My Intro! Here's to saving bucketloads...

[Almond73]

Hello All,

I'm a newly single mom of three, which is quite an adjustment to say the least! The one positive about this situation is that I will be able to begin making sound financial decisions that were impossible during the span of my marriage. I earn $42K/yearly (I just asked for a $15K raise- so please keep me in your prayers/thoughts).

A little background, I'm currently living with family until I feel financially stable to cover my living expenses, so my biggest financial goal is to save for a down payment on home (whatever that amount should be) and a $10K emergency fund (within the next 3 to 4 years). I have about $65K in student loan debt (4% interest) an upside down auto loan in the amount of $13K (car worth about $6K), $1K in CC debt-- all of the previous pd current-- and $5K in old debt (not current) on my credit report which I eventually have to take care of.

I appreciate all the advice I've seen so far, seems to be a wonderful group of folks. One of these days I hope to give back some of the things I know I'll learn on this site.

So, on to my first question. I am currently putting $200 a month in savings. I have just started (literally this month). What's the best way to ensure savings at this point? Also, should I even consider investing this money or work on establishing the emergency fund first. I am slowly working my old debts in to my monthly budget, but would feel safer with a cushion behind me. The most I've ever personally had in savings is about $700, so this is a big goal for me. But I'm confident I can make it happen.

Thanks in advance.

Almond73

[disneysteve]

Welcome. I think you'll find lots of helpful advice and support here.

I think seeing your budget would be very helpful to us. Also, knowing the interest rates on all of the debt (car loan, CC).

I agree with having some savings for emergencies so as not to have to resort to CC usage again. Then you need to focus your energies on knocking out the debt, starting with the highest rate and working down to the lowest rate. The student loans are probably your lowest rate debt and I wouldn't be in a hurry to prepay those if that 4% is fixed.

[Almond73]

Ok Here Goes...

Car Loan 9%
CC1 balance $500, rate 14.9%
CC2 balance $250, rate 19.8%
CC3 balance $350, rate 21.9%

The older debt is a combination of old bills that are in collections or have been written off by the debtor. No interest is accumulating most are over 6 years old. A few are under 4 years. List below:

CC3 balance $200
CC4 balance $2,000
UTIL balance $705
UTIL balance 548
INS balance $180
UTIL balance $93
UTIL balance $193
UTIL balance $243
CC5 balance $1,099
MED balance $185
MED balance $96

Alright, that's it. Embarrasing, but the truth. Also, still looking for should best places to put the $200 I'm saving every month. Thanks disneysteve!

[billchrz]

I'm a big believe in the Dave Ramsey plan when you are first starting out but I would tweak it a bit in your situation.

The first thing you need to do is create a budget to see if you can find more that $200/month and post it here.

Next I would cut up and quickly pay off all 3 credit cards that you are current on. This will give you the $200 + the cc minimums to use for the next steps. I would then start on the baby steps that Dave Ramsey outlines:

1. Save $1000 in a emergency fund
2. Pay off all debt
3. Save the rest of the emergency fund
4. Invest 15% in your retirement
5. Start a college fund
6. Pay off the house

I would put saving for your house as step 4b at the same time as your retirement contributions.

[Seeker]

Wow.... seconding what Bill proposes. On your current three credit cards you are paying alomst 20 cents on each dollar in interest charges. If I were you, I'd get rid of those debts even before saving.

Drawing up a budget and listing where every cent is going as you spend it for a month or two will help you to see where any problems in spending are.

I hope you get your requested raise as well.

[jIM_Ohio]

Your initial goal of having 10k in an emergency fund before moving out is a good one.

The debt will hold you back- do you have a time goal to pay this off?

What bills do you have when living with family. 42k gross, is take home about $2500/month?

Have you looked at your tax return to know if you are getting a refund?

My thoughts would be this:

Look at gross salary of 42k. Set aside 20% of this per month and learn to live on 80%.

20% of 42k is 8.4k This means you should be able to send $700/month ($8400/year) to your debt. Think cc debt- I would add the car to the 80% below.

Then make sure you can live off of 80% of income to support kids and pay your bills. Fund the EF from this 80% as well.

Once the debt is paid off, set aside 15% of the income to retirement and put 5% towards the house fund.

[disneysteve]

What bills do you have when living with family. 42k gross, is take home about $2500/month?

The first thing you need to do is create a budget to see if you can find more that $200/month and post it here.

I agree. You need to take a detailed look at your spending and see if there isn't actually more than $200/month available for savings and debt reduction.

[Almond73]

Thanks for all the advice so far. I haven't really been living strictly on a budget. I know what my large expenses are and I've just been spending by need otherwise (I know this is bad, bad, bad). I bring home $3,280, which includes $600 in child support.

Here's what happened last month (shocking to see it on paper):

$318 - Clothing
$515 - Childcare
$86 - Toiletries (family)
$418 - Auto Gas
$488 - Auto Note
$64 - Eating Out (family, but sadly mostly lunches @work)
$200 - Rent
$145 - Groceries
$70 - Cell
$186 - CC Payments
$374 - Auto Ins (2 months)
$259 - Student Loans
$50 - Medical

Total Spent $3,173 out of $3,280. This paycheck is a wash, so I'm looking for a good plan beginning next paycheck August 30. I've begun automatic withdrawals to an internet savings account, and I'm planning on moving this to a new savings acct my bank has established that you cannot access for a year w/o penalty.

One note about the car, I know it sucking up 1/2 of my income. I have a 65-mile commute with no public transportation alternative. Like I mentioned earlier, the payoff is $13K, but the vehicle is only worth $6K. When I did the math on selling and getting a cheapee and paying the loan balance , I'd still be coming in at around $13K. So I figured, pay another year and see where it's at or just keep it until it's paid off (prob 2011). Thoughts?

[disneysteve]

Here's what happened last month (shocking to see it on paper): Exactly why one needs a budget!

$318 - Clothing This sounds like a lot, but what did it cover? That's probably what I've spent on clothing in the past year. I'll assume you don't do that monthly and last month was an aberration.
$515 - Childcare
$86 - Toiletries (family) Was that stocking up on stuff that will last a while?
$418 - Auto Gas
$488 - Auto Note
$64 - Eating Out (family, but sadly mostly lunches @work) I think you answered your own quesiton here. Start brown-bagging lunch.
$200 - Rent
$145 - Groceries
$70 - Cell
$186 - CC Payments
$374 - Auto Ins (2 months) Have you shopped around lately to see if you could lower this?
$259 - Student Loans
$50 - Medical

One note about the car, I know it sucking up 1/2 of my income. I have a 65-mile commute with no public transportation alternative. Like I mentioned earlier, the payoff is $13K, but the vehicle is only worth $6K. When I did the math on selling and getting a cheapee and paying the loan balance , I'd still be coming in at around $13K. So I figured, pay another year and see where it's at or just keep it until it's paid off (prob 2011). Thoughts?

The car payment is 15% of your take-home, which isn't terrible overall, but is too much in your particular case. If you are that far upside down, you might be stuck with this one for a little while until value and loan balance are closer together. That will likely happen well before 2011, though. Some others here will probably weigh in on this better than I can.

[Almond73]

Clothing usually isn't that much. This was mostly school clothes for the boys. I try to only shop quarterly for clothing needs. Usually costs more in the fall/winter (b/c boots/coats are more expensive).

Toiletries: one of the boys is still in diapers, it adds up, but he's almost fully potty-trained (yay)!

Auto Ins: can you shop around in the middle of the insured period? If so, I had no idea...

[disneysteve]

Don't know the ages of the kids, but oldest/biggest probably needs the most and others should be getting lots of hand-me-downs. And don't forget thrift shops, Goodwill, Salvation Army, etc.

Yes, diapers add up quick. As soon as those are gone, you can add that money to the savings/debt reduction.

Yes, I believe you can change insurance anytime. You should get a pro-rated refund from your current company if you have paid ahead.

[maat55]

I think if you worked at it you could still better your auto position by 4k to 5k by selling and replacing with a 2k car. One that gets really good gas mileage may bring down your gas requirement.

Other than that, cutting out clothing, nipping the grocery bill if possible, taking a sandwich for lunches and you should be able to cut your auto ins a lot. Try having a garage sell to lighten your load.

I would start by paying off the first three CC's and then line up the other debts smallest to largest and attack them one at a time after paying the minimums. You should have a list to scratch them out as you go as an goal. I also suggest that you cut up all but one of your cards and only use it for gas and PIF as you go. You can beat this. Try to get your ex to help out with the clothing and anything else he will do. Good luck to ya.

[Tree0164]

I agree with Bill I would review Dave Ramsey's book and get get on his plan. You have a great opportunity to really focus while you are living with family.

Eating out needs to go while you are in debt.
Clothing budget set aside $50 a month for this so you don't get hit with large spending in one month.
Cell phone-that is high get a tracfone prepaid cell.

In addition I think I would focus any extra money towards your car payment. I would take your $200 a month that you are saving and put it towards the car.

[Joan.of.the.Arch]

What are the five debts listed as UTIL? Are those utilities? Things like electric power? Gas or heating oil? Water? Sewage? Maybe even telephone? Television?

If so, you might not want to put those last on your list to repay. They total up to $1782 and when you move out on your own again, it might be very hard to re-establish service with delinquent bills. Plus, they are probably accruing late charges. Maybe one or another of theses companies would have a partial forgiveness program or an assistance program, or know of a private utility assistance program that you could enroll in to help clear those bills. Or maybe they would stop stacking on the late fees if you will work out a re-payment plan with them.

[jIM_Ohio]

Thanks for all the advice so far. I haven't really been living strictly on a budget. I know what my large expenses are and I've just been spending by need otherwise (I know this is bad, bad, bad). I bring home $3,280, which includes $600 in child support.

Here's what happened last month (shocking to see it on paper):

$318 - Clothing
$515 - Childcare
$86 - Toiletries (family)
$418 - Auto Gas
$488 - Auto Note
$64 - Eating Out (family, but sadly mostly lunches @work)
$200 - Rent
$145 - Groceries
$70 - Cell
$186 - CC Payments
$374 - Auto Ins (2 months)
$259 - Student Loans
$50 - Medical

Total Spent $3,173 out of $3,280. This paycheck is a wash, so I'm looking for a good plan beginning next paycheck August 30. I've begun automatic withdrawals to an internet savings account, and I'm planning on moving this to a new savings acct my bank has established that you cannot access for a year w/o penalty.

One note about the car, I know it sucking up 1/2 of my income. I have a 65-mile commute with no public transportation alternative. Like I mentioned earlier, the payoff is $13K, but the vehicle is only worth $6K. When I did the math on selling and getting a cheapee and paying the loan balance , I'd still be coming in at around $13K. So I figured, pay another year and see where it's at or just keep it until it's paid off (prob 2011). Thoughts?

I would look to think about things this way-

You have $2680 to live on each month, plus $600 for the kids. That $600 should pay for diapers and clothes and also contribute to groceries.

$515 fopr child car is a needed expense
$418 for gas is a needed expense, can you reduce this? Have kids carpool for activities or something else.
$488 for auto loan is a needed expense
$200 for rent is a needed expense
$145 for groceries is a needed expense

$259 for student loans is a needed expense for now
$374/2 for car insurance is a needed expense for now ($185/month)- yes you can change insurance mid-contract. Look to drop collision and raise deductables- you need more cash.

I have $2210 as the needed expenses, Yet you need to allocate 20% of your budget to gaining financial freedom, so the $2210 is too high for an income of $2680, unless the $600 child support could cover groceries in addition to clothes for kids and similar..

20% of $2680=$536 you need at least $536 allocated to the credit cards and other debts. Based on gross pay, this $526 is still short of the $700/month I previously estimated. Start at $536 and all raises go to this portion of budget until you can use 20% of gross pay for financial freedom.

When you get paid set aside $536 (or $268 if you get every other week). Put this money in an account with NO atm access.

At end of month send all $536 to the credit card payments. If there are more than one card, send the minimums to all cards, then send the balance of the $536 to the card with the highest interest rate.

Keep allocating $536 to financial freedom every time you get paid.

Cut the cell. Stop eating out. If any expense is not needed, stop paying it and using it. Cell phone is at top of that list.