How can I help a friend with debt/saving?

[Bruce79]

I have a friend who owns her own business and told me this weekend she is living pay check to paycheck. She owes taxes soon and will need to put them on a credit card she tells me. She's a smart person, attended a top university, but she never learned about money and she came to me for advice and help. I have always been decent with money but I am no expert. I learned from a young age that I only use a loan for a home any everything else I pay cash. I also save roughly 18% of my household income for retirement.
So she came to me knowing about my situation but I'm not sure how to start helping her. Can anyone here offer help? I plan to use some form of the Ramsey Baby Steps : getting a small emergency fund, then reducing debt and then budgeting for her quarterly taxes, is that a good order of progression? I would love to at least educate her about a Roth, but I think it's too soon for that, right? She's a doctor with a practice she started alone 3 years ago. She's in her early 30s, single and isn't a big spender as far as I know (never dressed in the latest fashion or with a new car). If anyone can help me start to guide my friend please post below. Thank you.

[samuelwright]

I think you have the right idea by following Dave Ramsey's "Baby Steps." However, I always find that the best starting point is writing a realistic and detailed budget. I've discovered that everybody 'has a budget' but it often never quite seems to exist written down on paper, or electronically. So, you may want to ask "can you *show* me your budget?"

We can get very excited over particular pieces of software, but I feel that a piece of paper and a pen/pencil can be just as good a tool as anything. She's lucky to have a friend as savvy as you to help her!

Note to self: add a few more details to your budget. :-)

[snafu]

It's wonderful of you to agree to help your friend with her financial management. As step #2, I'd ask her to write all debt, sum owed, interest rate, monthly payment and if possible how much interest was added to debt Jan. - Dec. 2013.
I suggest checking to identify possible 0% CC options should transfer be an appropriate step.

I've helped a couple of people with their finances and was shocked by how unaware they were of how much of their income flew out the door to interest. My DSIL had so many ATM cash withdraws but no idea of where all the money went. She agreed to note every dollar spent cash, charge etc in a notebook. It's an awful chore but she quickly figured out she was leaking a lot of money buying coffee and muffin at Starbucks a couple of time each day, stopping at the grocery nearly daily on her way home for a couple of items that turned into $ 30., etc.

[breathemusic]

stopping at the grocery nearly daily on her way home for a couple of items that turned into $ 30., etc.

This.... right here, is definitely where I tend to have the most cash disappear. I get to be terrible at just shopping and planning for the week, so instead I just walk to the grocery store all the time (the fact that there are 2 within 2 blocks of my house doesn't help!) to just buy whatever I want for dinner at the time. I always manage to find something else to buy, whether it's a gatorade, or gum, or whatever. Next thing I know I'm spending double by usual grocery budget in the month.

[SportGuy]

Dave ramsey knows his stuff. Why not follow all his stuff? Does anyone suggest altering Dave's proven plan?

[97guns]

could it be that her business is running in the red and theres nothing to save?

[samuelwright]

Dave ramsey knows his stuff. Why not follow all his stuff? Does anyone suggest altering Dave's proven plan?

I think Dave Ramsey's *financial* advice is mostly good. However, I object to his Christian teachings. I understand that there are people of all religious beliefs, as well as agnostics and atheists in this group. However, I don't like that Dave Ramsey looks to the bible for guidance.

In summary, Dave Ramsey's heart is in the right place. He knows how to manage money. However, his religious views reflect a lack of honest intellectual reflection. In my not so humble opinion, of course.

[samuelwright]

Just to clarify: I made an error. I made a reference to "the bible." In reality, there are over 100 different versions of the "bible." It would be inaccurate to refer to a singular bible. I should have said "one of the bibles" or "some of the bibles" and not "the bible." Peace.

[dczech09]

I think Dave Ramsey's *financial* advice is mostly good. However, I object to his Christian teachings. I understand that there are people of all religious beliefs, as well as agnostics and atheists in this group. However, I don't like that Dave Ramsey looks to the bible for guidance.

In summary, Dave Ramsey's heart is in the right place. He knows how to manage money. However, his religious views reflect a lack of honest intellectual reflection. In my not so humble opinion, of course.

I am not a religious guy myself, but I can appreciate Dave Ramsey's bibilical philosophy. Even if you're not a Christian, his teachings all stem from common sense and good faith.

Anyway, onto the top at hand...

I think the best way to teach a friend about money management is to be a leader. Do things good yourself and be an example.

For example, when I began my adventure to help people handle money better and put myself out there as an "expert" so to speak, many of my friends and relatives did not care what I had to say. But over the months and years, as I grew more and more financially healthy, people have seen that and want to know how they can do it too.

Personal finance is something that has to be done in order to learn. Reading and research is important, but it will only get you so far. So instructed your friend is not enough. You gotta show her how this is done.

Sit down with her and show her "this is how I do my budget." Show her how yours works, then work with her to one together for herself.

[kyoko]

could it be that her business is running in the red and theres nothing to save?

I tend to agree this point. You may need to check her business also seeing how her profit is, and if she doesn't make much money and that trickles down to her personal finance, she will have to change the strategy on how to run her business more profitably.

[ronantheconan]

I think you have the right idea by following Dave Ramsey's "Baby Steps." However, I always find that the best starting point is writing a realistic and detailed budget. I've discovered that everybody 'has a budget' but it often never quite seems to exist written down on paper, or electronically. So, you may want to ask "can you *show* me your budget?"

We can get very excited over particular pieces of software, but I feel that a piece of paper and a pen/pencil can be just as good a tool as anything. She's lucky to have a friend as savvy as you to help her!

Note to self: add a few more details to your budget. :-)

Pen and paper is the best tool by far. Saving can be taught or sometimes enforced.

[Eagle]

I think Dave Ramsey's *financial* advice is mostly good. However, I object to his Christian teachings. I understand that there are people of all religious beliefs, as well as agnostics and atheists in this group. However, I don't like that Dave Ramsey looks to the bible for guidance.

In summary, Dave Ramsey's heart is in the right place. He knows how to manage money. However, his religious views reflect a lack of honest intellectual reflection. In my not so humble opinion, of course.

Dave Ramsey's debt reduction plan is pretty solid. It's a lot of common sense.

His "debt snowball" (paying the smallest loans first) model works well if you look at money from an emotional standpoint. However, from a financial standpoint the alternative "debt avalanche" (paying off the debts with the highest interest) makes a lot more sense IMO. But either way gets the job done.

However, Dave Ramsey's investment advice is probably something most people could do without. He invests in 2 things - mutual funds and in rental properties.

Also, Dave Ramsey basically thinks nobody should have a credit card. Yet if someone is responsible with CC's then the rewards they offer (cashback, milleage, etc.) can be very helpful.

[BMEPhDinCO]

I have a friend who owns her own business and told me this weekend she is living pay check to paycheck. She owes taxes soon and will need to put them on a credit card she tells me. She's a smart person, attended a top university, but she never learned about money and she came to me for advice and help. I have always been decent with money but I am no expert. I learned from a young age that I only use a loan for a home any everything else I pay cash. I also save roughly 18% of my household income for retirement.
So she came to me knowing about my situation but I'm not sure how to start helping her. Can anyone here offer help? I plan to use some form of the Ramsey Baby Steps : getting a small emergency fund, then reducing debt and then budgeting for her quarterly taxes, is that a good order of progression? I would love to at least educate her about a Roth, but I think it's too soon for that, right? She's a doctor with a practice she started alone 3 years ago. She's in her early 30s, single and isn't a big spender as far as I know (never dressed in the latest fashion or with a new car). If anyone can help me start to guide my friend please post below. Thank you.

I think she needs to find a good accountant - this will be around $350-500 for taxes, but will help since if she wasn't paying quarterly taxes all along, she could be hit with a huge bill AND a fine. They will help determine whether she is even bringing in money and how to best structure it. Self-employment is hard, taxes are harder, and the IRS can be very strict with it.

As a doctor, she probably has $100k+ in loans as well - these can be killer on any budget and need to be dealt with carefully and quickly.

I would say for first steps:

1. Hire an accountant, get help before April 15th, 2014. She has both 2013 taxes AND 2014 first quarter taxes due that day - it's a double whammy.

3. Make a list of everything she owes - rates, amounts, to whom, etc and then go through with what is most critical and start planning how to eliminate the debts.

3. Open a SEP-IRA - she can put up to $51k aside in it for retirement AND it won't be taxable income and thus helps reduce what she owes. She can start with a low amount and work up.