Living paycheck to paycheck

[jpg7n16]

We owe $10k on the truck and it's worth about $9800. So we aren't too upside down in that if we get rid of it and get something more cost efficient.

That's good to hear. Should make it easy to get out of it.

I will not close the savings account. After my husbands stint of unemployment last year and we had no savings whatsoever, we decided we never want to go through that again. I get the purpose of what you're saying but I don't want to always live in fear of the unknown. This way we have something to fall back on in case of lapse of employment, auto emergencies, medical emergencies, or dog vet emergencies.

Aren't you already living in fear of each pay period?

I'm not saying cash it out and go crazy with the $900, I'm saying move it to your checking account.

If you have $100 in checking and $900 in a separate savings account, how are you any better protected than you would be with $1000 in your checking? If an emergency happens, you have $1000 to fall on either way.

But you mentioned earlier that you are concerned about having the cash today your bills on time. You also mentioned you're concerned with late payments (caused by the timing of your cash flows each month). Having all the funds in the checking account would eliminate those concerns.

My point is, you gain nothing by keeping them separate, but you stand to gain peace of mind by combining the accounts.

I personally don't have a separate savings account. I keep all my cash and EF in one checking account. And because of that, I never have to worry about if I have enough money available to pay my bills.

Then divide all of these semi annuals by 12. This is how much you need to be setting aside each month on a separate line in your budget.

And by that I'm assuming you mean annual expenses, not semi-annual, right?

Or do you actually divide 6 months of expenses by 12?

[DumbSheila]

In the past, we've been of the mindset "spend it if we've got it" and it got us in to too much trouble. We need this cushion. It may not sound ideal to others but to us, it's the first time we've ever had to attempt to be disciplined. I am trying to get the best of both worlds--to be able to save and to be able to pay bills. I get your plan, I really do, and on paper it sounds totally possible and makes complete sense. But realistically to us, it's not something we are willing to do right now.

Yes we are spending too much on cars. These were expenses we had before we got together and now everything is consolidated. We are currently still recovering from his losing is job 2 months after we got married and being unemployed for over 6 months. So it is all a big adjustment. And credit-speaking we can't just go trade in until another few months (when we've been at our jobs a little longer). But it's def the plan.

[NetSkyBlue]

And by that I'm assuming you mean annual expenses, not semi-annual, right?

Or do you actually divide 6 months of expenses by 12?

Sorry, maybe I'm not using the right term. I was thinking an annual expense is what you pay once a year, like vehicle registration, and semi-annual as things you pay multiple times a year but less frequently than monthly. Like, 5 birthday presents or whatever.

For example, I have a line item in my budget which is for car registration, maintenance, and car washes. I will owe approx. $250 for registration this year, and I wash it every 2 months at $8. So that's ($250+$48)/12 = $25/month (I rounded up). As my car gets older, registration will go waaay down, but maintenance could go up, so I plan to keep the same amount in that line of my budget for several years. I also timed it so that all the registration money would be in there the month that it's due.

December - $25 in, total $25
January - $25 in, $8 out, total $42
February - $25 in, total $67
March - $25 in, $8 out, total $84

...

And by the time registration is due, the money is already saved up. Make sense?

I think things like that is where a lot of money leaks. You have to buy a birthday present for Jenna in February - $50 bucks there. Mark & Elise have a baby shower in June, another $50. Don't forget about the personal articles insurance which is due in September, or the extra gas you spend in December, driving back to visit family. Etc.

Figure these things out ahead of time and start setting aside the money now. It just builds up as a cushion until it's due, instead of leaving you scrambling to come up with the cash when you've already budgeted it all elsewhere.

[DumbSheila]

That makes sense. Goes back to the whole "Christmas club" a lot of banks used to do

[jpg7n16]

Sorry, maybe I'm not using the right term. I was thinking an annual expense is what you pay once a year, like vehicle registration, and semi-annual as things you pay multiple times a year but less frequently than monthly. Like, 5 birthday presents or whatever.

Okay then yeah, you mean annual. I'm with ya now

Semiannual means something you pay twice per year, or every six months. Thought you might be using some new method of budgeting that I hadn't heard before

This is going down the semantics path, but you're talking about either "periodic expenses" or "irregular expenses." One or the other (or both). Meaning expenses that don't occur monthly, but happen throughout the year on some different schedule.

You just total those periodic expenses for the year to find the total annual amount, and then average that out to each month. That's exactly what you should do on those irregular expenses.

[DumbSheila]

Well just this month alone, we've paid off our two small credit cards, for a total of $70 a month, and we've just refinanced the truck at $298 a month, for a total of $62 a month. So we are saving $132 a month now, starting in may. But bc we have two credit cards left, both at a balance of $1000 and some change, we are working now to pay those down with the savings on the other bills. But my husband's student loan company is lowering his payments this month too and we estimate that will be an additional $60 a month in savings. We are trying to pay down one thing at a time and going in order of balance and interest paid. Then we will work on the next ones, like student loans. With any luck, we will be 100% free of credit card debt before the end of the year and we will be student loan free by 2014. Hoping!

[Petunia 100]

Sheila, are you and your husband contributing to workplace retirement plans?

[DumbSheila]

Yes. Both salaries I've listed are take-home pay, after benefits and taxes

[PetMom]

We keep our savings account separate and that has worked.

If in with the checking account it appears there is more 'spendable' money.

We do aim for a thousand dollar checking acct. cushion.

With the savings account there if you have to go to that and get some money then you know it is red alert budget time.

Others may be more amendable to all in the checking account.

[Kooshiball]

I am wondering what is $2300 bill for? Is this rent for the house? What kind of expense this $2300 entails? If housing payment is included, it is bit too expensive. It may be a good idea to move to smaller apartment. And, as many people said, it seems that there are still many things that you can save (Netflix or other expensive items).

It is highly recommended that you should invest whatever you saved up since bank's CD or saving account rate is just insulting. Living cost is increasing year by year due to massive inflation. If you only save whatever you earned in the bank, then your life will be harder and harder since you can't buy as much as you use to.

Hope this will help!

[Jon991]

Well, to be perfectly honest, if I were in your shoes, here is what I'd do:

1)Cell phones $200 (way too much) Drop it down to $45 for each of you ($90 total) Forget about the expensive data plans. Internet on phones is not needed.
2)Stop the allotment for date night (for now) Take a walk together, make some popcorn at home and watch a movie together...have date night at home or somewhere you don't have to spend money
3)Sell that truck and replace it with a cheap car ($3,000 max buget on replacement car). You might be thinking this is not possible but it is very possible to get a reliable car for $3,000 or less. I bought a 2000 Nissan altima with 84000 miles 3 years ago for $2700. Still runs like the day I bought it and it has 138,000 miles now)
4)When you payoff your cars, you can drop collision coverage. That will reduce your auto insurance bill significantly.
5)Put ALL extra money into paying off debt. (this means eliminating your splurging money until your debt is paid off.).

When you are out of debt, you can bring back some of the luxury spending. My guess is that once you get out of debt, you won't want to bring them back. Remember, there is nothing fun about getting out of debt. It will take some adjustment, but you'll soon realize how rewarding it is to bring home a paycheck without loosing it to debt payments.

[josetann]

Well, to be perfectly honest, if I were in your shoes, here is what I'd do:

1)Cell phones $200 (way too much) Drop it down to $45 for each of you ($90 total) Forget about the expensive data plans. Internet on phones is not needed.
2)Stop the allotment for date night (for now) Take a walk together, make some popcorn at home and watch a movie together...have date night at home or somewhere you don't have to spend money
3)Sell that truck and replace it with a cheap car ($3,000 max buget on replacement car). You might be thinking this is not possible but it is very possible to get a reliable car for $3,000 or less. I bought a 2000 Nissan altima with 84000 miles 3 years ago for $2700. Still runs like the day I bought it and it has 138,000 miles now)
4)When you payoff your cars, you can drop collision coverage. That will reduce your auto insurance bill significantly.
5)Put ALL extra money into paying off debt. (this means eliminating your splurging money until your debt is paid off.).

When you are out of debt, you can bring back some of the luxury spending. My guess is that once you get out of debt, you won't want to bring them back. Remember, there is nothing fun about getting out of debt. It will take some adjustment, but you'll soon realize how rewarding it is to bring home a paycheck without loosing it to debt payments.

I agree with most of what you said. Just a few comments:

Dropping data plan...the cellphone companies make that darn near impossible to do so if you have a smartphone (if it's an iphone or an android phone, it's a smartphone). Lower it, maybe, but not drop it. I'd call and see exactly when the contract is up, and see exactly how much the ETF (early termination fee) would cost. Then figure which prepaid plan would suit your NEEDS (and not just WANTS). Yes, $45/mo could easily cover all your needs PLUS some wants. You might find out that in just a few months you'd break even (lower prepaid phone bill vs the ETF you'd pay to get out of contract). At worst...you get transferred to someone in retention who offers you an awesome deal to stay. Either way, you're saving SOME money.

Eliminating ALL discretionary spending money is probably a bit too extreme. Like a crash diet...might work for the short term (would be GREAT if you had to save a lot of money for a big downpayment, and were only going to do this for a few months or so). But I would definitely recommend dropping the amount. Maybe $100/mo for date night (which can roll over, so you can have a really big date every few months, or much smaller dates multiple times a month). And perhaps cut back personal misc funds to $50/mo each. Heck, even $100/mo would be a step in the right direction.

I'm with you on dropping full-coverage insurance. BUT, you should put the amount you save in insurance costs into some kind of vehicle replacement/repair fund, at least for a bit. Cause life happens, ya know? And if someone hits your car, even if THEY have to pay...what if they have no insurance (not that big a deal if you have uninsured motorist coverage), or their insurance tries to drag out the payment? You have a nice cushion to immediately get you back on your feet while you wait for the insurance settlement.

And again, I'd generally be right with you as far as putting ALL extra money toward repaying debt. However, the OP is really stressed out about living paycheck to paycheck. While paying every penny toward debt makes sense on paper...it's not always that simple. If she just paid the minimum for a month or two, that would give her just enough breathing room so she won't be stressing so much. But if she just cuts back a bit on the discretionary spending and some other expenses (even something simple, like paying for Netflix one month, then suspending that and have Hulu the next, rinse and repeat; you're still watching the same amount of TV but are paying 50% less!), that should free up enough to have a bit of a cushion in their checking account.

Edit: Oh, another thing...if you don't want to buy gifts for a while, just explain that to family (if you explain right now, when no gift is expected...it might make it a bit easier when gift-giving time actually comes around). Just something as simple as "We're saving up for ______ and have decided to reduce/eliminate material gifts this year/forseeable future. For Christmas/other holiday this year we plan on offering free babysitting/baking cookies for everyone/just spending time with loved ones." Works for us!

[DumbSheila]

We actually paid off two of the credit cards (savings of $70 per month) and lowered the truck payment through the bank (savings of $60 a month). We also worked his student loans out to $120 a month instead of $150 for a savings of $30) used some of savings to buy a couch but have already paid ourselves back( my husband didn't want to pay ourselves back bc "that is what savings is for" but I wouldn't hear of it.

The additional $160 we are saving now is going to a credit card to get that paid faster. I still estimate we will be out of credit card debt before the end of the year (for a total of $125 in savings, in addition to the $130). So we have cut back a lot in te last month since I wrote this. We are continuing to focus on putting money in savings and more on credit cards.

[riverwed070707]

We actually paid off two of the credit cards (savings of $70 per month) and lowered the truck payment through the bank (savings of $60 a month). We also worked his student loans out to $120 a month instead of $150 for a savings of $30) used some of savings to buy a couch but have already paid ourselves back( my husband didn't want to pay ourselves back bc "that is what savings is for" but I wouldn't hear of it.

The additional $160 we are saving now is going to a credit card to get that paid faster. I still estimate we will be out of credit card debt before the end of the year (for a total of $125 in savings, in addition to the $130). So we have cut back a lot in te last month since I wrote this. We are continuing to focus on putting money in savings and more on credit cards.

I guess I'm confused on how refinancing the truck helped the gas guzzling problem or the fact that you spend 25% of your income on transportation (the amount typically recommended you not exceed for *housing*!). How long of a term did you refi for? If you weren't very underwater before, you will be by the time that truck starts nearing payoff.

You may be spending less than you earn, but you'd be in a much better position if you weren't splurging (yes splurging, not being frugal) on two new(er) cars, iPhones, fun money and dates... you have A LOT of fluff in your budget and a lot of debt. You've got a ways to go before substantially saving for international travel.

[breathemusic]

I've read many a budgeting post where people are quick to say "sell your car and get something cheaper to get rid of the car payment."

Sounds good in theory, but that's easier said than done. Depending on where you live, used cars that are actually reliable and aren't going to either die too soon or cost an arm and leg in repairs can actually be fairly expensive. What's the point of buying a beater if you're going to have to do so every 2 years? You might as well be making a car payment. let's add to that the time that it can take to sell the car (since you'd end up having to sell privately if you want to get even close to the value you'd still owe) plus the time it would take to shop around to find a used car that fit your purposes, and budget and wasn't a piece of crap.

I'm not saying that it's never a good solution (especially if you don't actually have a need for a truck that hauls and uses so much gas), I'm merely pointing out that it's not just as easy or as fast as everyone saying "why are you still paying for that truck? ditch it now!"