My #'s

[mikey5time]

Hello all,

Figured I'd drop this in and see what ya'll thought.

Wife + 2 month old babby.

Bring home 3000 a month, minimum. Sometimes OT from 200-400 a month.

Have 159,000 owing on mortgage, only about 12000 worth of equity. Payment comes to 417 bi-weekly, 835 monthly.

Consumer debt of 26000, currently consolidated at $8.3 variable rate. Payment is 271 bi-weekly, or 542 monthly.

That covers 340 principle a month.

Total monthly expenses right now are...

180 - Power
55 - Water
156 - House/Car insurance
145 - Cable/Internet
140 - 2 Cell Phones

Car is paid off, maybe 80 a month for gas.

Currently have 100 a month set aside for savings, and budget 600 a month for groceries + 100 a month for 'slush cash'.

Looking at 5 years to pay off consumer debt, but all of my OT goes towards it in addition to my regular payments.

Any ideas on what I can do to get ahead? I just want to see if I'm doing everything I can, I think I am, except maybe ditching the cable.

Thanks!

[Petunia 100]

Hi Mikey,

Here are my thoughts:

1. Are you saving for retirement? You should be.

2. What can you do at work to advance? Focus on acquiring and improving your skills. Do the best job you possibly can. Over time, this should help you increase your income.

3. How is your credit rating? There are plenty of offers out there right now for 0% balance transfers from various credit card lenders. Some are for as long as 24 months, some have zero balance transfer fees. If you have good credit, look for these. See if you can transfer some debt. Use the interest you save to pay down your debt faster.

4. You're spending about 9% of your take home pay on internet, cable, and cell phones. That's a lot. See if you can reduce those bills.

I've been paying about what you pay for cell phones. I'm in the process of ditching AT & T and moving to Ting. They are a new company, but they use Sprint's network. I expect to save $100 per month on my cell bill. I'm not endorsing Ting (can't have an opinion on their service just yet), but I am endorsing looking at your options. I think you could do better than $140 per month for 2 people.

5. How much is in your savings account? Do you save that $100 and draw it back out rather quickly?

6. What is the interest rate on your mortgage? Is it possible a refi would benefit you, or is your rate already low?

7. Kudos to you for making a plan to get out from under your consumer debt.

[disneysteve]

Welcome.

$600/month for groceries for 2 adults is a lot. You could trim that back. Is the baby being breast fed or on formula?

Are you paying any extra to make biweekly mortgage payments? Some lenders charge for that service and it isn't worth paying for.

The interest on your other debt is ridiculous. I agree with Petunia about looking to transfer some of that to a lower interest if possible.

You should be able to pay off 26K a lot quicker than 5 years on your income. Maximize the overtime. Knock a couple hundred off the food budget. Get rid of cable TV or go to the most limited basic service they offer. Reduce your cell plans if possible.

How much do you have in savings now? I'd keep $1,000 as an emergency fund and use anything above that toward the debt reduction.

Is your wife back to work yet? If not, what's the plan for that? Has she considered babysitting another child while she's home to bring in extra income?

One thing I didn't see on your expense list was life insurance. Do you have it? If not, get term coverage ASAP for 8-10 times your income.

[jpg7n16]

Your top 5 expenses in order are:

1. House $835 (28%)
2. Food $600 (20%)
3. Debt $542 (18%)
4. Power $180 (6%)
5. Car/house insurance $156 (5%)

That's how I view budgets, start with the biggest numbers and try to reduce them, then work on the smaller ones.

The advice above hits on most of those.

House: This is the largest, and by percentages you're at the max recommended (28%), so it's not crazy. So how to reduce this? The easiest, as pointed out above is to refi. If you were able to refi the remaining balance over a new 30 year at a rate of 3.8%, you'd save about $95/month.

A more difficult path would be to move to a smaller home, or try and rent a spare room/basement/garage out. Though I don't think it should have to come to that. It is an option though.

Food and debt, already touched on, and already working on.

Power and Insurance: Shop around. Those are obv necessary, but you may be able to find lower rates by shopping around. In Texas, we have different electric providers whose rates can vary widely. Make sure you're getting a good deal.

And when comparing insurance, start with making sure they have the same coverage level, and that the coverage is enough/appropriate for you guys.


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Other notes:

-Take a 401k match, no more, no less. Don't know what the situation is there, but once you take the free money, switch to paying off those debts.

-I'm also on board the increase-your-income train. Make use of the overtime available, work a 2nd job until the debts are gone, see other ideas in the posts above, etc.

-And I'll second DS's advice on term life insurance. Go around 10x your pretax salary with a term policy.

I mean, what happens to your wife and new baby if something happens to you? If you're covered w/ 2-4x at work, after accounting for funeral expenses and paying off some debts, how long would that last? Then what would your wife do? Having proper coverage buys them time.

And did we mention it should be a term policy??

-You should also update your beneficiary designations on your accounts, policies, 401k, benefits. Make sure they're how you want them. Should review them any time your family situation changes (ie a new happy baby)

-Do you guys get a tax refund each year? If so, update your withholdings. You should expect more back this year with a new dependent to claim, and if you're used to a sizable refund, correcting your taxes could easily add a couple hundred a month to your income.

2012 Withholding Calculator

[mikey5time]

Hey everyone,

Thanks for the advice, I'll add a few points in.

I work as an emergency dispatcher. I make better money than I would at anything else in the area I live, (Nova Scotia, Canada) and the OT is all double time or time and a half minimum. The other wrinkle is that I work a 4 day on, 4 day off schedule, so getting a second job would both be hard to arrange and also would need approval.

My wife worked for her mothers book keeping company, but her mother has retired so she has no job to go back to. We've talked about babysitting, but with the hours I work and the schedule I keep it's not realistic at this point.

We only have one provider here, so there's no way to get better rates. There's a lot of controversy ongoing because power rates keep going up, and the provincial provider's parent keeps handing out huge bonuses to their CEOs, so power is out. Insurance is actually a discounted rate I get due to my union membership.

We're probably going to trim our grocery budget down to 500, to get another 100 towards the debt.

Mortgage right now is at 3.38 %. It costs me less to make 2 bi-weekly payments than it does to make 1 monthly payment. It's also knocked 4 years off the end of the mortgage.

I'm not saving for retirement at the moment, but that's more due to the fact I have a pension waiting for me in 24 years, as long as I stay with the city. At this point, keeping everything current and trying to get rid of the debt is trumping a supplemental retirement plan. I'm certainly going to take a look at that eventually, ever since I read The Wealthy Barber

We have about 500 bucks in savings right now, we're not touching it unless we REALLY need it, but we haven't yet. We agreed around 1000 dollars before we start diverting any of that for anything.

Not sure about the balance transfers. I have one credit card with an 8K limit and another with a 13K limit (both 0 balances), which send me balance transfer checks every few months at either 0% or 1.99%. My big hurdle with these is I wouldn't want to roll a part of my debt balance onto them, and not be able to pay them. The 541 a month to the main debt won't change as it goes lower, I don't believe.

As far as withholding taxes, I'm in Canada so I don't know how that'll work, but I expect to get 3K-4K back next year.

[disneysteve]

We've talked about babysitting, but with the hours I work and the schedule I keep it's not realistic at this point.

What does your schedule have to do with whether or not she can babysit another kid? If she is home with your baby, it wouldn't be hard for her to care for another kid or two at the same time (just as she would be doing if you both had another kid or two).

[mikey5time]

Because of the hours I work (6-6, 2 days on, 2 days off) she's left with the boy on her own for 4 out of 5 days straight, a bad night would leave her in poor position to be responsible for someone else' child, compounded by the fact that I often sleep from 8AM-2PM.

At the end of the day, the stress it would bring and the extra financial output wouldn't really be worth it at this point. She's looking at work from home opportunities, but they'd all have to be structured around my work schedule.

[snafu]

Human Resources, in your City of _______, NS, can adjust your withholding effective immediately. You are giving the federal and provincial governments an interest free loan every pay. That $ 3K - $ 4K is better in your pay packet where you decide how it will be used. It's often recommended to use your tax refund to pay for your RRSP conribution which in turn generates it's own tax refund. You need to run the numbers of your allowable [on your Notice of Assessment] to see if you feel it's worthwhile. You can have a no cost/low cost self directed plan from any of the Big 5 banks which over 24 years has the potential to turn you into 'The Millionaire next Door' having made modest, annual, contributions.

[bjl584]

Paying off debt is great, but you really need to start saving for retirement. I would not depend on a pension. My Dad had one, and when his plant closed the company took half of it away.

[DebbieL]

Fill out new TD1 forms (both provincial and federal) - which are available on CRA website, and give them to your HR office to get them to change your witholdings immediately. Since you are supporting a family you should get less tax taken off at source. I agree with the others - don't give the government an interest-free loan for the year.

For another commenter who asked about a refi to a 30 year low rate mortgage - there's no such thing in Canada. We can only lock in for shorter terms. There is no security here to lock in a low rate forever. We are at the mercy of what interest rates are doing a few years from now. The longest term I've seen is a 10 year, but most people are on far shorter terms than that.

As for groceries, they are also more expensive in Canada (generally) than what I've seen in most parts of the US. Especially dairy type products and meats.