Need money management help!

[Mnemonic]

OK... So here's a little info about my situation... I am a private contractor for a mortgage company, And i showed $56,000 this year on my 1099. My wife makes about $18,000/yr on a W2 for the county.

I also just incorporated and will be showing a small loss as a S-Corp this year.

 

So here is my debts:

Credit Cards - about $10,000

Auto Loan 1 - $12,000 Balanace, 3 years remain

Auto loan 2 (new) - 19,750 Balance, 5 Years remain

Motorcycle Loan 1 - $7100 Balance, - 4 years remain

Insurance cost - $527/mo (Just for the 2 cars, the bike's ins. is paid in full)

Rent cost - $900/mo

 

So now you see monthly payments are pretty high right now... I have been trying to sock away some savings, and i also have a Roth IRA...

 

ING Savings - $2100

Roth IRA - $1800

 

I am what you call a impulsive buyer... and I recognize that is a bad thing... I need a plan to get my credit cards paid off and get myself back on track! Can anyone help?

[rpatty]

Usually the most accurate way to do a budget checkup is to break everything down into monthly payments, though it's good to know the total, too. Can you tell me what the payments are on all those vehicles, plus all other monthly expenses? Plus, what's your monthly take-home pay? (Somewhere in the range of $3500, maybe?) I'm also a little confused about the motorcycle insurance, which you say is paid in full. Is that just for this year? Even if it's paid only once a year, you should factor in 1/12th of it each month, just so you know the average monthly cost.

 

In general, there are two major tactics if you're in a tight financial spot and want to make something change: increase income or reduce expenses. Your income is pretty good, so unless you want to follow that option more, I'd guess expenses would be the thing to target. Particularly since you label yourself a compulsive spender, I'd guess that targeting this area makes sense. You might see if you can develop tricks to delay purchases, and let you decide if you really need them before going for it.

 

To an outsider, the obvious large step you could take would be to get rid of the bike. I'm sure you like it, but unless it's somehow a necessity, selling it should not only get rid of a decent chunk of debt, but also get rid of one monthly payment. The only other big ticket items you've listed are the cars, so they're the only other thing I can say anything about. You'd definitely free up some money if you sold them and replaced them with older models. Even if you had to take out small loans to get the replacement car, your monthly payments would drop significantly, and your total debt would really start to shrink. That would leave you more money to pay off the cards.

 

I definitely wouldn't touch the IRA -- investments are too important, and the penalties are too steep. And I like to keep an emergency fund in savings, so I'd definitely leave at least $1k there, but some of the rest could either go against the card or be used if you decide to go the car-replacement route.

[Mnemonic]

Wow, great reply... here - I will break down my income and my monthly payments.

 

My Monthly Income - 3644

My Wife' Monthly Income - 1428

Total Montly income - 5072

 

Payments

Rent - $900

Car 1 - $330

Car 2 - $314

Bike - $175

CC's - $200 (Roughly)

House utilities - $420 (right now)

Insurance - $527

Cable (TV & Network) - $147

Cell Phone's - $77

Vonage Home phone $27

IRA Payments - $250

 

Total - $3367

 

Besides groceries and all that kinda stuff thats my monthly nut... i usually try to put $1000 a month towards the CC's, but then it just ends up going back on the card when i have alot of bills one week..

 

It feels like an endless cycle.

Edited February 10, 2005 by Mnemonic

[Mnemonic]

I was thinking about the car replacement... but I just bought my wife her new truck... cant get rid of that...

 

Then there's my car... I could sell it, but I refinanced it and have a 4.59% rate on it and only 3 years left...

 

And the bike... ugh. I was going to sell it... until i realized that a $8500 new harley davidson is only worth $6200 used , even with 500 miles on it.

[rpatty]

Hmm. The numbers actually look pretty darn good, because in theory you should have close to $1600 extra every month. If you're not catching up, there's a good chance that money is leaking out of the system somewhere -- quite a bit of money!

 

You might try an intensive program of carrying pen and paper with you and writing down everything you spend, just to figure out where that extra money is going. You may find that you have to add a few items to your budget that you've just overlooked, but you'll probably find at least a few things to cut. I didn't see food on the list, for instance: eating out is usually a huge money drain, and might be one area to keep an eye on. But you definitely want to factor in groceries to the list--if you buy 'em every month, you should account for that. Same for gas, and anything else like that. That'll probably cover some of the money, but still should leave you more than $1k per month.

 

Yeah, it's a pain when you're upside-down on a car or bike, but it still might be worth selling, particularly the bike. If you owe 7100, and it's worth 6200, then you'll have to cover the rest with money from your savings. (You might get some insurance money back, if that helps.) But then you'll be instantaneously free of almost one fifth of your debt, just like that. Plus you've got another $200/month to put towards credit cards. It could make a pretty big difference.

 

You might also take a look at the timing of your bills. If there's a week when a lot of them are due, maybe you can shift some of the due dates around so that they're more evenly distributed throughout the month. That way you're less likely to need to put anything back on the card. Just remember that this doesn't really affect the primary issue of income versus outgo, it just reduces the strain on individual paychecks (assuming you're paid biweekly or bimonthly).

[bfarber]

I'd HIGHLY recommend getting a program like MS Money or Quicken and track EVERY penny for about 2-3 months. You'll quickly see where the majority of the (non-expense) money is going. Eating out, movies, leisure, whatever. After you've identified the problem, it will be easier to look at a resolution.

[radi8]

Insurance - $527

 

 

Have you shopped that around? That seems kinda steep, even for NY.

[WebGo]

I would strongly second what bfarber said. I think it would be a great help if you had a means to track, IN DETAIL, your spending. I use and recommend MS Money, but Quicken would work just fine, as well. You can always use pencil and paper - whatever you are comfortable with.

 

In looking at the numbers you posted I see some areas that you did not include. I will outline some below. These items may or may not be impacting your true monthly results.

 

Auto - Gasoline

- Maintanence (Car wash, oil change, etc...)

 

Food - Groceries

- Dining Out

 

Personal Items - Clothing

- Accessories

- hair cuts

 

Household Items - Sheets, Towels, etc...

 

Entertainment - Shows, Movies, Clubs, etc...

 

Gift & Donations

 

I am sure there are other areas, but that is just a few to look at. I imagine if you totaled those items it would have a significant impact on your budget.

 

So, once you have a full tracking of all your expenses and income you can then make the adjustments to each category based on your priorities and goals.

 

Track, anaylze, and act!

 

Track all items.

Anaylze the data and make decisions.

Act on them and be disciplined with your budget and you will achieve your goals.

 

Good Luck!

[yucca]

Insurance - $527

 

 

Have you shopped that around? That seems kinda steep, even for NY.

<{POST_SNAPBACK}>

 

 

I'm thinking the same thing. Is the rate to protect your bussiness? Or is it just for the autos?

[Mnemonic]

Insurance - $527

 

 

Have you shopped that around? That seems kinda steep, even for NY.

<{POST_SNAPBACK}>

 

 

I'm thinking the same thing. Is the rate to protect your bussiness? Or is it just for the autos?

<{POST_SNAPBACK}>

 

Yes, I have shopped it, I have the new Chevy Blazer full coverage and my '03 Hyundai Tiburon full converage... Long island sucks for insurance rates... Plus they have me in the system with running a red light 3 years ago... I havent gotten pulled over within 5 years! How did i get the ticket? And I tried to remove that from my other report (cant remember the bureau they use for tickets and accidents), and they verified it with the DMV!

 

I am with geico, and this is the cheapest rate i could find... (keep in mind, I am 23, and my wife is 21)

[s1100]

Dude Buy a house.$900 dollars and your getting no equity.

[stormblade]

I would agree with the two or three other posters. Find out where your "non-bill" money is going.

 

What worked for me was when I bought something I always kept the receipt in my pocket. At the end of the day take all the receipts in your pocket and enter them into MS Money, Quicken or even a spreadsheet of some kind. Do that for at least two weeks (a month would be a better guage). Then look at where the money is going and decide what is important.

 

Up until about October of last year I was a spendthrift of the worst sort (always living from paycheck to paycheck). I read some of the Rich Dad book series and it opened my eyes to another way to look at finances. I have gone cold turkey with the spending and taken control of the finances (before I would just ignore it and hope it went away).

 

Think about what could happen if you or your spouse got sick or hurt and couldn't work. It is a sobering thought, but using that as a club on myself helped me see that working forever paycheck to paycheck is even more dangerous than skydiving.

[Mnemonic]

Dude Buy a house.$900 dollars and your getting no equity.

<{POST_SNAPBACK}>

 

Simply because on long island you cannot find a tiny shack for under 320,000 in a decent neighborhood...

 

I would love to buy a home, but the payment would be too high, getting the down payment and closing costs would be real hard, PLUS lets not forget the taxes average $5500/yr for a small home here...

[madflower]

You can get out of this fairly easily but it will take some discipline. It is a hard lesson, and it will take a couple of years. So you need to get your wife onboard. You also need some organization and get rid of the notion that 20 bucks

isn't much money.

 

You have an income of 5072 dollars and your total payments are 3367 dollars.

 

You have 1700 going somewhere. Where? Do yourself a favor and figure this out.

 

Open up a second CHECKING account. put about 200 dollars over what your monthly expenses are (the highest ones) that you posted already so say around 3560, have that balance transferred out of your existing checking acccount. then set up automatic bill pays for your monthly expenses. what is left in your current checking account is what you have left in your budget to spend.

 

At the END of every month balance transfer everything left in your spending account over to your Bills account give yourself some wiggle room. Like i keep 500 bucks in my checking account for monthly overages. Keep 500 bucks in your Bills account too and everything over that send a check to your credit card company for what is leftover. Keep track of it, make sure you do the monthly balance transfer to your second checking account. Start from scratch every month. Give yourself some new toys. both of you should have around 100 bucks ea in toy money. clothes, computer toys, whatever, fun or look good feel good types of things.

 

Get rid of your savings.. your ING account is doing you absolutely no good.

you are making 2.5% on 2k but aren't you paying more then 2.5% on your credit cards? You are actually losing money with that account. If you need money, reborrow it off your credit cards. I call it a reverse savings plan, I don't know if there is an official name for it. There is little sense in borrowing money if you aren't making more then you pay for it. ie a 12% credit card costs 20 bucks a month, interest earned per month is 4.17 cents so you are saving 15 bucks a month

 

If you are spending more then 200-300 bucks a month on food including eating out, coffee, etc. Take up a new hobby, called packing your lunch, or _making_ your own dinners (this means actually cooking, you learn quickly) and coffee. It saved me a shitload of money and everytime you eat, you think about what your long-term goal is and why you are eating PB&J instead of mcdonalds. Take your wife out once a week and make it your night together. but if you guys are spending 5 bucks each for lunch, that is 200 dollars a month. That is a lot of PB&J and chances are your lunches are costing you more then 5 bucks. Also when you go out, don't buy drinks. If you want a beer, wine, etc go buy a 6-pack or a bottle.

 

Get rid of the cabletv extras. 150 bucks means you have hbo, cinemax, showtime, porn channels, etc. go to basic cable and if you can write off your high speed internet, you can keep that. If you NEED to watch a movie, rent one, but do it one at a time. If you need entertainment, buy a financial or a cookbook, take walks together, etc.

 

Literally if you you are making that much a month you should be able to afford a house payment which is a great investment especially when you figure in the tax deductions and the equity you will build. The house is maybe? what you should be dangling as your carrot to your wife to buy into the savings/payoff plan and getting her into the habit of packing a lunch too. I realize lunches can be a social occassion, so maybe allot one lunch per week out for the both of you.

IE lunch money. It is going to take a few years though.

 

You can cut out your motorcycle if that is purely for entertainment. It will help you pay off your debts faster even though you will take a loss.

 

What you SHOULD see is this. You start living within your real budget. Notice also that you are paying an extra 200 bucks towards the principal towards your credit cards and you have less interest accumulating on those with the 2000 ING account money being added to those and you arent reducing your payments, you are reducing the principal owed.

 

Once the credit card is paid off, then start in on one of the vehicle loans and do the same thing. Just don't reduce how much money you are putting into the account. keep it at the 3560 plus leftovers, if you you get a raise then add that too. Seriously your leftovers should be around 500/mo. so within a year or two, you should have your credit card at 0, and be working on the highest interest car loans. If you guys BOTH get serious about it, you can probably find you can live fairly decently on around 500/mo leaving around 1k/mo extra at the end of the month.

 

Once you get those paid off... then start a saving fund again.

[JessieLyn]

Insurance - $527

 

 

Have you shopped that around? That seems kinda steep, even for NY.

<{POST_SNAPBACK}>

 

 

I'm thinking the same thing. Is the rate to protect your bussiness? Or is it just for the autos?

<{POST_SNAPBACK}>

 

Yes, I have shopped it, I have the new Chevy Blazer full coverage and my '03 Hyundai Tiburon full converage... Long island sucks for insurance rates... Plus they have me in the system with running a red light 3 years ago... I havent gotten pulled over within 5 years! How did i get the ticket? And I tried to remove that from my other report (cant remember the bureau they use for tickets and accidents), and they verified it with the DMV!

 

I am with geico, and this is the cheapest rate i could find... (keep in mind, I am 23, and my wife is 21)

<{POST_SNAPBACK}>

 

 

Try progressive.

 

My fiance went with them because they want 140 a mo.... 110 for me.

 

hes 19 no tickets. im 21 and have 8 tickets, 6 suspensions and 1 revocation on my file (AND THEY GAVE ME $110 for my rate when i get my car... )