Starting over in middle age.

[Luxur]

VERY long and sordid story short : After many mistakes, screw-ups, and losing EVERYTHING we ever owned, we (middle-aged couple) are FINALLY starting over with a clean slate. So clean in fact that we have next to NOTHING to our names (no assets but thankfully also no liabilities).

We have two children and it will be a while before our older child is off to college. The younger child has special needs and will probably be living with us for the rest of our lives, which is an added complication to this horrible backstory.

What should we be doing and what things should we be getting in order NOW to ensure that we're not broke and penniless 20 years from today ? I don't know if we will ever own a home again (given our credit, which was wiped out in the afore-mentioned "screw-up") but I want to make sure that we're going to be OK in retirement. The housing issue is my biggest fear / worry / concern because we need to make absolutely sure to have a working plan for our housing needs and the housing needs of our child with special needs in our "old age" / retirement / etc.

Thank you in advance for your advise / help.

[Nutria]

So clean in fact that we have next to NOTHING to our names (no assets but thankfully also no liabilities).

What about the big red Bankruptcy on your credit score?

What should we be doing and what things should we be getting in order NOW to ensure that we're not broke and penniless 20 years from today?

What did you do to get yourselves into this position? Was it:

• a business-related personal bankruptcy, or
• a "we over-bought a house with 0% down, got expensive cars on loans, and spent, spent, spent and drove up our CC debt to unimaginable heights, or
• a combination of the two?

If business-related:

• external forces, or
• you crazy over-spent living the CEO lifestyle?

I ask because that will determine how much of a shift in mindset will be required by you and your spouse.

Whatever the cause... there's only one solution: watch what you spend, and only spend what you have.

Practically, that means:

• hide any credit cards that you (might) have,
• only use debit cards,
• never use Dead Presidents (too easy to slip through your fingers),
• live far below your means: cut, cut, cut expenses, and then only add back the barest "Entertainment" amount to maintain some sanity (there are all sorts of frugal living and coupon cutting websites,
• accumulate a Rainy Day Fund (try a 52-week challenge; the HOWTO is here on the SA site)
• pray that your spouse is on the same page.

It's all pretty obvious stuff that every middle and lower class family did back before credit was so easy, and everyone did back in the Great Depression.

.

[Fishindude77]

I disagree on "never use dead presidents". Forget all use of plastic and go to cash and checks. When the cash runs out no more spending. Barn yard economics.

[snafu]

I'm not sure what you are seeking in the way of help or advice. Are you both employed? How are you allocating your income? You've mentioned concern about retirement income and housing. Any employer[s] matched retirement program?

There are a bunch of 'rule of thumbs' that suggest percentages to be saved [pay yourself first], spent on housing [rent/utilities/insurance], food, transportation, entertainment etc. Do you have a budget with a specific sum allocated to each spending category?

In hopes of being helpful...My favorite money trick is to give every dollar, whatever the source, a job. I have found it immensely useful to make myself write down every dollar spent for an entire month so that I can see leakage...although I admit it's a royal pain. It's a kind of self imposed discipline.

[Nutria]

I disagree on "never use dead presidents". Forget all use of plastic and go to cash and checks. When the cash runs out no more spending. Barn yard economics.

How are debit cards -- which pull directly from your checking account -- any "When the cash runs out" different than cash and checks?

Checks are the *worst*, since -- especially with two people -- it's so easy to forget to tell the person who's keeping tabs on the bank balance that you wrote a check.

Bottom line: debit cards are great for managing your spending.

[Nutria]

I have found it immensely useful to make myself write down every dollar spent for an entire month so that I can see leakage...although I admit it's a royal pain. It's a kind of self imposed discipline.

Debit cards are great at helping you do this, since you can download all your spending into a spreadsheet and categorize.

[QuarterMillionMan]

You've come to the right place for help. For starters I would recommend that you list your income vs expenses.

[Fishindude77]

I know it won't change many minds, but I don't like debit cards because it's too easy for people that aren't the best money managers to mindlessly spend with them. You just keep swiping the card without looking at how much you are spending and what your balance is. Further, many banks will let you overspend the balance in your debit account, hitting you with fees.

When you take out XXX dollars spending money at the beginning of the week in cash, you physically watch that money go away as you spend, and there is never any mystery about how much you have left to spend. When the cash is gone, you are done.

[Nutria]

I know it won't change many minds, but I don't like debit cards because it's too easy for people that aren't the best money managers to mindlessly spend with them. You just keep swiping the card without looking at how much you are spending and what your balance is. Further, many banks will let you overspend the balance in your debit account, hitting you with fees.

Today, it's easy-peasy to track your account balance on smart phone (many banks have an app) and web site.

[Fishindude77]

Today, it's easy-peasy to track your account balance on smart phone (many banks have an app) and web site.

I agree ...... however, people that aren't good money managers don't make the effort to do this.

[disneysteve]

Debit cards are great at helping you do this, since you can download all your spending into a spreadsheet and categorize.

Today, it's easy-peasy to track your account balance on smart phone (many banks have an app) and web site.

The folks who are doing these things - running spreadsheets and tracking balances - are not the ones who are having financial difficulty. Those tools are for the folks who have their acts together and are disciplined.

For someone who isn't like that, they really need to start from scratch.
Cash only. Use an envelope system. When the "grocery" envelope is empty for the month, you buy no more groceries until the following month when you refill the envelope even if that means eating nothing but peanut butter for a few days.

Write down, with paper and pen, every penny you spend on absolutely anything. And do it live, at the time of the spending. Don't say you'll do it that night at home or on the weekend because you'll forget a lot of stuff. Carry a little notebook in your pocket. Sure there are apps for that, but going old school gets you more actively involved in the process.

You can then use that spending log to design and tweak your budget. Until you know exactly where every penny is going, you really can't do anything else.

[Nutria]

The folks who are doing these things - running spreadsheets and tracking balances - are not the ones who are having financial difficulty. Those tools are for the folks who have their acts together and are disciplined.

But how did we get our act together and become disciplined?

The common mantra here is "make a budget and watch your spending". Well... running spreadsheets and tracking balances is how we made a budget, tracked spending and got out of $30K high interest CC debt.

It's like the smoker or alcoholic who finally quits, and stays quit: you weren't born strong willed; you became strong willed after hitting bottom, trying and failing enough times that finally "it" happened.

[disneysteve]

But how did we get our act together and become disciplined?

The common mantra here is "make a budget and watch your spending". Well... running spreadsheets and tracking balances is how we made a budget, tracked spending and got out of $30K high interest CC debt.

I think you're blending a couple of issues.

Step one is to know where your money is going. Personally, I think the best way to do that is what I suggested: record your spending in real time. If you want to then come home at night and enter that data into a spreadsheet or online budgeting program, that's fine.

As for the debit card, that's probably okay IF you are also tracking your spending in real time. You can't depend on the bank transaction records for budgeting purposes because they aren't specific. "$52 at Target" doesn't really tell you anything. Was that money spent on underwear, DVDs, milk and eggs, shampoo, or Barbie dolls. Just seeing the transaction from the bank doesn't answer that question.

Also, checking your bank account balance is of limited value. I can tell you that at any given time, my bank balance can be off by hundreds or even a couple thousand dollars due to outstanding transactions that haven't posted yet. If I based my spending on what the bank says I have, I'd be in a lot of trouble.

[tripods68]

For someone who isn't like that, they really need to start from scratch.
Cash only. Use an envelope system. When the "grocery" envelope is empty for the month, you buy no more groceries until the following month when you refill the envelope even if that means eating nothing but peanut butter for a few days.

+1

That's what a Dave Ramsey's fan would say-

[disneysteve]

+1

That's what a Dave Ramsey's fan would say-

I'm not a follower but I'm certainly familiar with his system and I think it makes a lot of sense for a certain segment of people who really need to get down to basics. For some people, at least when they are starting out, cash is the way to go. You can't overspend cash. When it's gone, it's gone. You can overspend with a debit card (if your bank allows). You can overspend with checks. You can certainly overspend with a credit card.

If you are "starting over", you need to get down to the most basic level. How much money do you have? Where does it go each month?