I'm a mother of two boys ages four and six. I just returned to work. I never stuck to a spending and saving plan before. My husband and I have approximately $7,000 in debt. How do I get started in making and sticking to a spending/saving/debt repayment plan for my family?
Here's some advice for your debt reduction, savings, and spending plans.
Is your debt all credit card debt? Is any of your debt from student loans, equity lines or car? I'd pay the most on the credit card debt with the highest interest. If you have a small balance on one card, you may want to pay that off sooner to have a sense of accomplishment and to have one less check/stamp per month! You should also contact all your credit card holders to ask if they will lower your interest rate. It's a competitive environment, and most of the time, they will cooperate because they don't want to lose the business! Can you cut up all unnecessary cards and only use one in case of emergency? Instead, try using a debit card tied to your checking account (don't forget to track the purchases in your check register) or paying for items with cash. You will be able to make progress on your debt reduction because you won't be adding any more "fuel" on the fire by accumulating finance charges.
Regarding savings, it's very tempting to put all your extra money towards your debt reduction plan. But it's also very important to have a rainy day fund to which to turn. Savings accounts at local banks aren't paying much and you have to be careful to check their fee schedule. If you're not afraid to bank on-line, ING Direct has 2.25% as its current (12/1/2002) interest rate and it requires no minimum balance and you can direct a set amount per month on a certain day to be taken out of your account. Now that you've returned to work, have your paycheck direct-deposited into your checking account. Then you can set up a set amount to be withdrawn every paycheck, once a month, or whatever timeframe works for you.
It's also time to sit down and review how your family spends its money. First write down the required fixed and discretionary payments: rent/mortgage, health, life, disability, and car insurance, utilities (not cell phones and cable), food, clothes, transportation (car payment, gas, maintenance, train/bus). Then see how much is left. Some expenses may increase now that you've returned to work such as clothing, after school daycare, lunches (brown bag and save) and transportation. Make sure that after paying these additional expenses and your federal, state, and social security taxes, that it is actually worth working. Some people are surprised at how little they actually clear from a second job. Remember it's easier to save a dollar than to earn a dollar. Sometimes I try to imagine how we would live if my husband had a 50% pay cut (or was disabled or completely unemployed). What is truly a need and not a "want" in that instance? I'm amazed at how much extra money I spend and I consider myself a frugal and careful shopper. If you can adopt a "pioneer" mentality and really trim your expenses, you'll have a lot more to apply to your debt reduction!
Another very important exercise is to look at how much federal income tax you and your spouse are paying. Make sure you're not having too much withheld. This is an interest-free loan to our wonderful government! You should be using this money to pay down your high-interest debt! Receiving a large income-tax refund is not a good thing. The goal is to neither pay nor receive on April 15! Be careful that with your additional income, you have not affected your ability to take the child tax credits. Sometimes having an extra wage earner works against you!
Finally, with little kids, the holidays can blow your best-laid financial plans out of the water! And you may feel guilty that you're not spending as much time with them and end up spending more on things to compensate. Don't fall into that trap! Remember that reducing your debt and building your savings is the best thing you can do for your children's future. Get and use your library card and take advantage of the wonderful books, books on cassette and videos they have. Check your newspaper for free holiday events to attend. Please, don't go to the mall or the temptation to buy may be too great! Are there any garage sales, church bazaars, etc. to go to alone? I have found toys and books and clothes that are like new to wrap and give to my little guys. Believe me, they don't know the difference! And if there's a toy they are really set on getting, give the idea to family members who want to buy for your kids. If they end up not getting it and still want it, shop the after Christmas sales. You may be able to save 1/2 its cost! I shop the sales for birthday gifts. I set them aside and then I know I'm ready and have saved 50%. However, do not use a credit card with a balance to stock up! Remember, you're adding the interest rate of your credit card (i.e. 18%) as a premium to your purchase price. So getting 20% off something isn't much of a deal when you're incurring 18% on it!
My husband and I decided earlier this year that we also really needed to get out of debt. The credit cards and interest were killing us. I spent over a month checking out different debt consolidation options and credit counselors. I finally decided to use a credit counselor. They were able to work out payment plans with all of our credit cards and many other debts such as hospital bills, old cell phone, and old utilities. They ask for a monthly "donation" to them. Since it's voluntary, I asked for it to be removed. They make money from some of the credit card companies any way. A $100 payment from me to the credit counselor makes a $100 payment to my credit card and the credit counselor only pays the credit card $90. Some of our interest rates are cut from 24% down to 7%! They truly have made a difference in our financial situation!
My husband and I are currently digging ourselves out of debt in this fashion. Start by keeping track of every penny you spend. And I mean every penny. Eating out, candy bars, and sodas at work should be counted. They do add up. Learn where all your money is going. For us, it took about three months to really see where all the money was going. Make sure that the amount going out is smaller than or equal to the money coming in.
Next look at this list. Decide what you can do without or at least cut back. For us, we cut down the number of times we ate out. Next make a list of all your debtors, how much is owed, the percentage rate, and the monthly minimums. Decide which of your debtors to pay off first. Choose either the debt closest to being paid off, or the debt with the highest percentage rate. We chose our car loan. Now apply the amount you are giving up to the monthly minimum payment you have chosen to pay off first. For example, we gave up eating out once, which caused a savings of about $25. Our car payment was approximately $350, so our payments became close to $375. Once the car loan was paid off, we applied the $375 to the next debt on our list, which was a doctor bill.
We are still in debt, but we have paid off enough debt for me to now be a stay-at-home mom. And now there is light at the end of the tunnel. The main thing to remember about budgeting. It's a lot like dieting. Before you can cut back or change your bad habits, you have to first make yourself aware of your problem areas and plan for them. If you have a weakness, work with it, exchange it, or get rid of it all together.
I find that using cash for things like groceries and "fun money" helps me. It forces me to stick to a budget. When the money is gone, the shopping is over. For grocery shopping, I make a combination weekly menu calendar/grocery list for the fridge. I keep track of items I'll need at the store on the list. When I'm at the store, I keep track of the costs of what I'm picking up, either with a calculator or by writing (and rounding up to the nearest half dollar) on my grocery list. If I start to get close to my budget, I evaluate which items I absolutely need now and which can be held over to the next week's shopping trip.
My husband and I also have a "fun money" allowance. I take mine out in cash. First, it keeps me more honest and it's easier than trying to keep track of my unnecessary expenses.
I was in the same situation as you. We were a two-income family and I was working full time with three kids. At the same time, I was trying to get out of debt, save money and try to live a "normal" life with my family. I recommend you read How to Get Out of Debt, Stay Out of Debt, and Live Prosperously
by Jerrold Mundis. I read this book and it has given me the tools I need to create a "spending plan", save money and live a normal life. I enjoyed reading this book and I recommend it highly. The book is only about $6.99 or cheaper at the bookstore.
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