Starting out with a fresh start

[freshstart]

I am 1 year into my 5 yr Chapter 13 bankruptcy. My monthly pmts are $600. My annual salary is $80,000. I have 1 child. His monthly daycare is $600. Because of the bankruptcy, my only monthly expenses other than the ones above are utilities, car insurance, etc...that would amount to roughly $500. I have no mortgage/rent due to family.

What would you suggest would be the best way to start my road back to recovery?

Thanks to everyone

[DivaJen]

What do you see as recovered?

It seems to me reading what you've written, that if I were in your shoes I would seriously try to live frugally and bank up as much savings as I could. You have $1700/month in expenses on an $80,000/year salary? Seems like a serious amount of room for saving, saving, saving. DH's salary is less than that (we come in close to that if he freelances a lot), and $1700 doesn't even cover our mortgage, let alone all the other expenses of life.

You didn't say why you declared bankruptcy - was it something within your contol, or out of it, that led to filing? I suppose the answer to that is also going to play into what you do now to avoid the situation in the future.

Welcome, btw

[BAGAGT1]

I agree with DivaJen, if your making 80K a year, your doing far better than I am, my Mortgage + Association payments alone equal more than $1700 a month. So you should be saving AMAP (As Much As Possible).

[freshstart]

Thanks for the replies.

Diva: To answer your question about the reason for bankruptcy, it was mostly within my control. I was heavy into playing the stock. I used most of my cash to buy stocks. I also had margin accts as well. Things were fine until it started crashing and I would get margin calls. Eventually, I lost pretty much everything.

I still want to get back into investing, but I will definitely take it slow. Probably look at mutual funds as well.

After taking into acct my monthly expenses and actual take home pay, I will have about $1700/month leftover after every monthly bill is paid.

How do you suggest I invest that money? Would you say strictly put it in an ING acct? Or put half in ING and half in mutual funds? Should I setup automatic deductions from my paycheck and invest in mutual funds every payperiod?

I WILL NOT MAKE THE SAME MISTAKE AGAIN. But I do not think it is wise to just let it sit in money market.

Thanks again

[Russell]

I'd be interested in seeing some suggestions here as well. But I'll start out by saying:

1. Max out your 401K
2. Max out your ROTH/IRA
3. Setup a Flex spending account for the day care

Also, with so many scams in mutual funds, most people are now going to Index funds and ETFs which you can buy like Mutual funds but they are not actively managed by a highly paid Mutual fund manager and since they are managed by computers and track indexes like S&P500 they actually beat most "well managed" mutual funds. Look for anything with the expense of under .40 and no-load.

I've been doing quite a bit of research on this in the last few days since I want to put my ROTH money into a better Index fund than what I have now.

[34saving]

Before you do any retirement stuff, get at least $1000 (probably more since you have a family) in a liquid emergency fund. I'd suggest ING or Emmigrantdirect. (Personally I like ING, but right now Emmigrant is pay 3.5% and ING is paying 3.15%)

Also, start tracking your spending habits (Notebook to spreadsheet depending on your personality). Find where the holes are and close them up. (Eating out? Coffee? Toys?)

Index funds are probably a great thing for you since have very few decisions and not much control. (And since you're getting over an addiction or obsession or whatever its probably best not to put yourself in the same "driver's seat" for awhile.)

[Russell]

34saving is absolutely right.

You should have enough in liquid assets to cover your expenses for 6mos in case of emergencies...some shoot for 3 mos and some for 12 mos, only you can decide on the exact amount. I find that the more I have in my emergency fund the lighter I feel about unexpected expenses and things like loss of job etc.

However, I can't stress enough about saving via the tax-free or tax-deferred savings vehicles first. In the long term they'll net you a lot more.

[freshstart]

I have Dependent Day care maxed out at $5000 and Health care at $2500. As for 401k and Roth, I am not invested in one. Only reason is that I may need access to the cash due to family. That is why I am looking into ING and possibly investing in mutual funds.

So you are saying I should first look to put away at least 3 months of savings (1700 x 3 = $5100) before even looking into investing?

[terry1156]

Originally Posted by freshstart

So you are saying I should first look to put away at least 3 months of savings (1700 x 3 = $5100) before even looking into investing?

I would put it in something that was liquid enough that you could get your hands on it rather quickly if you needed it for an emergency. you kind of answered your own question about the emergency fund by saying:

"Only reason is that I may need access to the cash due to family."

If you may need quick access to it, then it should be part of your emergency fund.

I would like to take a closer look at your overall spending. While $1700 is quite a bit, with $80,000 a year and no house payments, it seems you are overpaying somewhere. I bet the people here could squeeze out a few hundred dollars more in saving/investing money without you having to change your current lifestyle.

[freshstart]

Hi Terry:

Thanks for the reply. First off, I was actually incorrect with my take home money. This is my breakdown:

1) $565 CH 13 / 2) $600 child care / 3) $270 car ins (this is the max. will decrease every month) 4) $80.00 electric & gas / 5) $20 phone / 6) $80 cell phone ( I am paying someone else's as well ) 7) $40 cable

Actual take home pay is 1547 x 2 (semi-monthly) = 3100 - 1655 (total monthly expenses) = $1445

So I am looking at roughly $1445 in extra cash per month, or

[terry1156]

Is there any interest involved on the chapeter 13 payments?

[terry1156]

Money has to be going other places - you said you're making $80,000 a year and taking home $3100 a month which comes to take home pay of $37,200 a year. Some of the missing money is going to taxes, but I don't think $42,800 of it is all going to taxes.

[freshstart]

The only other thing I can think of is the fact that I am enrolled in a program that uses after tax money from my pay check that is put aside to purchase stock option twice a year. But I know I included that in my take home. Also, the paycheck changes every other pay period because I have commuter benefits deducted pre tax as well. The deduction is taken out every other check. So when I do the calc, I am actually taking the lowest possible check and multiplying by 2. So that could where the number do not match. I maybe shortchanging myself

[terry1156]

That is something to investigate. You'll have more money to save/invest if you know exactly where the money is going. When you get a chance, you should go over what exactly is being deducted from your paycheck and how much - if you can't understand everything, go to the personel department and have someone there explain it to you. Knowing that will determine if you need to make changes in any of those areas.

You'll also want to see how much they are withholding for taxes. If you always get a big refund, you might want to adjust the amount so that you don't and get more $ with each paycheck (big refund = interest free loan to the governement).

Your also missing food. Do you eat out a lot? This is one area where you can change habits to save a lot of money.

[Tree0164]

As others have said, look at your paycheck. Investing in stocks directly may not be a good fit for you since it got you in trouble before.

Get a good size emgerency fund in your case I would do atleast 6 months unless you can pay more the $600 a month towards your bankruptcy. Otherwise do $1000 and the get that up.

Review your retirement plans options at work.

Car replacement fund? Set aside some money for that.

[jmjj215]

Originally Posted by terry1156

Is there any interest involved on the chapeter 13 payments?

I want to re-ask this question - it may have been lost in the shuffle. I'm thinking if there's interest you might want to get out of that 13 faster - is that what you were thinking Terry?

[terry1156]

Originally Posted by jmjj215

I want to re-ask this question - it may have been lost in the shuffle. I'm thinking if there's interest you might want to get out of that 13 faster - is that what you were thinking Terry?

Exactly. Just like with credit cards, it sometimes doesn't make sense to invest when you can get a guaranteed high % return by paying off credit card debt. I'm not very familiar with chapter 13 so I don't know if interest is involved, but if it is, that is where you should probably be putting a part of the extra money you have.

[Snoopy2645]

I would also pay the debt down & then I would also take a good look at how I could cut back on spending I am seeing tons of friends who have had money problems in the past or whatever they dont buy thier kids new clothes they only take hand me down from people. They also buy clunker cars & eat cheaply. I myself have 3 kids so they were each others hand me downs & I have always had a paid for car never a loan I havent had clunkers but u know the in betweens kinda cars like 5 to 6 yrs old & then I try to cut back on eating out!!! Seems like I get in streaks were I like to eat out. But like others stated if this is all you have to pay maybe bank the rest but defiently I think lifestyle changes would help a ton too you know.

[freshstart]

Thanks to everyone for responding to my thread. Everyone has been very helpful. In regards to the CH 13 interest question, there is no interest attached to it. As for paying more than the minimum amt, I was told that I should not do that because that is a sign that I may have more money available than I may have originally said. The schedule is based on the financial situation at that time. It is at their discretion to review my finances to see if I can pay more to the plan. I was told that with Ch13, you are given a new lease on life. However, you should not be having any extra money leftover once your expenses and pymts are taken care of. They do not want you to take the easy way out and not have to pay creditors just so I can start saving up again

Terry: I just remembered that every paycheck, I have $400 taken out and automatically deposited into my friend's acct for money that I had borrowed. So that may explain why my take home is not calculating correctly in relation to my salary. I do get paid the $400, but I never see it.

[BAGAGT1]

Originally Posted by freshstart

As for 401k and Roth, I am not invested in one. Only reason is that I may need access to the cash due to family.

Originally Posted by freshstart

So I am looking at roughly $1445 in extra cash per month

If you have $1445 a month leftover, there is no reason why you couldn't set aside at least the minimum to get your full employer match in your 401k (I would almost suggest at least 10% of gross pay in your situation). By not contributing to your 401k, you are leaving your retirement income in your employers pocket.

With a Roth IRA, you can withdraw your contributions (though not your earnings) without penalty if and when a situation should arise. So you should think of it as a retirement plan/second emergency fund. Don't forget all of the tax benefits of both programs.

So I would say of your gross pay....

10% = $333 a pay period (pre-tax) into your 401K if your employer offers one. If the investment choices are really poor in your 401K plan, then at least invest enough to get the full company match.

5% = $166 a pay period (after-tax) into a Roth IRA (this should fully fund your Roth IRA)

Deposit the remaining funds into a high interest savings account like ING until you reach at least a six months worth of expenses (or whatever amount would you would feel comfortable with but at least six months).

Once you've reached your emergency fund goal, you can invest the money in a brokerage account but under no circumstances are you to buy stocks, EFT's, bonds, or mutual funds using any money that hasn't previously been deposited into your account. In other words, no borrowing money from any source other than what is available in your brokerage sweep account.