Debts vs Emergency Funds & general finance advice

**LivingAlmostLarge** · 10-28-2013, 08:20 AM

Income monthly
Income 1 Biweekly is $2665 monthly (x26/12)
Income 2 weekly is $6231 monthly (x52/12)
Income 3 $495 monthly
= $9391 month income but not guaranteed

Expenses
House 1 $705
House 2 $993
Utilities $550
Car Insurance $85
Daycare $866/month
Union Dues $23
Gas $450
Groceries $700
Animals $100
Clothing $100
School $50
Student Loans 1-3 $?
Student Loans 4 $75 interest only
Car Loan $552
Overpayment loan - $50 (what is this)
Tuition $1100
Sinking Funds $400

expenses = $6799/month, excess of $2592 - where is this going?

I'm really confused what your income is. But if it is broken down like this then you are missing around $2500/month extra money.

I have to say something I know is part of the problem, people never look at their budgets as annual and monthly but instead look at weekly or paycheck driven. People budget on what is coming in and spend it all rather than looking at the big picture. I'll let you answer before writing more.

**Wino** · 10-28-2013, 08:35 AM

A quick spreadsheet - prone to errors - shows:

$101K annual household income
$72K annual itemized expenses (including fulltime tuition)
$251K total debt (about $200K debt assuming house 1 sells)

Assuming $10K in taxes annually, you're left with about $1.5K per month for miscellaneous and debt payment. You estimate those at about $800 per month. This leaves an average of about $700 per month to go toward bills. That's $8400 per year. Assuming no interest, which we know is not true, it's going to take nearly 20 years to pay off your current debts.

Looking at what I just wrote, what are your comments or questions?

**RoadWorkAhead** · 10-28-2013, 09:21 AM

LAL - The overpayment was from Social Security from child's disability. Where that money is going is a good question, and what we're trying to get in check. Part of it has gone to savings, part to specific categories that I didn't include in basic expenses, and we've made larger payments on debts. We've also seen some of it run like water through a sieve

However, that income is also fairly new - Income 2 started 8 weeks ago after an 8 week layoff. Hence why I'm trying to figure out where to put it so I can finish working on the budget - that's a work in progress right now.

I also try to think in terms of actual checks received in the month and use the extra paydays for savings/debt repayment rather than budget - esp. with variable income b/c spouse has no paid days off, so November means he gets 5 checks but he misses 2 days for the holiday. Dec. is 4 checks but probably 3 days unpaid. I try to budget month to month based on a reasonable idea of what his checks should be. Mine vary typically less than 10-20$ because of my field where differentials and having to stay late = differing amounts. I'm open to thinking of it differently, so please feel free to school me - or suggest books to school me. We're still adjusting. I didn't start working until middle of 2012. We went from supremely poor to not without preparing like we should have.

**TheKayla** · 10-28-2013, 09:27 AM

I think you're most important step right now is to ensure you keep paying as much of your continued schooling out of pocket as planned, and stop accruing more debt. The more you can do that, the better in the long run. Consider taking fewer classes and gaining income if you don't think it's possible to manage, even if it takes you longer to complete school. It will be worth it -- promise.

I think a few others have gone through and done all the math, but I'd primarily focus on being more frugal and paying down debts. You could probably find ways to cut expenses in clothing and food, utilities, etc. You already mentioned there are plenty of other discretionary spending categories that you can improve on. I'd buckle down more and learn to enjoy life more frugally in any category you can.

I think you have some good ideas about budgeting, and I like that you have 'sinking funds' for a few of life's unexpected or not-so-regular expenses. That's good and something a lot of people don't consider. Now it's a matter of sticking to your detailed budget and being creative or changing habits that will help you to spend even less.

Beyond that:

- Are you positive you can rent out this other house and cover all costs + make a profit? Consider selling it if that's not the case, otherwise be sure to get it rented out.

- Overpayment repay $4250ish: what is this? I'd suggest getting it paid off asap if it's just debt, especially if it's something that has no equity. There may be no interest now, but will there be? It's a small amount so you can get through it and free up that minimum payment soonish. It may make less mathematical sense, but I believe there will be benefit is simplifying your finances that much more.

- Vehicle $28252: Despite the low interest rate, that's a pretty expensive vehicle. And it's causing you to pay way too much for gas. Would you consider swapping for something cheaper and more efficient? That car is you both living beyond your means for your income. The loan itself, without including insurance, gas, and maintenance is just over 10% of your income, which is the max recommended, and then you also have other debts and added expenses by having kids. That seems to be your biggest issue in your current budget. I'd strongly suggest finding a cheaper and more efficient option. Do you have another car that's paid off? Could you go with just one? If you're not willing to do that though, perhaps consider focusing most of your debt repayment to get that paid off as soon as possible, and then remember to make a smarter decision for your next vehicle.

**LivingAlmostLarge** · 10-28-2013, 09:50 AM

So with a variable income perhaps other can chime in on how better to manage it. Maybe work off a base salary that he should get every month and everything else goes to a slush fund for when he gets laid off?

**RoadWorkAhead** · 10-28-2013, 09:50 AM

Wino- I think a few numbers are off

Current YTD gross is $105000, projected at $130000 for year. Projected taxes were $7300ish, but I'm aiming for 10,000 to be safe

Maybe I should break it down this way. This was what I had done for Nov. so far

November - Projected income is $9424
House 1 705
House 2 993
Elec 1 90
Elec 2 180
Cable, internet, home phone + subscriptions $155
water $50
Gas $40
Cell phones $185
Trash $25
Pest Control $25
Union dues $23
Professional dues $85 (increased for biannual renewal)
Groceries $600
Medical $75
Fuel $450
Spending money $200
Childcare $800
Eating out $150
Household supplies $50
Clothing $50
Gifts $600 (finish Xmas, 2 birthdays in Dec)
Car Insurance $75 (overpaid earlier payment)
Tithes/Charitable giving $100
Car payment $555
Overpayment repayment $100
Student loans (all applied to #4) $150.00
Vacation money $130 (gas, etc for T-giving trip to family)
School fund $700

According to that calculation (at least per YNAB), I have an additional $2045 to budget to debt/savings. Where do I put it? How much EF is enough? If I figure he has 8 weeks where he gets only UE, which is $270 after taxes, I need to be able to make up the difference between that and what we need - using Nov. budget, the different is around $3400 a month. So minimum of $6800 in EF or should we aim for more before throwing everything at debt? Or should I just throw it all at debt now? Previously I have made lay offs work by working metric tons of overtime, but I wasn't in school.

In addition, I will be getting back some money from our dependent care FSA, DH's eye care insurance, and a PTO buyout that will all be paid end of Nov/beginning of Dec., should total at least $4000. Once house 1 rents, I will have an additional $795 (what I pay currently) to put towards savings/debt, though I'm hoping to use it to build up some repair/no renter funds for later. Not worth selling house b/c Florida's market is still pretty bad.

I am too long winded. Sorry

**RoadWorkAhead** · 10-28-2013, 09:58 AM

Kayla- vehicle with payment takes less than $150 in gas. My DH will not part with his (paid in cash) diesel truck, and he commutes an hour to work.

We're still keeping track, b/c he may spend a little less than the $300 I projected. I'm working on getting him to ride share.

Vehicle was pricy, and not best decision I've ever made - no doubt. It was worth it for my sanity, but not my wallet. It could be sold, though there is no equity in it, and we're at just out enough to probably take a slight loss. We would then have to use current EF for a new vehicle. I'm not sure if that makes sense, but I'm mulling it over.

I am planning on only paying cash for school. I took 1 loan out of fear - DH was laid off when I started out this semester. I cringe just looking at it, so its been the focus of my payments - plus it accrues interest.

Thanks for everyone's advice. I'm trying to take it all in.

**Wino** · 10-28-2013, 10:23 AM

Originally posted by RoadWorkAhead View Post

Wino- I think a few numbers are off

Current YTD gross is $105000, projected at $130000 for year. Projected taxes were $7300ish, but I'm aiming for 10,000 to be safe

Maybe you're getting more OT than you think.
1230 26 31980
1438 44 63272
495 12 5940

101192 That's a cut and paste from the spreadsheet. 26 paychecks at 1230 (biweekly); 1438 for 44 weeks; 495 monthly. The figures are as I've copied them.

**TheKayla** · 10-28-2013, 10:32 AM

Originally posted by RoadWorkAhead View Post

Kayla- vehicle with payment takes less than $150 in gas. My DH will not part with his (paid in cash) diesel truck, and he commutes an hour to work.

We're still keeping track, b/c he may spend a little less than the $300 I projected. I'm working on getting him to ride share.

Vehicle was pricy, and not best decision I've ever made - no doubt. It was worth it for my sanity, but not my wallet. It could be sold, though there is no equity in it, and we're at just out enough to probably take a slight loss. We would then have to use current EF for a new vehicle. I'm not sure if that makes sense, but I'm mulling it over.

I am planning on only paying cash for school. I took 1 loan out of fear - DH was laid off when I started out this semester. I cringe just looking at it, so its been the focus of my payments - plus it accrues interest.

Thanks for everyone's advice. I'm trying to take it all in.

Yeah that wouldn't make a lot of sense then. I'd really focus on getting that car paid off quickly then to free up the payment. I'm in the same situation, where I rather made that choice right after graduating, and am now stuck with the payment, but now makes less financial sense to downgrade. All you can do is deal with it and make better future decisions. I'd really talk to your husband about the other vehicle though. With an hour-long commute, he should not be using that truck. Maybe switch cars for his daily commute could be an option to save, and only use the truck in shorter, more irregular commutes?

**RoadWorkAhead** · 10-28-2013, 10:41 AM

My current check is 0 overtime, but I definitely made significantly more in the summer, which is typical lay off time, plus those figures are all net. But that looks close to accurate on net total. We've paid at least $25000 between retirement contributions, fringe benefits, state and federal taxes. Thinking about it, $400 a week at least comes of DH's check, and $900 off mine

Using your net figure, I get about $1000/mo based on current budget for debt/savings. Maybe we're closer than it looked like.

**Bo13** · 10-28-2013, 11:34 AM

I'm not a financial advisor and my English is poor (I'm Dutch) but my personal opinion is this:

Your unallocated (EF?) savings are 88,2% of your total monthly expenses. You seem to have three sources of income. Are those from three independent creditors? Are they generated by three different persons as well, or just one or two? How garantueed, certain and stable are they?

Losing income #3 is not a threat to you, because of the monthly surplus of around $2592 (where is that currently going btw?). When losing income #1 your monthly surplus is gone, but your $6k savings will cover that for many months.

When losing income #2 you will have a monthly deficit of $568 p/m. Your $6k savings can cover that for 10,5 months. However, unforeseen costs will also deplete the $6k of savings I guess?

What are the write-off costs of your inventory? I don't see a seperate savings post of that.

What if you succeed to rent out your second home and repairs are needed? If have rented it out, you can't delay repairs. This will generate pressure on the $6k of savings as well.

The overpayment repayments should have your lowest priority due the 0% interest rate. Same goes for the car loan, however don't confuse them with the car itself and the operational and write-off costs coming with them. I can't evaluate those.

I believe it will have some added value if you would also post the current value of your two houses and car (and the age of your car). Do you also have an additional HELOC (or any other line of credit) for liquidity purposes? What are their rates if used? Can you create one?

My personal judgement is that you rely strongly on income source #2 with a limited amount of liquid cash. However, I don't know how secure/stable this source is and how fast you can generate a new source when you lose it. But if losing it would be realistic, you could run into some liquidity problems within the year I'm afraid. Not really necessary considering the high (multiple sourced) income you have.

**RoadWorkAhead** · 10-28-2013, 12:00 PM

Bo: House 1 is worth anywhere from 78k-85k maybe, but rental market is very strong. Would rent easily for ~ 200 over payment, but subtract out rental co. costs and repairs. Do have a contractor in town, but repair costs worry me. I can see roof or AC issues at some point in next 5 years. It was just repainted, flooring, etc. so that's covered for now.

House 2 is worth not much more than we owe

$160,000. Primary home.

Car 1: Worth between 31,000 and 32,000

I figured it would be upside down. Its a 2013 Honda Odyssey.

No HELOC. Have 3? credit cards, only use one monthly and pay it off for rewards.

Income 1 is so stable, its not funny. I earn it. I could pick up hours any day pretty much.

Income 2 is not as stable, but most of his jobs have only done occasional lay offs in summer. He has a specific skill, and he's good at it. Its in demand, so normally he can pick up a different job during a lay off. He's had 12 weeks laid off since 8/2010, but 8 of those this summer so I'm more hesitant.

Income 3 is child support for my oldest. He hasn't missed a payment since 9/2010, job is stable. I get about $800-1000 extra throughout the year towards a large arrearage, and if he gets a raise that will go up as he's not paying the full amount ordered monthly.

I don't understand what write-off costs of inventory means

**Petunia 100** · 10-28-2013, 12:24 PM

Numbers:
Income 1- $1230 biweekly
Income 2- $1438 weekly (labile field, no paid days off)
Income 3- $495 monthly

Is this gross or take-home?

**RoadWorkAhead** · 10-28-2013, 02:10 PM

Originally posted by Petunia 100 View Post

Is this gross or take-home?

Net- its what comes home after all the deductions. Income 3 is not taxable either.

Debts vs Emergency Funds & general finance advice