Liquidating assets to pay debt/changing habits

[Alw1977]

If the card isn't paid in full, then we won't be able to eat the next month!

Eating out and groceries are definitely a leakage category. I cut my grocery budget and the # of times per week we eat out. It's going to take some creativity.

[Gailete]

I am going to try to say this as gently and kindly as I can, realizing that it is easy to misinterpret on line posts. This is meant to help you think through what you consider needs and wants to figure out your spending habits.

Currently you are spending 15% of your take home income on your toddlers schooling. That is the same amount that many in the US live on and actually more than many have to LIVE on. Their kids go to public schools, they scrape by and their kids turn out fine (at least mine did). Your kids very expensive school is in the want category not a need category although apparently you have convinced yourself that it is necessary. If it were a necessary item, all the kids in the USA would be going to that kind of school. As it is, with the cost of this school, the only kids your children will get to see and associate in these years are other 'rich' well-to-do kids. Where will they learn compassion for the children who don't have a lot?


Your grocery budget is currently MORE than the average Social Security check! I have a tad more than average check and you are still spending more on food than I get in to try to live on. It baffles me why anyone would need almost $1500 a month for food. I assume date night involves food, but that wasn't included when I totaled things up. If you both eat breakfast out, and most of your lunches, spend over $300 on eating out, where does all the $850 food that you spent on 'groceries' go to? I assume that you included cleaning products, toilet paper and the like in that number as well. $850 for groceries when people are eating out all the time and you only have to deal with tiny toddler appetites, is excessive. You mentioned in your last post that you knew there were leaks there, and you really need to figure out what is really needed and what isn't in both eating out and buying groceries at the store.

You mention that the ATT is necessary because your husband works at home 2 days a week. Your internet, phones and TV add up to over $300 a month. Have you researched cheaper alternatives? They are out there. We run an online business and pay $35 for our land line, $60 for satellite (we just switched carriers and dropped our cost $20 a month), none for cable (we use rabbit ears and get 7 channels. I see the ads for cable, $90 is a lot for a very busy family that doesn't sound like they have time to watch TV much anyhow.

I have noticed before that those with incomes of 1/4 million or more tend to talk about their income in pre-tax numbers and spend as if it were pre-tax income as well. With sort of the attitude of we can afford it, we make $260000 a year, not the more realistic 'we bring home $180000'. That is an $80,000 difference! Still an enormous amount! You are making far more than many people in our country, but still you can't have everything you want. I was married at one time to a guy who thought like that. He would tell everyone he made $800 a week. Well he did about 2-4 times a YEAR! The rest of the time it was more in the $2-300 range. Within a year of marrying this guy we were in more than $40K credit card debt, had a huge mortgage payment (for us) and two car payments all because he insisted that he get what he wanted. He actually would throw temper tantrums in the grocery store if I didn't buy him what he wanted! I didn't tolerate that from my children and sure didn't want to have to deal with it with a husband!. Our minimum monthly credit card payment were over $1100 a month. With a joint average monthly income of $2600 a month (after tax) and a mortgage of $900, I'm sure if you run the numbers you can see that we were drowning. To get those bills paid and on solid financial footing, I divorced him and we sold the house and every bit of profit from the house sale went to pay off the credit cards in my name. He didn't actually pay off his credit cards although he had the money now to do so, he walked away from us cashing the pay-off check and was on his way to buy a motorcycle. Within months he was somewhere in the vicinity of another $40-60K in debt! I however, had paid off my bills, and was saving money and swore I would never be in that situation again -- and I haven't been. That is probably one of the more drastic ways of getting rid of debt, but it worked for me as I knew he would never quit spending like he was. Almost 15 years later we still get credit agencies looking for him! So if you or your spouse are the spendaholic, that is something that needs talked through and perhaps get some counseling for. Some will not change their spending habits no matter what. Both spouses have to be behind the plan and encourage ach other.

You have to look at the long term picture of your lives. The stress relief from paying off debt is enormous. Living debt free is wonderful, although we still have our mortgage, I can taste the freedom even now. While our income is not huge (taxable income last year was $15K), we are paying off our house and a rental unit, we have no credit card debt. Our only ongoing debt are the 2 mortgages and a used car payment. Each year I find that with no cc debt, we are able to save in ways that don't technically put money in the bank, but they end up costing us less so less outgo. Last week I was able to pay off our car and house insurance bill in full instead of paying a $4 billing fee each month for each of them and it frees up $160 a month to save for the bills next year or at least in really tight months not something I have to scrounge up. Our first year in this house, I felt like I was having a heart attack each time the propane man filled up our tank. After that I found a way to do a prepay which gave up cheaper propane and saved us close to $1000 a year! Many of these things, once you have set the ball rolling you don't have to think about them again, but they are ways to save money. For those like us without much money, it just means that we have more breathing room and less money to try to come up and tempting us to use credit cards and run a balance (we use 2 cc but pay them off in full each month). I have signed up for things that on a year to year basis save us $25 a year. May not sound like much, but in ten years, that is $250 that we didn't have to come up with. For someone like you, you can actually end up saving the money you 'save' each time you put a savings device into play.

I would encourage you to dig out from this the hard way, by budgeting, cutting things out of the budget, sacrificing some things so that you will have a better future. Instead of paying huge amounts ($40 a week) to kids entertainment, take the toddlers to the park to play. find free things to do.

Something that rarely gets brought up here also is what do you spend on charity or helping the poor and needy? You may think you don't have enough money to give, but what about volunteering at a soup kitchen or food bank? Make your life not exclusively for you, but include others as well and you may find that your whole attitude towards spending will be completely changed.

Just things to think about, not to make value judgments. Hope all goes well for you and your family.

[snafu]

Alw, thanks for the very revealing response to the suggestions from SA participants. Would you consider reviewing each room to identify items that you no longer need, use or love. It's just clutter that needs to be looked after and adds to your stress. I suggest posting a picture and advert on Craigslist to sell [or re-gift, donate] . While not financial, the research says living in a calm, orderly environment is very important as so much more is asked of us.

4 y/o & toddlers don't really benefit from most travel experiences. Allowing them the comfort of their familiar bed, new experiences, time and attention with relaxed parents likely makes a better vacation experience . Try a stay-cation, having researched the age appropriate activities, programs, events, experiences, things to do in your community. It makes sense to expand on all those enrichments touched on in the Montessori curriculum. Can I convince you of the benefits of a relaxed environment? Wouldn't you both rather watch your youngsters faces as they enjoy new experiences for children? Avoid the stress of shepherding children and luggage through the line ups at airport security and onto planes. The added benefit is the cost avoidance of flight/hotel/car rental/restaurant.

I hope you'll continue to read David Bach books, get debt paid off, re-start retirement contributions and spend money that supports your deep values. You don't want to keep escalating the problems outlined. Posting here keeps you honest to yourself and we get to cheer your every success.

[Alw1977]

I plan to check in periodically, so to set the record straight on kids' schooling: they are not yet old enough for public school. Even if we moved them to a less expensive program, costs in our area for quality care still run approximately $2K a month. We've researched it at length.

We had the kids in a franchise daycare for a summer and we didn't enjoy the experience. For us, the extra $300-$400 a month is worth the cost of a Montessori school for now, even if that means cutting back elsewhere. Both children will move to a public school once they are of kindergarten age. We live in a very good district.

Also we revised our budget last night to decrease grocery spending and eating out significantly. These are all guidelines and we're still working on numbers to see what is realistic for us. I've well learned the pitfalls of an unrealistic budget.

[scfr]

I plan to check in periodically, so to set the record straight on kids' schooling: they are not yet old enough for public school. Even if we moved them to a less expensive program, costs in our area for quality care still run approximately $2K a month. We've researched it at length.

We had the kids in a franchise daycare for a summer and we didn't enjoy the experience. For us, the extra $300-$400 a month is worth the cost of a Montessori school for now, even if that means cutting back elsewhere. Both children will move to a public school once they are of kindergarten age. We live in a very good district.

Also we revised our budget last night to decrease grocery spending and eating out significantly. These are all guidelines and we're still working on numbers to see what is realistic for us. I've well learned the pitfalls of an unrealistic budget.

Everyone has areas where they are willing to cut back and areas that are more or less non-negotiable. Keep focusing on those areas where you and your husband are ready and willing to trim the fat. Food & vacations are a great place to start, not only because there's lots of room for cutting back but because you are both on board and won't be sacrificing anything that you really value.

[disneysteve]

Also we revised our budget last night to decrease grocery spending and eating out significantly. These are all guidelines and we're still working on numbers to see what is realistic for us. I've well learned the pitfalls of an unrealistic budget.

Certainly budgets need to be realistic and sustainable.

I would note, however, that it has been my experience that high-income individuals have a tendency to somewhat lose touch with the reality of how most of the country lives. Gailete addressed this to some extent in the post above. I have many friends with substantial incomes, as much as or more than you earn, and I've seen how they think. They feel they are "cutting back" when they buy a 45K Lexus instead of a 60K BMW or when they cut their grocery budget from $2,000 to $1,500 while most of us are driving 15K Toyotas and spending $500/mo. on groceries. I think the problem is they use their peers as their point of reference, other people earning similar incomes with similar spending habits. It's far to easy to fall into this mindset and difficult to break out of. It's much easier to never have had the high end lifestyle than to trim it back once that's what you are used to.

Certainly, you work hard to earn what you earn and you want to enjoy some of the benefits of that but you need to rein it in and make sure your budget isn't over the top. Not being able to make ends meet and having to turn to credit cards to make ends meet when you earn $260,000 just doesn't make any sense. You mentioned taking 6-8 months to pay off the debt. I'd suggest making your goal to pay it off in 3.

[Nika]

I totally understand keeping them in school where they are thriving. That is one of the top priorities for a parent.

I think that school expense is not the root of the problem anyway. They make enough to keep their child in that school.

I think most of the problem is probably the mentality of "I make 260K so I should be able to..... stop at this cafe, this activity out, this modest dress, etc." And individually, you can. But obviously, you can't afford all of these things in those quantities. But when you are presented with a purchase, it is a very small number, pitted against one big number of your income. It is a false comparison though.

So maybe this trick would help - Instead of starting your mental conversation with yourself by saying "I make 260K, I should be able to have this very little treat" you should be saying "I am 49K deep in credit card debt, and way, way behind in retirement savings for someone of our age and income, so do I NEED this?".

Another trap is "we work hard, we are very busy, we are exhausted, we "deserve" this vacation." But that one is common people of all income levels, not just high earners. Everyone believes they work hard and deserve it. But it is not a matter of "deserving" it. It is a matter of affording it. And if you have cc debt, even if you cashflow the vacation, you are still borrowing the money to finance that vacation.

[disneysteve]

Another trap is "we work hard, we are very busy, we are exhausted, we "deserve" this vacation." But that one is common people of all income levels, not just high earners. Everyone believes they work hard and deserve it. But it is not a matter of "deserving" it. It is a matter of affording it. And if you have cc debt, even if you cashflow the vacation, you are still borrowing the money for that vacation.

A number of years ago, my family and I were the subject of a feature article in a national personal finance magazine for physicians. The reason we were featured is because I had written a letter to the editor in response to an article in which a physician earning more than me was having various financial problems and I commented how their lifestyle was so out of whack. I told some of the things we do to keep the spending under control and the editors were intrigued and ended up doing a story on us.

The bottom line is that it doesn't matter how much you earn. It only matters how much you spend. We earn 6 figures but we cook most meals at home. We shop at thrift shops and yard sales. We bought a very modest home. For the first 10 years we owned our home, I mowed my own lawn (I pay someone now). We drink tap water. We take budget vacations. Our kid goes to public school. We buy modest used cars. The list goes on and on. The point is we never allowed our lifestyle to match our income. As a result, I paid off my student loans 13 years ahead of schedule and we save about 25% of our annual income. That is not how most doctors are living.

[Gailete]

The bottom line is that it doesn't matter how much you earn. It only matters how much you spend.

So right and one of the points I was trying so hard to make. Would love to read that article.

My SIL and husband moved to a different part of the country and wanted to buy a house. They basically swore that there was nothing below $250K (13 years ago) in their area so that is what they had to spend. No that is what they wanted. For over four years they had an empty room because they didn't have furniture for it yet. That empty room cost them a lot of money for the years they couldn't even use it but had to heat and cool it and pay the mortgage on it. When their daughter got married, surprisingly in this same town, the couple was able to find a townhouse to buy for much less money! The young couple didn't have the money to spend, but the parents did for the most part. They also blew somewhere in the neighborhood of $5000 for my BIL 50th birthday party! Whatever happened to cake and ice cream? They were choosing how to spend their money and not real practically.

My point about the Montessori school and how much they are paying for it, is that people in their community live on what the cost of the school is. Where do those people put their children for day care? A family earning $30K obviously can't afford $27K in child care. They also want the best for their kids too and try to find it. So there are cheaper alternatives out there if you choose to look. Certainly the poster can afford the school with their income, but I think that is 15% of their income -- which is a lot. Actually about the amount they should be setting aside for retirement.

It may take research but almost all activities could be done on less money. It is just their/and our decisions what to cut and slash and to decide what we really want in life.

[JoeP]

One funny thing about certain expenses is that you get used to them to the point that they become necessities just like food, clothing, shelter, and utilities. Then when the prospect of cutting back comes up, there is almost always resistance.

Your budget included a few items that most of us would consider luxuries, but you might consider to be non-negotiable necessities. Some I've heard over the years, along with defenses: satellite (kids have fits without sponge bob!), home cleaning (we're too busy to vacuum! we get paid too much to clean toilets!), lawn weed service (can't stand dandelions!), eating out breakfast/lunch/dinner (we don't have time to cook or pack a meal!), annual vacations (we deserve it!). Most people resist when, for example, someone on this forum suggests they drop their satellite service and get an antenna+Roku. Besides, you're so busy, do you even have time to watch TV? Don't take this the wrong way, but how about non-TV time like board games and walks?

I always find it interesting how some people with over-the-top incomes (relative to most people here) struggle with finances. Speaking for myself, you'd think that an income such as yours would solve all of life's problems:
We can pay off our house!
We can pay off all our other debt!
We can be on easy street by paying cash for everything, including our next used car!
We can sock away our max into 401k, Roth, and have a massive emergency fund!
Our kids' 529 or ESAs can be maxed out!
We can give more to charity!
We can buy organic food and food from the public market and cook healthy meals at home!
We can teach our kids how to manage money by leading by example!
Not worrying about how we'll pay expenses will reduce our stress!

Truth is, so many people in your situation look at income as something to be spent. "We got an extra $50k bonus...what do we do? Spend it! Because we're doing so great!" (No you're not.) You end up feeling richer that you really are, and end up with bigger problems than the rest of us.

I'd take a hard look at your expenses column and do some serious cutting there, especially on items others have brought up.

[Alw1977]

This really hit home for me: "I think the problem is they use their peers as their point of reference, other people earning similar incomes with similar spending habits. It's far to easy to fall into this mindset and difficult to break out of. It's much easier to never have had the high end lifestyle than to trim it back once that's what you are used to."

Bingo. Honestly, most of the debt has resulted from overspending on clothes, entertainment, vacations and furniture. Without going into too much detail, my work puts me in constant contact with legitimately rich people. As in, private jet and silver spoon people. The value of money does get skewed when you're around that extravagant wealth on a regular basis.

[disneysteve]

This really hit home for me: "I think the problem is....

You're welcome.

A lot has been written about the effect celebrity worship shows on TV have had on regular people's spending habits. It started back with Robin Leach and "Lifestyles of the Rich and Famous". But now there are dozens of shows on network and cable TV that make it seem like everyone, even "regular" people lead these extravagant lifestyles. I've seen articles where they estimated what a typical TV family would have to earn to support the lifestyle shown on the show and the amount is always far above what they would actually earn in real life based on their occupations. Unfortunately, lots of people watch those shows and want to duplicate that lifestyle even though they earn far less. Have you seen how many women are carrying Coach handbags? I guarantee 90% of them can't actually afford to spend $700 for a purse.

In your case, you spend a lot of your time surrounded by opulence so that becomes your "norm" as to what a typical lifestyle is, forgetting the fact that you earn 260K and those folks probably earn at least 10 times more than you.

Just the other day, one of the sales reps at my office invited me to a dinner program and asked if I had any doctor friends who might like to come. I answered that I don't have any doctor friends. She laughed but I was totally serious. I've been in practice for over 20 years but I don't socialize with a single fellow physician. I've just found that we have very little in common because my wife and I live a very modest lifestyle and are relatively frugal (not as much as we used to be but still pretty much) and they just aren't. We talk about dining out and they're going to celebrity chef restaurants while we're going to local mom and pop places. We talk about driving to Disney World and renting a cheap condo offsite while they talk about staying in their Disney timeshare at the Grand Floridian. And I'm not necessarily talking about high end specialists who earn a lot more than me. I'm talking about fellow family docs with similar incomes (although to be fair, some of them also have working spouses with significant incomes).

The bottom line is just that we have always found we get along better and have a lot more in common with folks who earn less than us. We totally realize and appreciate that we are living the way we do by choice while others are doing so out of necessity, but the end result is the same.

[Gailete]

I've just found that we have very little in common because my wife and I live a very modest lifestyle and are relatively frugal (not as much as we used to be but still pretty much) and they just aren't.

We were friends with our doctor before she became our doctor. Had them over for dinner one night and at one point as they were getting to leave, something about finances came up and you could tell from those quick comments that they were having major trouble in the finance department I was scared that they might start fighting right there in the living room. Partly as the one in charge of the finances was a spender and didn't want to listen to the other. I've been in their house a couple of times. One of those huge mini 'McMansions' which of course every doctor is supposed to have. I suspect that things would have been much easier for them over the years if they had started out small instead of jumping into the big house as soon as she started her residency.

[disneysteve]

One of those huge mini 'McMansions' which of course every doctor is supposed to have.

I suspect I don't have anything every doctor is "supposed" to have.

Verizon came to the house today because they are upgrading all of the phone lines to fiber optic. It is totally free to have it done. When they were finishing up and testing the line, the tech called the house to make sure it received calls. Then he asked my wife to call back to the same number on the caller ID. She said, "We don't have caller ID." If that didn't shock him enough, he then gave her the number and it was a different area code. She said, "We don't have long distance service on our line." At that point, I don't think he knew what to do with us.

[Petunia 100]

A number of years ago, my family and I were the subject of a feature article in a national personal finance magazine for physicians. The reason we were featured is because I had written a letter to the editor in response to an article in which a physician earning more than me was having various financial problems and I commented how their lifestyle was so out of whack. I told some of the things we do to keep the spending under control and the editors were intrigued and ended up doing a story on us.

How interesting! I'd love to read that story.