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Advice on budget/priorities?

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  • Advice on budget/priorities?

    I feel like we are spinning our wheels and just cannot get ahead. We have some major expenses coming up but also some debt to pay off and an emergency fund that needs to be increased. Our biggest issue right now is sticking to our budget because on paper we should have enough to accomplish our goals. But it never seems to work out this way. Here are some details:

    Income #1 - $6350 per month net (14% going to 401K - currently at 210K)
    Income #2 - $100-$750(has been on the low end...but with my youngest starting school this fall I anticipate this increasing - but no guarantee).

    Debts:

    Mortgage - $222k (18 years left on 20 yr. loan at 3.75%)
    Braces - $4400 (0% until May '15)
    Student Loan - $3k (3%)

    Citi Card - $813 (0% until Sept. '14)
    Chase Card - $760 (13%)
    Furniture Card - $500 (0% until 1/15)
    Best Buy - $983 (needed fridge - 0% until 5/15)

    Monthly expenses:

    Mortgage - $1940
    Braces - $400
    Student Loan - $150
    Citi - $20 min.
    Chase - $25 min.
    Furniture - $22 min.
    Best Buy - $25 min.

    Gas/Electric - $250 (budget billing)
    TV/Phone/Internet - $222
    Verizon - $167.50
    Life Insurance - $75
    Car Insurance - $83
    Groceries - $800
    Eating Out/entertainment - $150-200
    Gas - $200
    Kids Activities - $150
    Gifts - $100

    TOTAL =$4830
    Income = $6500
    Left Over = $1670

    SAVINGS - We currently have $11,000 in savings and we want to get this up to more like $30k. But this is going to take a LONG time because we also have some serious expenses coming up this year.

    We own our two cars which should last us at least 5 more years. Two Toyotas at 85K and 110k miles. We only add maybe 5k miles per year on each.

    Expenses on the horizon -

    Siding - We have to replace one side of our house $3,600
    Windows - We have to replace two large picture windows $3,000
    Wedding - My brother is getting married across the country this fall and my whole family is in the wedding. I am getting plane tickets paid for by my dad (miles) but the rest of the wedding I anticipate will cost us $2,000.

    So, my question is. Where should we prioritize our extra funds? Savings? Debt? I'd rather not reduce 401K contributions but I know that's an option. We are 36 and 37.

  • #2
    Put all money into EF and pull from there to cover the expense as they come. Maybe more maybe less.
    LivingAlmostLarge Blog

    Comment


    • #3
      That Citi CC is going to come back and bite you unless you can clear that balance a least one business day before it's due in September. Most of these schemes charge exorbitant interest and some go back to initial purchase $ 160. every pay. Is there anything you can do to increase earnings, overtime, landscaping, delivering pizza or sell stuff no longer used or needed to bring in more money?

      Is wife on board with your plan to get out of debt? It's amazing how much food costs can be reduced with the help of a menu plan. It's just 6 favorite meals and variations that everyone likes. I suggest you identify where every dollar goes for the entire month of June. Carry a small notebook and write every dollar spent to see where money leaks away. For the short term I hope you're willing to make some changes to free up sums needed for the family wedding without reverting to CC.

      Comment


      • #4
        Pay off that Chase card that’s charging you 13%. Maybe you should look into your budget and start cutting expense maybe limit going out to eat. Also you should shop around for a better package on your phone/TV/internet and see if there is any cheaper plan. Since it seem like you will be having more expense between your house and the wedding I will agree with livingalmostlarge and leave it in saving. If you do have extra cash that you can spare then the rule of thumb is normally to:
        1) Contribute 401k up to the match.
        2) Max your Roth/IRA depends on your income.
        3) Max your 401k.
        4) Taxable investing.
        Hope this help.

        Comment


        • #5
          I think, you should prioritize your debt because debt should be closed off as soon as possible and after closing debt you can save or use extra income on your others expenses. Thanks

          Comment


          • #6
            I'm confused as you why you even have those small amount on several different credits cards. If you have $1,500 extra money a month, I'd pay those cards off, today!

            After you clear all the credit cards, I'd be temped to just pay off the student loan in 2 months, just to free up cash flow and get one less debt. But some people would leave it since the interest is so low. Personal choice. I'm debt averse, no matter the interest, so I would get rid of it.

            Make sure your paying enough on the braces monthly so that they will be gone before the 0% interest is up.

            Then just stick all your extra money into your EF, and pay your upcoming expenses out of it.

            Comment


            • #7
              "Our biggest issue right now is sticking to our budget because on paper we should have enough to accomplish our goals. But it never seems to work out this way."

              This stood out to me.

              You have no idea where your $1,670 "left over" money is going every month. Do you know why? You're not living on a balanced budget. You have never allocated that money to any particular goal/priority, so the ants come and carry it away like the food at a picnic that you fell asleep at.

              You are asking what to prioritize, yet you do not even know where that money is going? There is an easy way to figure this out, but it may take some time.

              First, you need to look at your spending and figure out where some of that money has been going. Are you spending on food? Entertainment? Car expenses? Travel? Are you not allocating enough to one of these areas, thus you end up overspending on something? You need to get a handle of your finances and try to figure out where you are overspending and possibly under-budgeting.

              Secondly, you need to set a BALANCED budget every month before the month begins. Every penny is allocated towards something.

              Braces - $4400 (0% until May '15)
              Student Loan - $3k (3%)
              Citi Card - $813 (0% until Sept. '14)
              Chase Card - $760 (13%)
              Furniture Card - $500 (0% until 1/15)
              Best Buy - $983 (needed fridge - 0% until 5/15)

              You have a total of $10,456 in non-mortgage debt. This should only "in theory" take 7 months to clear up based on the $1,670 "left-over" amount. Not too much time.

              Prioritize these debts in this order:
              Chase Card
              Citi Card
              Furniture Card
              Best Buy
              Braces
              Student Loans

              Continue paying the minimums on ALL debts, but focus any extra debt payment dollars to these in this order. You want to pay off each debt before the 0% period ends IF AT ALL POSSIBLE! More than likely, if you are even 1 day and 1 penny outside of the termination date of the 0% deal, you will get back-charged all interest up to the date of purchase. They will clobber you over the head if you do not clear the balances in time.

              You have $8,600 in foreseen expenses. When are these expenses expect to occur? Can you push off the date of reckoning at all? Obviously the wedding has a fixed deadline, but what about the siding and windows? How long can you push off those expenses? Are they necessities or luxuries?

              Saving extra for the emergency fun can wait until the smoke clears on all of these other items. Setting aside extra in the emergency fund is not really a priority until all is calm.

              Based on everything that I have just pointed out, you need to set up a game plan. Plan out your monthly budgets (at least tentatively) for the next year or so. Set up a plan to shoot money towards those debts and pay them off before the 0% is up. Set up a game plan to allocate money towards your foreseen expenses and try to have enough money set aside for each expense by the date that it occurs.

              Get on a balanced budget, ultimately! You are not on one right now.

              As a side note: your mortgage payment is a little high, even if income #2 is at $750. Not a deal breaker since you have a very nice income. However, that is something to think about. Are there any ways to increase income, at least in the short-term? Some additional income can go a long ways towards paying off your debts and saving for those foreseen expenses.
              Check out my new website at www.payczech.com !

              Comment


              • #8
                Originally posted by dczech09 View Post
                "Our biggest issue right now is sticking to our budget because on paper we should have enough to accomplish our goals. But it never seems to work out this way."

                This stood out to me.

                You have no idea where your $1,670 "left over" money is going every month. Do you know why? You're not living on a balanced budget. You have never allocated that money to any particular goal/priority, so the ants come and carry it away like the food at a picnic that you fell asleep at.

                You are asking what to prioritize, yet you do not even know where that money is going? There is an easy way to figure this out, but it may take some time.

                First, you need to look at your spending and figure out where some of that money has been going. Are you spending on food? Entertainment? Car expenses? Travel? Are you not allocating enough to one of these areas, thus you end up overspending on something? You need to get a handle of your finances and try to figure out where you are overspending and possibly under-budgeting.

                Secondly, you need to set a BALANCED budget every month before the month begins. Every penny is allocated towards something.

                Braces - $4400 (0% until May '15)
                Student Loan - $3k (3%)
                Citi Card - $813 (0% until Sept. '14)
                Chase Card - $760 (13%)
                Furniture Card - $500 (0% until 1/15)
                Best Buy - $983 (needed fridge - 0% until 5/15)

                You have a total of $10,456 in non-mortgage debt. This should only "in theory" take 7 months to clear up based on the $1,670 "left-over" amount. Not too much time.

                Prioritize these debts in this order:
                Chase Card
                Citi Card
                Furniture Card
                Best Buy
                Braces
                Student Loans

                Continue paying the minimums on ALL debts, but focus any extra debt payment dollars to these in this order. You want to pay off each debt before the 0% period ends IF AT ALL POSSIBLE! More than likely, if you are even 1 day and 1 penny outside of the termination date of the 0% deal, you will get back-charged all interest up to the date of purchase. They will clobber you over the head if you do not clear the balances in time.

                You have $8,600 in foreseen expenses. When are these expenses expect to occur? Can you push off the date of reckoning at all? Obviously the wedding has a fixed deadline, but what about the siding and windows? How long can you push off those expenses? Are they necessities or luxuries?

                Saving extra for the emergency fun can wait until the smoke clears on all of these other items. Setting aside extra in the emergency fund is not really a priority until all is calm.

                Based on everything that I have just pointed out, you need to set up a game plan. Plan out your monthly budgets (at least tentatively) for the next year or so. Set up a plan to shoot money towards those debts and pay them off before the 0% is up. Set up a game plan to allocate money towards your foreseen expenses and try to have enough money set aside for each expense by the date that it occurs.

                Get on a balanced budget, ultimately! You are not on one right now.

                As a side note: your mortgage payment is a little high, even if income #2 is at $750. Not a deal breaker since you have a very nice income. However, that is something to think about. Are there any ways to increase income, at least in the short-term? Some additional income can go a long ways towards paying off your debts and saving for those foreseen expenses.

                I agree about the mortgage. We chose a 20year term when we refi'd a few years ago and wish we would've gone with a 30 instead. But what's done is done.

                As far as where the money is going. Until this month we had preschool expenses (about $300 a month). Also, we have had unforeseen travel expenses due to family illness. In addition, we've been very loose with our spending this past year and are determined to reel it in to get this debt paid off and pay for our upcoming expenses.

                Regarding increasing income. I'm hoping to increase my hours in the coming months but no guarantees (I work for my dad on a contract "as-needed" basis and it's been very unpredictable). I could go back to work full-time this fall (have been home with kids for 8 years) since my youngest is starting Kindergarten in August...but it would be a HUGE strain on everyone to do so. My husband works an insanely erratic schedule (senior level IT)and cannot help much with kids/sick days/snow days or before/after school care. It's not ideal and frankly, we'd prefer to find a way to make it work on one salary for now.

                I appreciate the advice, greatly!

                Comment


                • #9
                  Originally posted by sjc0816 View Post
                  So, my question is. Where should we prioritize our extra funds? Savings? Debt? I'd rather not reduce 401K contributions but I know that's an option. We are 36 and 37.
                  Welcome to the forums! You've come to the right place.

                  The 1st action I’d take in your situation is to do as suggested and balance your budget. Allocate every dollar to an expense on paper on an excel document. To where your income = expenses. The “left over” amount should be 0.

                  A. Of the $1670 not allocated perhaps $500should go towards your e-fund, $700 towards debt reduction, $470 towards savings specifically for the “expected expenses on the horizon” (sliding, windows, and wedding)?
                  B. When do you plan on paying for the sliding and windows?
                  C. When is the wedding?
                  ------


                  The 2nd action I’d take is track your expenses. We’ve found the best way to do this is track our spending through www.mint.com . That’s if you use your credit card or debit card for transactions we highly recommend it. If you pay cash then you need to keep physical receipts. A checkbook is useful too.

                  D. Do you guys use cash, checks, or cards primarily in your every day expenses?
                  ------


                  The 3rd action I’d take is pay off the Chase Card balance $760 at 13% interest. You have 11k in savings. 10.3k is plenty right now for your e-fund. A bit of a no brainer to me. No reason to pay interest on the card when you have the money in the bank. You should be able to pay off the Citi Card this or next month as well.

                  E. What order do you plan on paying off your debt?
                  ------


                  The 4th action I’d take is trying to cut expenses. Check with Verizon to see if you can get a better deal on your cell phone plan. Also check to see if there’s a different package for TV/Phone/Internet around $150 available in your area.

                  F. What expenses can you reduce or eliminate from your budget?
                  ------


                  The 5th action I’d take as jpham540 suggested is to review your retirement contributions.

                  G. How much do you guys have saved up for retirement at 37/38 respectively?
                  H. Does your husband’s employer offer a 401k match?
                  I. Do you guys have a Roth IRA and/or do you qualify for one? You can each (wife and husband) contribute $5500 if your household income is less than 181k and you are married filing jointly.
                  ------


                  The 6th action I'd take is to consider kids vehicle and college expenses.

                  J. Do you have anything saved up for your kids vehicles? Will you be buying them vehicles or matching what they save up towards the purchase of their first vehicle?
                  K. Do you have anything saved up towards college expenses for your kids?

                  Welcome again!
                  ~ Eagle

                  Comment


                  • #10
                    What Eagle said.

                    We spend $65/mo on internet/phone. No cable TV. It's a luxury you shouldn't have right now. You should also be cutting down on entertainment/eating out/activities/gifts at least until you pay off the cards.

                    I agree that you've left important things off your budget, so you need to track much more carefully. Such as car maintenance (oil changes?) and repairs, home maintenance and basic repairs (we allocate a certain amount each month), water bill(?), clothing, shoes, haircuts, toiletries/personal/household items, vacation costs, etc. If it's not a monthly expense you should be adding it up annually and dividing by 12.

                    Comment


                    • #11
                      This is the order you should pay your debts in - smallest to largest.

                      Furniture Card - $500 (0% until 1/15)
                      Chase Card - $760 (13%)
                      Citi Card - $813 (0% until Sept. '14)
                      Best Buy - $983 (needed fridge - 0% until 5/15)
                      Student loan


                      Stop paying for TV- drop it and go to Internet only- should be able to save ~$150/month just here.

                      TV/Phone/Internet - $222

                      Budget for eating out when you are in debt??? Really? Stop this immediately and there is another $200 a month.

                      Eating Out/entertainment - $150-200

                      Make gifts- seriously make your own gifts. You should not have a $100 gift fund when you are in debt.
                      Gifts - $100

                      So if you are smart you would pay the loans i outlined above off in that order and roll them once you pay the previous one off. You will be doing this only once you have a small emergency fund of $1500 saved up. Above I also "saved" (or better put shaved) $450 off your monthly budget so you should be able to get through your debt in less than 1.5 yrs. At this point restart your 401k/retirement savings and start to save up 6 mo's of living expenses. After that you are on your own but I would highly suggest paying off your house at that time. Hope that helps.

                      Jack.

                      Comment


                      • #12
                        Jack it really depends on how the OP (original poster) Sjc0816 wants to pay of his/her debt...

                        There are two primary methods of paying off debt:

                        Lowest balance (Debt snowball) or highest interest (Avalanche).

                        If the debt snowball…

                        1. Create a list of all of your debts: credit cards, car loans, student loans, mortgages, etc… (Note: You probably need to exclude your mortgage from the list until you have the other debts paid off)
                        2. Next to each one write down the total balance owed.
                        3. Re-order these from smallest to largest debts (use Excel to make this simpler.)
                        4. Pay the minimum payment on all of the debts – except the smallest one.
                        5. Put every extra dollar you can find towards paying off that smallest debt.
                        6. Celebrate like crazy when you get that first debt paid off.
                        7. Take the amount you were paying towards the first debt and put towards the next smallest debt. Do this until this one is paid off.
                        8. Celebrate again!
                        9. Continue this process until each one is paid off.

                        If the avalanche method…

                        1. Create a list of all of your debts: credit cards, car loans, student loans, mortgages, etc… (Note: You probably need to exclude your mortgage from the list until you have the other debts paid off)
                        2. Next to each one write down the total balance and interest owed.
                        3. Re-order these from smallest to largest interest rates (use Excel to make this simpler.)
                        4. Pay the minimum payment on all of the debts – except the one with the highest interest.
                        5. Put every extra dollar you can find towards paying off that loan with the highest interest.
                        6. Celebrate like crazy when you get that first debt paid off.
                        7. Take the amount you were paying towards the first debt and put towards the next debt with the second highest interest. Do this until this one is paid off.
                        8. Celebrate again!
                        9. Continue this process until each one is paid off.

                        Source: from What are steps to get out and stay out of debt?
                        I will agree that eating out and tv/phone/internet needs to be trimmed. And making gifts is a good idea.
                        ~ Eagle

                        Comment


                        • #13
                          Most people’s budgets revolve around three costs: food, housing, and transportation. After you budget for those expenses, which probably account for between half to two-thirds of your take-home pay, and factor in any debt payments, decide how to prioritize savings, household expenses, professional expenses, and entertainment.

                          Comment


                          • #14
                            Originally posted by jackmiller View Post
                            This is the order you should pay your debts in - smallest to largest.

                            Furniture Card - $500 (0% until 1/15)
                            Chase Card - $760 (13%)
                            Citi Card - $813 (0% until Sept. '14)
                            Best Buy - $983 (needed fridge - 0% until 5/15)
                            Student loan
                            As to debt snowball vs avalanche check out: http://www.unbury.us/

                            It seems like it is a good comparison between the debt snowball (lowest balance) and avalanche (highest interest) methods. The avalanche being the better option from a financial/mathematical point of view.
                            ~ Eagle

                            Comment

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