Monthly Budget

[Bob B.]

It was requested a few weeks ago that I list my monthly budget. I've finally allocated the time to do that...
Income
After Tax Net $3,935
Foster Care Stipend $400
Rental Income $725
Total Income $5,060

Expenses
Mortgage $988
Electric/Gas/Heat $300
Telephone/Internet $135
Food $880
Clothing $25
Credit Cards $1,020
Auto Insurance $121
Gasoline $150
Auto Repairs $50
Health Insurance $221
Life Insurance $13
Medical $100
Curch Giving $85
Entertainment $50
Property Taxes $150
Homeowners Insurance $67
Retirement Savings $233
Total Expense $4,588

Income Minus Expense $472

Take note that this is only the second month that we have received rental income. It's from a house that we used to live in, and is now for sale. The house was rented out until this last May, and rented again in October. Of course, that income can end at any time. Our prior renter paid significantly less in rent than our current renter - $250 per month. That house (and the credit card bills) is the albatross around our neck right now.

Also - the foster care stipend is likely to end in March 2011. It is for a baby we have been caring for since March 2010. At the end of March we hope to adopt him. The other alternative is that he go back with his birth parents. Either way, the stipend will end.

My wife also gets some freelance income, but it is sporadic, and when we get some, we use it to pay bills and credit card expenses.

Thanks for any help anyone can offer.

[frugalgirl]

It was requested a few weeks ago that I list my monthly budget. I've finally allocated the time to do that...
Income
After Tax Net $3,935
Foster Care Stipend $400
Rental Income $725
Total Income $5,060

Expenses
Mortgage $988
Electric/Gas/Heat $300
Telephone/Internet $135
Food $880
Clothing $25
Credit Cards $1,020
Auto Insurance $121
Gasoline $150
Auto Repairs $50
Health Insurance $221
Life Insurance $13
Medical $100
Curch Giving $85
Entertainment $50
Property Taxes $150
Homeowners Insurance $67
Retirement Savings $233
Total Expense $4,588

Income Minus Expense $472

Does the mortgage amount include the rental property and your current residence?

I don't know where you live but both your homeowner's and auto insurance rates seem high to me. What are your deductibles and do you need collision insurance on cars with mileage that high? We pay about 60% of your premiums on 2 cars (2003 Toyota van, 2006 Toyota Corolla) with a $1000 deductible, high limits, and with collision coverage. We also only pay $710/year on a 2500 sf house worth $350,000. Again, we have a $1000 deductible. Shop around. This could save you $100/month

I think you could trim your grocery budget. It seems a little high to me for a family of 5. Aim for a $25/week reduction at first and keep cutting back. (save $100/month)

I'd cut back on the church giving to 10% of your net income. (save $45/month)
I'd consider suspending retirement savings until you get rid of your debt. (save $233/month)

Total potential savings: $478

Good luck!

[disneysteve]

I don't know where you live but both your homeowner's and auto insurance rates seem high to me.

This point comes up periodically. Insurance rates are very much dependent on where you live. We are in NJ which has the highest auto insurance rates in the nation. We pay $200/month for the 2 of us. Even worse, when we moved from Philadelphia to NJ, our auto insurance premium dropped in half. So it really does matter where you are.

OP, $880/month to feed 5 people. Really? What are you eating? I'd look to cut that back quite a bit. I think you could easily go to $150/month/person, or $750/month. That would give you an extra $130/month to throw at your credit cards. And many people here will suggest a number much lower than that.

When you sell the rental property, how much do you expect to net from that?

I know this is a touchy subject but giving $85/mo. to the church when you are buried in $20,000 of credit card debt is really something you should think about. If you tighten your belts, you could be debt free in well under 3 years. Would it really be so terrible to suspend your giving until you actually can afford to give, and at which point you'd be able to give far more than you do now since you wouldn't have that $1,020 CC bill every month? In the meantime, you could do other things to help the church by volunteering your time.

[Bob B.]

Does the mortgage amount include the rental property and your current residence?

I don't know where you live but both your homeowner's and auto insurance rates seem high to me. What are your deductibles and do you need collision insurance on cars with mileage that high? We pay about 60% of your premiums on 2 cars (2003 Toyota van, 2006 Toyota Corolla) with a $1000 deductible, high limits, and with collision coverage. We also only pay $710/year on a 2500 sf house worth $350,000. Again, we have a $1000 deductible. Shop around. This could save you $100/month

I think you could trim your grocery budget. It seems a little high to me for a family of 5. Aim for a $25/week reduction at first and keep cutting back. (save $100/month)

I'd cut back on the church giving to 10% of your net income. (save $45/month)
I'd consider suspending retirement savings until you get rid of your debt. (save $233/month)

Total potential savings: $478

Good luck!

The mortgage payment includes only our old house (rental). Long story short - we currently live in my family's original homestead house. We received inter-family loans to remodel the house, and they are due when we sell our old house. I had an opportunity 2 1/2 years ago to move back to my home town. Big improvement in quality of family life, big detriment financially (maintaining two houses). We pay for insurance and taxes on both houses.

Church giving is already only 2.16% of my monthly take home.

On the retirement savings - my employer matches that 2 to 1. I put in $233/mo., employer puts in $466/mo. That's hard to turn down.

[momcents]

I think you could save several hundred dollars in the grocery department. I'm a SAHM with five kids and I do it for about $115 a week (including all paper/cleaning/pet/etc). Do away with all processed foods. Start baking your own snacks from scratch (even the littlest of kids can help make rice crispy treats). Buy in bulk at a warehouse club. With planning, we eat well balanced meals with lots of in season fresh fruit and veggies. Eat breakfast food for dinner one night a week and one weekend lunch. We only eat out on special occasions, and even then with coupons. You can make great pizza from scratch. There are tons of websites with reasonable recipes. Good luck!

[disneysteve]

You may have posted it in another thread, but can you give a breakdown of your debt here? List each debt with the outstanding balance, interest rate and minimum payment. Include debts from family that you aren't currently paying on since those count too.

[jpg7n16]

Have you considered lowering the sale price on the rental to get it to move faster?

You're def losing money on the rental deal - 725 income vs (mortgage + ins + taxes + repairs)

I wouldn't tell you to lower tithe, or retirement (that is a really good deal).

[Bob B.]

You may have posted it in another thread, but can you give a breakdown of your debt here? List each debt with the outstanding balance, interest rate and minimum payment. Include debts from family that you aren't currently paying on since those count too.

Mort. 1 - $106,000 988/mo. 6.25%
Mort 2 - $70,000 0/mo. 0.00%
CC 1 - $9,376 195/mo. 12.90%
CC 2 - $3,530 $150/mo. 16.99%
CC 3 - $4,330 $140/mo. 5.25%
CC 4 - $1,090 $310/mo. 5.78%
CC 5 - $4255 $225/mo. 5.32%

Plan - Pay off CC4, allocate payment to CC2 until paid off, allocate payment to CC5 until paid off, allocate payment to CC3 until paid off, allocate payment to CC1 until paid off. Breathe a big sigh of relief. Put kids through college. Build retirement fund to $800,000. Retire.

[DebbieL]

You will save alot of interest (and be debt free quicker) if you concentrate on paying off the highest interest card first, paying the minimums on the others. Then move onto the next highest interest card, etc. Don't worry about the fact you still have 4 cards with a balance - just look at the whole picture (total debt). It makes no sense to pay off lower interest cards first. Dave Ramsey has a lot to answer for IMO, lol.

The order that will save you the most money is:

CC2
CC1
CC4
CC5
CC3

[littleroc02us]

So, the house is for sale that your renting? Good, that will clear more disposable cash for you. Two things I noticed about your expenses. You mentioned $880 for Food, that seems like a lot for a month. Is there a way you can reduce that? Also, over a thousand for cc's. That needs to be addressed. Wow, imagine if you didn't have that payment. Get it in gear either to sell the house or get another part time job to knock down the debt. Good luck.

[jpg7n16]

It makes no sense to pay off lower interest cards first. Dave Ramsey has a lot to answer for IMO, lol.

That's cause you and DR are trying to accomplish two very different things.

You are trying to save the most interest, in which case:

The order that will save you the most money is:

CC2
CC1
CC4
CC5
CC3

is 100% true. (assuming you have the ability to stick with it)

DR's method isn't about saving interest, it is about changing behavior. And the best way to change a behavior is to reward progress quickly along the way. Seeing a card balance at $0, is a psychological reward that reinforces "yes, I can do this!"

Reinforcement and Punishment in Psychology 101 at AllPsych Online

So DR uses the method of choosing the lowest balance 1st to have these rewards occur earlier rather than later. (before the person trying to change behavior gives up)


When you look at it for what he's trying to do, it makes a lot of sense - but you can't compare the DR method against the wrong criteria of saving interest - that's not what it's intended to do. (and that's not what he claims to try to do either)

So for the OP's situation: which order of payoff gets out of CC debt fastest with the least amount of interest?

2,1,4,5,3 ---------recommended for someone who has control of their debt behaviors

But which method produces the highest probability of the OP being able to change his debt behavior and stick with the program?

4,2,5,3,1 ---------recommended for someone who has trouble controlling their debt behaviors

[ActYourWage]

Nice post jpg7n16.

Changing one's spending/saving behavior is a major step in the right direction. Like someone stated - personal finance is like 20% math and 80% behavior. Anyone can do the math, but no everyone can do the behavior part.

And to the OP, I would look to cut some of that food bill.

[disneysteve]

I agree with DebbieL AND I agree with jpg7n16. You are both right.

The one thing people often don't take the time to figure out when having this discussion is this: Does it really matter? Whether you go by highest to lowest rate or lowest to highest balance, this debt should be gone in no more than about 3 years. Yes, Debbie's way will save more interest but is that number really all that big? Plus there is something to be said for improving cash flow. OP has $472 available each month right now. Add that to the $310 minimum on CC4 and that $1,090 balance is gone in under 2 months. All of a sudden, the "extra" money each month jumps up to $782. OP can plan to send that all to another CC, and he should, but if some unexpected need arises, he's got that higher free cash flow to cover the car repair or home repair or medical bill without having to take on any new debt.

Yes, it will cost a little more in the end, but that extra will be a number that is rather small relative to the total debt load. Some people need the motivation and psychological boost to change behavior. Although I personally would do it Debbie's way, the reason Dave Ramsey is so popular is because his system works for lots of people. If you follow it, you will get out of debt. It might take you an extra month or two and it might cost you a couple hundred dollars more but the end result will be getting debt free all the same.

I say do it the way that works and makes sense to you personally and helps keep you motivated and on track to stick with the program.

[jpg7n16]

Although I personally would do it Debbie's way, the reason Dave Ramsey is so popular is because his system works for lots of people.

FWIW - so would I

But then you and I (and Debbie) have our debt behaviors under control.


The OP may or may not (as may many other readers of this thread) - if you're not sure if you can handle it, do low balance to high just in case.

[Bob B.]

It makes no sense to pay off lower interest cards first.

I've learned over the last two years eight months that cash flow is king. If/when cash flow tightens again, having a balance PIF, and that cash available for minimum payments and bills, I'll have made the right decision.