Liquidating assets to pay debt/changing habits

[LivingAlmostLarge]

Alw bingo with DisneySteve.

He summed up how many people feel including myself. I can say we are seriously getting close to what you make and I can't afford montessori on our income $200k. But we aren't in debt and have some retirement savings. I know how easy it is to get caught up I hear it ALL the time. Why can't you afford Montessori? Or this car? Or vacation? Even my husband wonders where the HELL is all our money when we drive pretty modest cars and live in a pretty modest home for people making as much as we do? why cant we afford montessori?

it's really not what you make. Seriously consider if you make $260k and save 20% that's $52k/year. That's off of gross. Then taxes assume 30% for SS, federal, state, conservatively. So you now have to "live on 50% or $130k/year"! That's it

That's what you should be paying car loans, mortgages, vacations, montessori eating out. Can you live on $130k/year right now? Really live on that? I mean clothes, dry cleaning, cleaners, yard men, car insurance, vacations, every penny?

If not then your lifestyle is perhaps more than you can handle because you are cutting into savings.

I know it sounds ridiculous but you make $260k and you have to live like you make half that?????!!! Why and how will you manage? That's when you know if you are living your income.

[disneysteve]

Would love to read that article.

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

Ask and you shall receive. I just posted it.

http://www.savingadvice.com/forums/personal-finance/75498-article-written-about-me-my-family.html#post376353

[HappySaver]

Your comments and tone throughout the three pages of this discussion indicate that you're still in denial and not fully accepting your reality (or, as Suze would say, "standing in your truth"). Most concerning, and you repeatedly made similar comments:

It's clear that the issue is NOT our needs budget. It's our spending - out of control.

I have to STRONGLY disagree with this statement. Besides the fact that your spending is indeed out of control (true), your "needs" are also out of control. At your ages your debt is way too high and your assets and retirement amounts are woeful (given your incomes). And what about starting to save for kids college? You need to change your foundation, or you will never get ahead. If you can get your needs stabilized to where they should be, you may even find that your wants can stay higher than you think.

First of all, you don't earn as much money as you think you do. You simply don't have the necessary income for your two properties and childrens' school. Some choices need to made that you don't seem willing to make. I actually agree that you should not cut Montessori, but since something does need to go, it should be one of your two properties. Underwater? Either pay out the difference, or move back to the cheaper home and sell the more expensive home. Somehow, you need to find a solution to your housing expenses. You bit off more than you can chew.

Second, please read "All Your Worth" by Elizabeth Warren. She outlines the 50% needs/30% wants/20% savings that Steve referred to, and most importantly, clearly defines what is a need versus a want. Because you absolutely don't have clarity on that. What you list as needs versus wants are all mixed up. You also have extra expenses related to your businesses that should be tracked separately (i.e. disability insurance, phone bill, all rental income/expenses) to help you see more clearly what your household is really bringing in and spending.

We also own two properties. We track the rent and expenses for that property completely separately (separate bank account and spreadsheets) and pay ourselves periodically a small "profit" from that account, making sure to keep a large buffer in that account for any emergencies/repairs to the property. We don't consider the actual rent amount to be part of our monthly income. It's a separate business outside of our personal household expenses. Looking at it that way will help you see how much it's really costing you to keep holding on to that property (I suspect, given your debt on the property, that it's a losing proposition).

[Alw1977]

"I have to STRONGLY disagree with this statement. Besides the fact that your spending is indeed out of control (true), your "needs" are also out of control."

HappySaver, I have to respectfully disagree with parts of your post.

I've not posted all of financial information, but we've got 529s for both of our children and those are well-funded.

Additionally, one of our careers required significant post-graduate education. To miss years of earning power during one's "prime" always leaves one playing catch up. Our 401(k)s have been fully funded for years, problem is, we started behind due to post-graduate education.

Lastly, the unfortunate truth is that BOTH of our properties are underwater. We purchased our primary home during the boom. We cannot sell either property without coming significantly out of pocket ($20k or more on both). Our 2nd property brings in $1300/mo and it costs us $1377/mo. It's not taking a huge bite. Believe me, I'd LOVE to sell our home and move into one less expensive. Unfortunately, we've got to wait it out.

You may be correct that our "needs" are skewed. However, step one is to reign in our monthly spending.

I did manage to cut our DirecTv bill by $39/mo yesterday. I'm currently reviewing all of our accounts to go to the bare minimum. If that doesn't cut it enough, we can start eliminating.

[scfr]

I did manage to cut our DirecTv bill by $39/mo yesterday. I'm currently reviewing all of our accounts to go to the bare minimum.

Keep it up. You may find a book like Clark Howard's "Living Large In Lean Times" beneficial. He offers lots of practical cost-saving tips. It is the sort of book that you can go through one chapter at a time, stopping to take action at each step. By the time you get to the end of the book you may find that you have trimmed a lot from your budget without feeling that you are making much sacrifice. If your local library carries it, check it out!

[disneysteve]

Our 2nd property brings in $1300/mo and it costs us $1377/mo. It's not taking a huge bite.

I certainly wouldn't rush to sell that place until the value comes up, at which point I still might not sell it if I didn't mind being a landlord. Of course, when the current lease is up, I'd think about bumping up the rent so that you aren't losing money every month even though it isn't a lot.

[bigdaddybus]

You may be correct that our "needs" are skewed. However, step one is to reign in our monthly spending.

I did manage to cut our DirecTv bill by $39/mo yesterday. I'm currently reviewing all of our accounts to go to the bare minimum. If that doesn't cut it enough, we can start eliminating.

keep it up, its steps like these that really add up.

My wife and I started our "financial awakening" about 2 years ago when we started taking a Dave Ramsey course. I dont agree with some of what Ramsey says, but there are a few points he makes in his programs that really stuck with me and helped us out.

1. Tell your money where to go, and account for every dollar in a budget. It was amazing to my wife and I how much money we had going towards unimportant stuff (like going out to eat whenever, wasteful grocery shopping, shopping for things we didnt need, having cell plans/tv service we didnt use/need)
2. use cash! Its amazing how using cash saves me money. Years ago there was an article about when McDonalds went from cash to taking credit the average transaction went from $4.XX to $7.XX. This is a good example of how using cash and feeling the expense saves you money.
3. You need to be "Sick and tired, of being sick and tired!" I didnt have much debit, but I was tired of feeling like I wasnt getting anywhere making between $150-180K a year. Once we reigned in our wasteful spending and kept track of the money, I feel nearly zero money stress and feel a whole lot wealthier.

I wish you the best

[snafu]

In following this thread the response seems to b yes, BUT.... Suggest you start getting income tax information together. I hope you've kept [can access data via Quicken] accurate figures for tenant subsiding rental. If DH works from home there is likely a significant allowable deduction. The earlier you submit Turbo Tax [or whatever program you use] the sooner you'll get a refund.

I suggest adding up the amounts spent in interest in 2013. That's interest on mortgages, CCs, and any loans as you don't seem to have a realistic image of your disposable income. When did you last prepare a statement of Net Worth - subtracting your Net Income from Liabilities to see where you stand? The point is to get your CCs paid off and an Emergency Fund in place so that a car repair doesn't send you back to CC debt.

You've selected some painless adjustments like selling Ford stock, using a portion of an anticipated bonus, putting off 401K contributions temporarily and in that vein you could also halt DKs 529 contributions until you get out from under. I was hoping you'd adjust lifestyle at least for the short term by eating at home, selling extraneous stuff, finding no cost/low cost entertainment family entertainment and taking an active approach to finding small savings to accelerate pay-down. Is it possible that you're still paying for gas long used up, meals charged months ago and children's clothes they no longer wear?

[Alw1977]

"I was hoping you'd adjust lifestyle at least for the short term by eating at home, selling extraneous stuff, finding no cost/low cost entertainment family entertainment and taking an active approach to finding small savings to accelerate pay-down"

We are definitely taking these measures. Not just short-term, but adjusting for the long-term. We've devised a budget on Mint and are tracking each category. We're cutting at least $1000 off monthly expenditures on needless items.

We actually use an accountant and our taxes are well in order. We've always had a spreadsheet and tracked what our expenses were. We KNEW we were in trouble but kept digging.

In addition to controlling our discretionary spending, we're also cutting back on our "needs" - regular bills.

As an added bonus, I've only eaten out once this week and the result is a 2 lb. reduction on the scale.

I've taken a lot of heat on this thread and haven't tucked tail and run off. I get the impression that some posters (not all) either don't have children, have children who are older or had a spouse that stayed home and may not be aware of the cost of quality child care (emphasis on QUALITY). In a major metropolitan area, costs are higher. Going by the average in my state, I'd pay at least $14,500/yr for child care for two kids. That's about $600/month per kid. Honestly, I've never been quoted anything less than $850/month per child, and we shopped around. I live in the biggest city by far in my state. There's definitely a quality difference and you don't want care givers rotating out every few months (which is what happens in the cheaper centers, b/c they don't pay enough). That's why I keep justifying child care. And the fact that we own two underwater homes is what it is. Too late to change that now.

[scfr]

We are definitely taking these measures. Not just short-term, but adjusting for the long-term. We've devised a budget on Mint and are tracking each category. We're cutting at least $1000 off monthly expenditures on needless items.

We actually use an accountant and our taxes are well in order. We've always had a spreadsheet and tracked what our expenses were. We KNEW we were in trouble but kept digging.

In addition to controlling our discretionary spending, we're also cutting back on our "needs" - regular bills.

I thought it was very clear that you were taking concrete steps. Sometimes I question whether some posters intentions are to actually help or simply to feel superior. In any case, keep it up, and I still recommend that Clark Howard book if you are looking for additional suggestions. And feel free to start a new thread asking for help with suggestions in specific areas where you are struggling to come up with ideas (lower-cost vacation, easy home cooking, whatever).

[Alw1977]

Thank you scfr. The majority of posters have been quite helpful and encouraging. We are taking concrete steps. My goal for 2014 was to get the financial house in order. We're doing it.

[disneysteve]

we're also cutting back on our "needs" - regular bills.

This is an important point. A lot of people get hung up here and think they can't change their fixed expenses but that isn't true. Even "fixed" expenses are often adjustable. Look at all of your insurance policies: auto, life, home, disability. If you haven't shopped for new quotes within a year or two, now is the time. You might save hundreds or thousands by changing providers. The same goes for paid household help like lawn care. One result of the recession is that there are a lot of hungry service providers out there willing to take jobs for less than they used to. You may be cruising along paying what you've been paying but another company might offer a better rate if you asked. Your current provider might even give you a break if you let them know you're thinking about switching.

[JoeP]

This is an important point. A lot of people get hung up here and think they can't change their fixed expenses but that isn't true. Even "fixed" expenses are often adjustable. Look at all of your insurance policies: auto, life, home, disability. If you haven't shopped for new quotes within a year or two, now is the time. You might save hundreds or thousands by changing providers. The same goes for paid household help like lawn care. One result of the recession is that there are a lot of hungry service providers out there willing to take jobs for less than they used to. You may be cruising along paying what you've been paying but another company might offer a better rate if you asked. Your current provider might even give you a break if you let them know you're thinking about switching.

To piggyback on Steve's input, when you free up money, use that money to service debt first. Some people save money on one thing, and then turn around and spend it on something else that doesn't help their financial situation.

[HappySaver]

"
Lastly, the unfortunate truth is that BOTH of our properties are underwater. We purchased our primary home during the boom. We cannot sell either property without coming significantly out of pocket ($20k or more on both). Our 2nd property brings in $1300/mo and it costs us $1377/mo. It's not taking a huge bite. Believe me, I'd LOVE to sell our home and move into one less expensive. Unfortunately, we've got to wait it out.

I don't think enough attention has been paid to your rental property; that's why I focused on it. $1377 covers both mortgages on the property, hopefully tax and insurance, and HOA. Do you really have no other expenses on the property at all? Do tenants pay all utilities including water? You never have any repairs or maintenance at all? Even if this is true, what about the risks if
- tenants move out and you have to cover all costs for a period of time without receiving rent
- any repairs or maintenance costs come up
- interest rates go up... are both mortgages fixed-rate? is one a HELOC? interest-only?

You're not getting personal value out of the rental like you are with Montessori. You could cash out the $20k from your stock, sell the property, and remove all associated risks and time/energy baggage. One less thing to worry about. With a few exceptions, prices are not going up quickly in most parts of the country - it could take you a very long time to not be underwater, especially with a townhome.

[LivingAlmostLarge]

Trust me I get it. I have two kids and I live in a very expensive area. Montessori where I live runs $25k base around $35k with afterschool care. And it's only 'on par' with the norm. To provide childcare for my two kids will run me around $48k/year or $2k/month on each kid. Yes that's right $2k/month per kid. Now a nanny will run me a little cheaper around $20-25 for 2 kids because one kid runs around $18-20/hr.

For $20k to drop a house? I'd consider dropping the more expensive home and keeping the rental since you are almost breaking even.

You never responded to my question are you living on $130k/year and saving $52k? Then you should be on track to basically living 50/20/30. But the CC debt came from somewhere. Also your retirement savings is minimal. We too started saving late (2006) because of our educations but we have close to $450k retirement savings and substantial taxable savings on a lower income. And we have two kids and one income.

Seriously if you can live on 50% of your income including montessori, mortgage, rental, everything then you'll probably be fine. The next 1 year perhaps direct the 20% savings to debt and you'll be good.

But the MAIN point is how high are your living expenses? What is your baseline living expenditures?