28 & Bankrupt.....Budget Setting Questions

[jasdavis09]

Ok So like so many other people in the US here we are starting over. We are ok with where we are today so long as my wife and I learn from our mistakes and dont find ourselves repeating them. In 2004 we bought a House at the time we bought it property values where still gonig up 10-20% per year. Or at least that is what we where told. We kept our house for three years making our mortage and tax payment's on time each month. late 2007 we ran in to trouble with our job's and our income changed leading to the begining of our finacial trouble's. Needles to say we lost our home a car and have filed for a chapter 7 bk that should be complete verry soon.

All of our problems came form living a artificial life style we spent every penny we had trying to keep it going. We have came to our senses and want to make better choices this time.

We have ben playing with diffrent budgets trying to find the one that fits us best. I found one online that we like and belive we can stick to for the long run. It's the 60% budget. All of our bills inc taxes have to fit into a 60% guide line. Right now we are at 77% of our total gross income going towards all of our bills. Our first goal is to find a way to get to 70% and trim even more once we get there. Is anyone heard of this budget before? Also since we no longer own a home what should we be claiming on our taxes we are maried with one child living in CA our total gross income is $7900.00 per month.

In case you are wondering the other 40% of our money is getting devided into 4 accounts. Acc 1 is a long term savings account with Morgan Stanley, acc number 2 is a retierment account with Morgan Stanley, acc 3 is a savings account with a local credit union. Last but not least is our fun money account with our credit union.

Thank you for your time and your help.

[Caoineag]

Haven't heard of the 60% budget but have heard of the 50/20/30 budget. 50% needs, 20% savings and 30% wants. Can't help you with the CA tax.

[GREENBACK]

I saw something like this at MSN money but I think it was called the 60% solution. I don't know if that's the same thing.

[disneysteve]

I think 40% to savings is extreme and, probably, unnecessary. I would also suggest Elizabeth Warren's 50/20/30 plan.

I'd also want to know more about the accounts with Morgan Stanley. Aren't they a full-service brokerage? Full-service means lots of fees and expenses to do things that you can do far cheaper on your own. I'd get all the money away from there and invest it in low cost, no load mutual funds with a company like Vanguard or T. Rowe Price or Fidelity.

[jasdavis09]

Thank you for yor input. Where can I find more information on the 50/20/30? As far as the Morgan Stanley account I know this is going to sound bad......I'm not sure about there fees. We signed up with them because of the agent. I know I know not the right reason to do so. We will be meeting with him next month to disscuss a roth Ira. I will make sure we talk about the fees. If they are out of line we will switch. What kind of fees does T. Rowe Price and Fidelity chrage? Are there services the same?

[disneysteve]

Thank you for yor input. Where can I find more information on the 50/20/30?

That comes from Elizabeth Warren's book called "All Your Worth: The Ultimate Lifetime Money Plan."

As far as the Morgan Stanley account I know this is going to sound bad......I'm not sure about there fees. We signed up with them because of the agent. I know I know not the right reason to do so. We will be meeting with him next month to disscuss a roth Ira. I will make sure we talk about the fees. If they are out of line we will switch. What kind of fees does T. Rowe Price and Fidelity chrage? Are there services the same?

And how do you suppose that agent generates his salary? By getting people to invest with him and paying fees and commissions for his services. DO NOT open a ROTH or any other account with him. Open you ROTH with either a discount brokerage like Scottrade or e-trade if you want to buy individual stocks or ETFs, or with a no load mutual fund company like Vanguard if you want mutual funds.

How do fees compare? Morgan Stanley's S&P 500 Index Fund has an expense ratio of 0.65% vs. Vanguard's S&P fund which charges 0.15%. So Morgan charges MORE THAN FOUR TIMES AS MUCH for essentially the same investment.

[jasdavis09]

The thing I liked most about what our agent at Morgan Stanley did was he set up a money market acount that we make monthly payments into. Once the account reaches a pre set dollar amount it buys shares of a fund. Can this same set up be duplicated at a company like Scottrade?

Thank you for all of your help!

[My English Castle]

Lots of discount brokerages offer the same service.
That Morgan Stanley CEO testifying in front of Congress today would make me swear off them.

[jasdavis09]

Good point. We where or should I say are so financialy blind that we faild to see these problems. Thank you for your input. We are meeting with our credit union next week they have a full time financial planner that can help us. We are going to open two Roth IRA's one for me and one for my wife. We will also be talking about a 5 year saving's plan so we can buy a house agian down the road.....The right way next time.

Thank you agian for all of your input.

[disneysteve]

We are meeting with our credit union next week they have a full time financial planner that can help us. We are going to open two Roth IRA's one for me and one for my wife.

WHY?

How much will the financial planner charge you for his services? I'd be willing to bet that the CU doesn't offer any investments that are appropriate for your Roth accounts.

[scfr]

It's actually not saving 40% you'd be saving, because of the account that is for fun money. That's not savings, it's just parking it until you spend it. Is it more like 30% that you would be saving (apart from the fun money fund)? If you are currently renting and trying to save up for a down payment to replace the home you lost, I'm going to swim against the tide here and say that saving 30% of your income is NOT too much. If one of your goals is homeownership and you are currently in a rental, your rent is hopefully much less than your mortgage payment will be some day.

[disneysteve]

It's actually not saving 40% you'd be saving, because of the account that is for fun money. That's not savings, it's just parking it until you spend it.

Isn't that the definition of savings?

All savings will ultimately be spent. It is just a matter of when. Some of our savings will be spent when we retire in 20 years. Some will be spent when our daughter goes to college in 6 years. Some will be spent this summer on vacation. Some will be spent next week when I take my car in for service. It is all savings, though, as it is all money that wasn't spent at the time it was earned and was set aside for future needs (and wants).

[whitestripe]

i think everyone needs a budget tailored to their lifestyle. i really don't believe in any of these 'formulas' that books and other financial gurus suggest.
picture this:
a woman or man earning 300 a week, in your 60% budget, would have to be saving $120 a week and that only leaves $180 for living expenses. how does that work???
a woman or man earning 300k a year would be saving 120k but would have 180k for living expenses. i don't know about you, but that's a lot of living expenses!

[SavingCash]

Instead of going with a full-service brokerage for your IRA, look into something like E-Trade. You have to make the trades yourself, but throw your money into something simple like the E-Trade S&P 500 Index Fund. This fund has very low fees and is a no-transaction fee fund, meaning it doesn't cost you anything to buy or sell it. This index fund roughly correlates with the S&P 500 index, so you're basically "buying" a piece of the entire index.

Also, E-Trade has a high interest rate savings account that ranges from 2.5%-3.5% on your money. That's not the highest out there, but it's not too shabby.

The bottom line is that you want to keep as much of your money as possible, and to do so you'll have to stay away from the full-service brokerage houses.

[jasdavis09]

I must say that I don't mind paying some one a fee if they are going to help me in the long run. We may end up using Scott Trade or Etrade. We are not 100% sure yet. I can clearly see the benifits with both the online sources and full service company's like Morgan Stanley. With the online companys there fees may be alot less however it sounds like all the research needs to be done by us. With Morgan Stanley there is someone available to help guide us when we need the help. We also understand that they very well may not have our best intrest in mind when helping. However if we are left to manage our financial future on our own with a online source we may very well make some very costly mistakes olong the way.