundation for Credit Counseling at http://www.nfcc.org. Many of these agencies offer classes or hands-on help creating budgets.

What are you willing to give up?

HopeAs a reporter I learned a technique that saved my sanity. I asked my bosses to make choices.

In journalism, as in other fields, there’s far more good work to do than there is time to do it. Editors can and will keep piling on the assignments. So I learned, when my plate got too full, to ask my bosses to help me prioritize.

Here’s how I did it. I always said yes to the new assignment, then followed immediately with, “But I’m also supposed to do this and this and this. Which of these other projects should I drop?” Or “back burner” or “table” or whatever euphemism worked best with this particular editor.

Saying yes made it clear that I was a team player, that I valued my boss’ direction and that I wasn’t one of those pain-in-the-ass whiners who had to be wrestled into doing actual work. But quickly reviewing my current assignments reminded the editor of all the other work she’d tasked me with.

A more experienced journalist had explained that it was part of my boss’ job to help me prioritize. Managers are supposed to keep an eye on the company’s ultimate mission and encourage the actions that support that mission. Until he said that, I’d been saying yes to everything and driving myself nuts trying to fit it all in.

Fast forward a few years. I’m now my own boss, writing for different clients and once again faced with far more work than time to do it. Now I’m the one that has to make choices. I have to figure out what my ultimate mission was and what actions support it (and which don’t). I also now have a life—a husband and a baby girl I want to spend time with. Suddenly it became a lot easier to ditch the work that didn’t pay enough (or at all), and focus on the stuff that did.

There’s one other place it can be helpful to ask what you’re willing to give up, and that’s negotiating with family members about financial priorities.

First, you need to sit down together and set some priorities—what’s most important to accomplish, where you want to be in five years, 10 years, 30 years. You figure out what you need to do to get there, then wrestle your priorities into place. (Quick example: You want to take a vacation with your family next year, replace your car five years from now and retire before you’re 80. You figure how much you need to save for each goal and adjust until it’s doable. Maybe to save enough to retire by age 65 you’ll have to put the Disney cruise off a couple of years…that kind of thing.)

When new wants rear their heads—somebody’s agitating for a bathroom remodel, say—you return to those priorities and decide together what you’re willing to give up. Maybe the bathroom remodel is important enough to delay your retirement until 67 or to continue to drive your old car another five years. Maybe it’s not. But the exercise reminds you of what you really want, and helps you decide—together—when and how to adjust those priorities.

Monday’s need-to-know money news

Today’s top story: Could holding out until 70 make a significant difference in your retirement? Also in the news: Saving on holiday air travel, what to do when retirement boredom sets in, and what daily habits could be derailing your budget.

Does Layaway Affect Your Credit?
Could this convenient holiday shopping tool impact your credit score?

5 Things Retirees Miss About Work
What happens when retirement finally arrives?

How to save money on your holiday flights
The trip to Grandma’s doesn’t have to cost a fortune.

8 Things That Can Make or Break Your Budget
Those daily trips to Starbucks can add up.

Why Waiting Longer for Social Security Is Usually Smart
Could holding out until 70 make a significant difference in your retirement?

How to deal with your debt

Zemanta Related Posts ThumbnailDebt may be a four-letter word, but it’s not necessarily the enemy. Some debts are much, much worse than others, and knowing which to tackle first can leave you richer.

That’s the central idea of my book “Deal with Your Debt,” and I go into more detail in this interview with Experian’s Mike Delgado. (Also, you’ll get a great view of one of our bedrooms…I couldn’t get my laptop to cooperate with Google Hangout, so I had to resort to the desktop.)

We covered a bunch of topics, including:

  • What you need to know about getting, and paying off, student loans
  • Why retirement has to be your top financial goal (yes, even ahead of paying off debt)
  • What debts to tackle first and
  • When to consider filing for bankruptcy

…and much more.

Tuesday’s need-to-know money news

My first carHow to speed up your mortgage closing, saving more money with a maxed out 401(K), and preparing for your teenager’s time behind the wheel.

Four Steps to a Speedier Mortgage Closing
Speeding up the last, agonizing step before home ownership.
How Rising Interest Rates Affect Retirement
Rising interest rates could leave you altering your retirement plans.
Maxed Out on Your 401(K)? How to Save More
Maxing out your 401(K) doesn’t mean you should stop saving.
The Impact of Adding a Teenager to Your Auto Policy
Prepare to open your wallet when Junior’s ready to get behind the wheel.

How to Budget as a Live-In Couple
Creating a budget can make a stressful time much easier.

How much should you spend on rent?

Dear Liz: I am wondering about what percentage of your income should your rent be. Ours at the moment is 35% just for rent, not including utilities or anything else.

Answer: In high-cost areas, people regularly pay 40% or more of their income on housing. That doesn’t mean it’s a good idea.

When you spend a big chunk of your income on rent or mortgage payments, there’s often too little left over to save for the future, pay off the debt of your past and live for today.

There are no hard-and-fast rules for what’s affordable, but limiting your housing costs to about 25% of your gross pay or 30% of your after-tax pay will help ensure that you have money left over for other goals. “Housing costs” include rent, utilities and renter’s insurance if you don’t own, or mortgage, property taxes, property insurance and utilities if you do.

If you’re much over these limits, you should look into ways to reduce your costs, earn more income or both. Otherwise, you’re likely to continue to struggle with an unbalanced budget.

Friday’s need-to-know money news

House With Tree DamageHow to prepare for a disaster, avoid the financial pitfalls that come with a speeding ticket and how to get the latest iDevice without destroying your family budget.

How to Plan for Any Disaster
Preparing for the unexpected.

Do Employer Credit Checks Damage Credit Scores?
Understanding employer’s right to access your credit information.

5 Tickets That Will Ruin Your Insurance
Slow down to avoid paying extra.

5 Frugal Summer Activities to Beat the Heat

Staying cool doesn’t have to melt your wallet.

Don’t Let Gadgets Devour the Family Budget
Sometimes the latest isn’t the greatest.