If you have significant debt
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Anonymous
| Grandparents will only pay for school. To them it's important. |
Anonymous
Are you still living beyond your means and adding to your debt? Are you saving anything? Retirement? How is your emergency fund? Do you have a budget and do you stick to it? Do you pay more than the minimums on the credit cards? I can appreciate that it's hard to cut to really, really bare bones, though this is what I would do. None of things you list as "wants" strike me as necessary or even particularly important. I'd allocate a small (couple hundred dollars) worth of "fun money" for every month, whether it's used on clothes, lunches out, whatever, and once it's done, it's done. Everything extra goes to debt. |
Anonymous
Just to be clear.... OP said she only spends on bare necessities (not "at the expense of bare necessities"). She also said she is doing without movies, "cool clothes" for DD etc not that she considers them bare necessities. |
Anonymous
What's your alternative? Bankrupt and home foreclosed in order to keep DD in "cool" clothes. "Main Street" vs. "Wall Street", I don't see much difference. |
Anonymous
| That's not how I read her OP--her question was whether she should focus only on the bare necessities or spend on extras too. She didn't say what she is actually doing now, but was asking about how she should proceed. |
Anonymous
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Make a budget. Figure out what your paychecks are. Deduct the mandatory payments, e.g. mortgage, car payment, utilities. Create a budget for food and basics (that may include new clothes for school or essentials like school supplies, child care supplies, etc). Now look at what is left and decide how much you want to put towards each of the remaining debts (school loan, CC). Use on-line calculators to determine what the pay-down period would be for different payments and figure out what time-line you want to get the monkey off your back. Also, plan for an allowance that you give yourself every paycheck which is what you can use for family expenses. Stick to the allowance. If you don't use the allowance in one paycheck, you can save it for the next period, so you can save up for a splurge like a concert by being frugal on the allowance for a couple of months. If you can't do this yourself, open a separate bank or credit union account for the allowance, and have an automated payment made to this account from your regular account each pay period. That way you know what allowance money is available at any time. The bigger the allowance, the less aggressive you'll be on paying down consumer debt. The smaller the allowance, the faster you'll be out of consumer debt.
When paying off the consumer debt, there are different theories. You can try to pay a little extra to everything at once, or you can make minimum payments on most and choose one debt to eliminate first. Then you put all of your extra payments on that debt until it is gone. Michelle Singletary, the financial columnist for the Washington Post recommends paying off the debt with the lowest balance first because then you'll see the biggest progress and get the most emotional bang for the buck as you watch the smaller debts actually be eliminated. I still hold to the policy of paying off the debt with the highest interest first because that is costing you more money monthly as the interest compounds. You will pay off your debt faster if you pay off the higher interest balance first. Either way, it is frequently recommended to work on focusing on one debt at a time to eliminate multiple debts rather than trying to pay off each concurrently. Good luck! |
Anonymous
Thank you. Great advice. You mention that none of the things I listed as "wants" strike you as particularly important. It is important to me that I provide my kids with lots of opportunities, such as travel (even cheap fairly local places), learning to ski, tennis lessons, movies, out to dinner occasionally etc. I had many of these things growing up and I wish I could give them to DC. Unfortunately we have not managed our money well and although we make enough to do a lot of these things, we now have debt that takes priority. It's hard to always say no to your kids, but I am grateful for what we have. |
Anonymous
Actually, there is a big difference. But not to the advantage of the consumer. In fact, there is an EXCELLENT piece in last week's new yorker by James Surowiecki (who is an amazing writer on economic issues). He makes the -absolutely correct- point that business will typically file for bankruptcy simply as a matter of strategy and to force their creditors to restructure and/or reduce their debt. Makes it easier for them to pay things off and pay their bills. These companies do not have to, in fact, be bankrupt. American Airlines did it. Conversely, banks have been very unwilling to allow consumers this same courtesy. Forcing homeowners to remain underwater, keeping forking out huge interest payments, and foreclosing on homes rather than helping consumers stay in their homes. (The author recognizes that some homeowners made bad decisions but it was also the banks that made bad decisions and handed out the money.) Thus, "Wall Street" as you put it is living by the "do what we say, not what we do." So, there is a big difference. |
Anonymous
OP, I never learned to ski as a child. I took gymnastics at the local YMCA, and we traveled only rarely. As an adult, I have enjoyed traveling all over the world and do not feel like I had a deprived childhood because the first time I went to France was when I was 20. It would seem that your financial decisions have created an environment in which your experiences of a normal childhood are not going to apply, and I think it's important that you recognize that your child is not going to suffer because they cannot have private tennis lessons or go skiing every winter. Putting things like that in the same category as occasionally going out to dinner is crazy to me. You can budget for movies occasionally - like, one summer blockbuster and one Christmas thing. You can go out to dinner occasionally. Even if you have a ton of debt, it is possible to create a budget for fun money (like one of the PPs suggested) that allows you to have these things as treats occasionally. It stops being an occasional treat when it happens once a week or even once a month. |
Anonymous
There's the problem right there. $6,000 a month on the mortgage???? Insane. |
Anonymous
SERIOUSLY. |
Anonymous
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OP, my husband is horrible managing finances - he just swipes the cc and thinks a magic fairy will take care of it. He didn't pay it fully and just kept incurring in debit - and I knew nothing about it! He consolidated his debt a couple of times to pay it off, but he would go back into his old way pretty soon and then, make another debit. When I found out, we had 30k in debit! He had never allowed access to his bank account or credit cards/bank cards before.
Once I got pregnant and one day found a HUGE bill from one of his consolidated debits, I freaked out (of course!). Up till then, we never had money to do anything fun like travel or buy new furniture, etc. However, we went out often to eat/movies and such. But I still wondered where was all the money going, because it didn't make sense to me we couldn't even travel to spend a weekend away if he alone made 100+K. Anyway, he also used to lie to me.... when I found this huge bill, he said it was the life insurance policy but it happens two days later I opened a letter from the life insurance polity saying he had defaulted, etc. After that we had a huge argument (more like I yelled a lot and he just took it and said he was "sorry'). I DEMANDED all his CC and debit cards and took charge of everything from then on. I started packing his lunch and giving him a $10.00 allowance per week. He had no access to his money whatsoever. I made a budget and used snowball.com (paying high interest debits first), cut down on groceries bill (stopped going to WF, began buying generic brands, trying couponing - didn't work though), stop going out to eat, cancelled one of the cable box, cut down on the use of dishwasher, started doing laundry with cold water, etc. I also called car insurances and was able to switch companies and save 50%!!!! In the budget, I allocated $200.00/month for "fun" things like occasional movie, and also clothes, baby on the way, etc. The past two years were HORRIBLE! I hate living like that and it was sooo stressful! We had constant fights, but when I mailed the last check to pay the cc debit, I even took a picture  It is such a relief! And now we refinanced our home to get a lower rate and will have an extra $500.00 coming every month - plus, we will finish paying our car in October. Now we are able to breath again and have some room.
It is also and example I want to set for my child, even though she is so young. |
Anonymous
its all relative. I'd rather have a 15 year mtg and pay that sucker off at 3.25%. So I am house poor. And if I pay off my credit cards, student loans and auto loans, then that is not too bad of a total debt payment each month in my opinion. |
Anonymous
Great job, PP! Kudos to you! I hope your husband appreciates what you did for your family! |
Anonymous
Op here- this is not me. It's a different poster. |