Help With Budget!!!!!

[CCFREEDOM]

I am so glad I have found this site. I have started my journey into being debt free and started a budget. I tried the Dave Ramsey program but it doesnt work for me as I am self-employed and most of my debts I pay out of my business account. I really dont know how to do this right. I have prepared my own excell budget graph for both personal and business and I am recording all of my expenses on a daily basis. So far, it just seems impossible to balance the budget (I started 30 days ago). I have not been very conscious on my spending habits and I now find myself in a very stressful situation as I do feel that my creditors are controlling my life. I no longer spend any money the way I used to. No more vacations, clothing or going out to eat.

This a list of my expenses on my business. I make roughly between $11,000 to $12,000.0 Although I have even made $15,000 on a good month.

BUSINESS:

$1010 Rent
200. Utilities
350 Advertising
200 Telephone & Internet
100 Ofice Supplies- average
50 Postage

Yearly Expenses

$1000 business bond
$1700 software

Credit Card Debts

$14,000 Discover
12,000 Chase
15,000 B of A (2 cards combined
13,000 Car Loan
15,000 Wells Fargo (2 cards combine)
10,000 Citicard


For my home:

$3800.00 Mortgage Payment - was paying negative now paying full
interest.

300.00 Utilities
63.00 Cable
200.00 Groceries
100.00 Cleaning person (cut back to once a month)
75.00 Gardener
40.00 Dry cleaners
50.00 Care maintenance (hair, cosmetics) cut down in this area.
50.00 Pet care (food, grooming) averaging $30.00 a month.


The yearly expenses are:

$8200.00 in property taxes
700.00 insurance ( I have no earthquake insurance)

I also have 2 rentals:

1st $2601.00 Morgages (1st & Equity Line)
2400.00 Rent

Yearly Taxes $4,200.00
Insurance 600.00

2nd $1113.00 Mortgages (1st & 2nd)
905.00 Rent

Yearly taxes $940.00
Insurance 460.00


I know this is quite a lot..but I have no choice now but to keep on going with my budget and in trying to pay my credit cards off.

I would appreciate all suggestions as to how I can work on such a budget.

I have opened an ING account and depositing $200.00 per week for my emergency fund and another with HSBC for another $200.00 for the property taxes.

[marla]

Do I understand this correctly? You have two rental properties where you are getting less rent than you are paying on the mortgages? If this is the case, sell both properties and any money made put toward reducing credit card debt. Those 2 rentals are causing $11,000 a year in debt.

[LivingAlmostLarge]

Holy cow. You are in negative equity in both rentals! Those have gotta go. That's a negative Return on Investment (ROI). It does you no good to try to be building a portfolio when you are already in the red every month.

Wow. I can't even wrap my head around the rest of the numbers right now but wow. Get rid of the rentals, get some money making rentals if you must.

[deadgoon]

Dave wrote a great book called the Financial Peace planner that has worksheets it it that deal exactly with situations like yours. You might want to check around and see if you can get a copy.

For the short term...

First things first, do a written budget for the current month and maybe next month too. Don't try to do a "general" budget, list the actual expenses you will be paying out for each month. Since your income is irregular, list the items in order of priority of getting paid. At the top of your list should be your personal house payment, followed by food, water, electricity, and car payment. Keep ordering things in a list and pay them according to their priority on that list.

Second, you have to stop spending more money than you make. You have a large amount of debt and you have to stop borrowing money or you will never get out of this.

Third, cut back on all unnecessary spending. Cable, cleaning person, garderner? You can live without these for sure. Get a library card and do your own cleaning and gardening. Also, make sure your spending plan is realistic. $200 for food seems awfully low. No eating out!

Fourth, dump those rental properties or raise the rent. You're spending more on them than you are taking in. I'm guessing this is not an option though since you have 2nd mortgage on one and an equity line on the other.

This is going to take A LOT of work to get out of. I'm guessing you have a family and they have to be equally on board with your get out of debt plan. You make a lot of money, you just need to get everything in order and start making a good plan.

[CCFREEDOM]

Thanks for your responses. I cannot really get rid of the rentals right now because the market is not good in California right now. I would be losing a lot of money. I could raise the rent on one of them..I've just recently raised the rent a year ago on the higher one and they are very good tenants and take care of most of the repairs.

The grocery bill at $200 is about right..I am single and mostly buy vegetables and fruits. I buy in bulk at Costco so every week I just go to my local market and buy the main things like, milk, eggs, fruits, vegetables, etc. never go above $30 a week.

I dont have a family to worry about.

I expected to be in a negative on the rentals for a little while.. I've had it for almost 3 years now....so I am projecting that in about 5 more years I will be even. When the housing market goes up again I might consider selling. One of my rentals I have owned for 22 years..but I have used that equity to buy my dream home.

Last December I started another business and the expenses were about $2,000 a month and not producing any income and this is the reason why I got into credit cards. I have since closed that business so I can now focus on paying those bills. I know this is probably overwhelming to some people. I have not been the best in my spending habits and I need to be more disciplined about my money.

I will call the management company tomorrow and see about raising the rent on the smaller property.. He has lived there for about 1-1/2 yr. and I have not raised the rent since. He has been late on this rent a few times and I've had to come up with the money to pay the mortgage..now he is back on track and seems to be doing ok. If I could do things over again..I would not have these properties..but I dont want to lose money and this is bound to get better later on..either by gradually raising the rent or selling in a couple of years.

Besides selling my properties, what other advise do you have?

[marla]

How much would you lose? Like I said, you are losing $11,000 a year not counting any repairs and other things that happen to rentals. The market is going to get worse before it gets better. If you don't take care of that huge leak, none of the other stuff you try to do is going to matter in my opinion. Can you cover your mortgages if you sell? If not, how much will you lose?

[deadgoon]

When I total up your numbers you listed, your monthly income barely covers your expenses, and that's just paying minimums on the credit cards and assuming the higher income numbers. Something here has to give or you'll be fighting this for a very long time. Do you have any equity in your rentals or personal residence? Do you have other items you can sell? If you could knock out a couple of these credit cards by selling some stuff, you might be able to get some breathing room.

[LivingAlmostLarge]

Trust me you shouldn't have bought rentals when they are negative equity. Any property owner will tell you that's a horrible business plan. There is no way it make ANY financial sense.

A rental should be income producing from the purchase. You ever hear you make money on the BUY? Well it's not working now. Ouch, I'd seriously consider dumping the rentals. Sell it to the people renting maybe.

[disneysteve]

I cannot really get rid of the rentals right now because the market is not good in California right now. I would be losing a lot of money.

I expected to be in a negative on the rentals for a little while

This is totally flawed reasoning.

If you expected to lose money on the rentals, why did you buy them? Investments are things you do to MAKE money, not lose money. Would you buy a stock that you were sure was going to go down in price for the next 5 years?

Holding on to the properties because you would lose money if you sold them doesn't make sense either. You are losing over $11,000/year now. You say you don't expect to start breaking even for 5 years. That means you will go another $55,000 in the hole until then, even more if taxes or insurance costs rise or any major repairs crop up or you lose a tenant for any period of time.

You need to get rid of these properties NOW. Working on the other aspects of your budget when you are bleeding $11,000/year from lousy investments is a losing battle.

[disneysteve]

What is your total debt including car, credit cards and mortgages? You didn't list the mortgage amounts - only the payments.

And ditch the cleaning person. You can't afford those kinds of luxuries.

You live in a high COL area and are only bringing in $132,000/year. That simply isn't a lot of money. You need to sharply downsize your lifestyle and expenses if you want to make ends meet and dig your self out of debt.

Speaking of digging, someone else around here is fond of saying that the first thing you should do when you find yourself in a hole is to stop digging. You are in a pretty deep hole and still digging away.

[gamecock43]

I have a possibly stupid question. CCFREEDOM bought the properties many years ago, I dont know if they appreciated at all in that time, but clearly they have depreciated in the last few years. Enough for her to think she cannot break even if she sells them now.
However, if in the long run, real estate appreciates, and tends to go up, if she waits 5 yrs to start breaking even, isnt there a chance that appreciation during that time could help her recoup the $$ she has lost during the times of losing money?
I know the general answer is to sell now because real estate is risky and she clearly cant afford to lose, and also because the market is declining now, and once it hits bottom who knows how many years it will be before it begins to ascend. I also know that the real estate maket in CA can be dramatic and skyrocket within a years time. However, with her being in the red every month, she cant afford to hope to hit one of those peaks.
I am thinking buying the rentals took alot of guts, research, and in her mind was the right thing to do for a while, its hard now to change your thinking and dump it into the 'mistake' catagory, and is why she is stalling before considering the possibility of selling.
So could it be that if (in the years preceeding this downward spiral) you purchased and rented property for a LOSS, that the appreciation would make up the difference in the long run? And that is what she is hoping to do? That the long run picture is worth the current sacrifice?

[disneysteve]

So could it be that if you purchased and rented property for a LOSS, that the appreciation would make up the difference in the long run?

That is exactly what many people did during the housing boom/bubble. They bought primary homes and rental properties, often with interest-only or adjustable rate mortgages with the plan of selling them when the price appreciated. Renting at a loss was irrelevant because the rising property values more than made up for it. If you could buy a $200,000 property and sell it two years later for $300,000, it didn't matter if you lost a couple hundred each month on the rental income.

The problem, of course, is that the bubble burst and values started dropping instead of rising. The other problem is that people got in the habit of using their equity as a personal ATM, doing cash out refis or taking HELOCs to access the increased value of the property. Then, when the property values dropped, they suddenly found themselves upside down, owing more than the property was now worth. It sounds like this is the case here. OP says he has owned one of the properties for 22 years. Surely, the property has appreciated significantly in 22 years and yet OP would still lose money if he sold today, because he borrowed against the equity to buy his primary residence.

[scfr]

I don't know what kind of business you have and what the zoning laws are in your area, but when the lease expires on your office rental, could you move your business to one of your rental properties? On property 2, you are bringing in less in rental income than you are paying on rental expense for your business.

[maat55]

CCFREEDOM isn't going to happen with your financial plan. You need to slice your budget to the bone.

You need to sell the rentals on a short sale without recourse if possible. Your finances are an open wound and you are not even trying to stop the bleeding. You need to sell the so called dream home if it has the equity to get you out of this debt now. You must be making good money, so liquidating to a much lower debt should give you room to move forward rapidly. Doing what your doing, you will only get worse.

The reason Dave Ramseys plan doesnt work for you is because you are to bull headed to do the right thing.

[ActYourWage]

CCFREEDOM isn't going to happen with your financial plan. You need to slice your budget to the bone.

You need to sell the rentals on a short sale without recourse if possible. You finances are an open wound and you are not even trying to stop the bleeding. You need to sell the so called dream home if it has the equity to get you out of this debt now. You must be making good money, so liquidating to a much lower debt should give you room to move forward rapidly. Doing what your doing, you will only get worse.

The reason Dave Ramseys plan doesnt work for you is because you are to bull headed to do the right thing.

I agree, Dave Ramsey's plan WORKS. You can't play around with debt, it's like a snake, it will bite you. You just need to cut your life style.