Since I normally write and post ahead of time, this just came up reading a message board today. I thought it an interesting conundrum and decided to share it with readers!
Income
DW $1300 biweekly
DH $1800 biweekly – just lost job
Total Income $67166/month before job loss, now it’s $2816/month
Expenses (monthly)
Credit Card $8000 owed (not sure monthly = estimate $200)
Electric $150
Cell Phones $120
Car Insurance $400
DH’s luxury Car $650
Cable + Internet + phone $230
Car Gas $220
Heat $50
Rent $500
Eating out $563
Total Expenses $3083
In the red = $267/month
Now that is not including the fact that insurance was paid for out the DH’s paycheck. But without the second income they will pay less taxes. And that’s assuming paying $200/month towards credit card debt. She asks because she’s 5 months pregnant.
So she asked the message board WIR, what to do? Many answers came. Many. Most suggested cooking at home and stopping eating out. Sounds good right? She could theoretically save $275/month by cooking and instead spending $275 on groceries. That would get her just about in the black.
My sugestion? Dump the car asap. Like yesterday. The damn car is $650/month car payment, probably $300 out of the $400/month insurance because it’s a newer luxury vehicle, maintainence on a luxury car (infinity G35 sports car) is way more expensive. Tires are more expensive, oil changes, etc. It’s likely running them $1k/month to own the car. They have an older second paid for car also, and maybe one car is not enough. But they could buy a cheaper used car whose payemnts might be $200/month and a lot less insurance.
I agree they should likely stop eating out and start cooking. They should cut their full package cable. But those are little cuts. She might save $300-400/month. The car? That’s 33% of what she’s bringing home a month. They are one car accident, one job loss away from having it repossessed.
I gave the analogy, their ship is sinking. They can start bailing out water, which is cutting eating out, cutting cable, conserving energy, etc. Or they can plug the hole, which is the car. They will not stay afloat long, I guarantee if they don’t sell the car. The bailing out of the ship, will keep them afloat longer, by cutting here and there. But they are leaking water (money) drastically. Bailing will only delay the inevitable.
What do you think? Should they work on stopping eating out, cable, etc? Or do they need to sell the car like yesterday? How can they get their money straightened out before their baby comes?
I really need to remember this when my DH gets the car itch. What it really costs to buy a newer car than our beaters.
36 responses so far ↓
1 Angie // Feb 4, 2009 at 1:37 pm
I would completely agree. Dump the car. I would also look at cutting costs with the cable and phone bills as well as eating out. You can’t be sure what the future will hold, and this gives the opportunity to look at the budget and start saving and paying down the credit card as well. With one person home, it shouldn’t be a problem to try cooking and buying groceries instead of eating out all the time. Not to mention it’s better for you as well.
2 Revanche // Feb 4, 2009 at 1:41 pm
Holy moly, yes, dump that car. It’s such a money sink. I’m not being a preachy PF blogger, I just finally got rid of our extra vehicle; it was such a huge drain on the finances when I didn’t have all that much to spare.
That internet/cable/phone + cell phones combo needs to be trimmed drastically as well. I understand there may be contracts involved, but it needs to be marked for cutbacks ASAP.
And yes, eating out needs to be translated into eating at home for half that much. They need to pay down that debt and save a bit for emergencies because they are twice as vulnerable now.
3 Lynn // Feb 4, 2009 at 1:58 pm
Wow, there are a ton of changes she could make. The most obvious being the car. I can’t even imagine a $650/mo car payment for 1 car. Her insurance should go down if she gets rid of that car too. Maybe its me but some of these things seem on the high end of price (and I live in NJ where nothing is cheap!)– isn’t $230 a lot of cable internet and phone? I have 3 different providers (direcTV, cablevision and verizon) and my bills only total $152. $120 for cell phones? What about a family plan? Can I also assume she buys no groceries? There is no money for that – just eating out? It seems as if her monthly expenses are incomplete – she never buys toiletries etc? Am I missing something?
4 Katie // Feb 4, 2009 at 2:05 pm
I agree with Lynn–I don’t think these expenses represent the full picture. These people don’t appear to spend any money on health care, personal hygiene, prenatal vitamins, groceries, dry cleaning, clothes/shoes, newspapers, renters insurance, gym memberships, etc. There are certain expenses that just go along with living and working, and these are not represented. I believe their financial picture is far worse than what is being presented above.
5 tom // Feb 4, 2009 at 2:20 pm
Here’s my plan for them:
1. Ditch the car, sell, trade-in whatever
2. Call up cable company – get lower rate
3 . While on phone with cable company – cancel telephone – I pay $45/mo for DirecTV (HDDVR) and $30/mo for Charter Internet
4. Call cell phone company, ditch some services – my wife and I pay $60/mo for family plan for us two, including texting
5. Buy some ramen noodles and cook more!
6. What the heck are they doing that creates $150/mo in electricity in a $500/mo apartment?! Turn off some damn lights!
They are hemorrhaging money. What is she going to do in 4 months if her husband hasn’t found a job?
6 Lynn // Feb 4, 2009 at 2:35 pm
“What is she going to do in 4 months if her husband hasn’t found a job?” I didn’t even address the fact that she is 5 months pregnant and soon is going to have not only birth-related expenses but baby expenses. I have 2 year old twins and just the office visits in the 1st year can cost an arm and a leg. Wow. Like Katie said, her financial situation has to be far worse than what she is indicating.
7 Kristy // Feb 4, 2009 at 2:36 pm
I agree with you all. Get rid of the damn car. $650 a month for a car??? Ridiculous.
8 LivingAlmostLarge // Feb 4, 2009 at 4:15 pm
A couple of things I forgot to mention. They live in a HCOLA. Doesn’t seem like it but they are renting from her parents an apartment for wayyy less than going rate. So $150 electric sounds about right. It’s a lot larger than you would think. And where we live $150/month is still a steal. So I’m guessing if things got really bad they wouldn’t have to pay rent.
Before the job loss they had $3700/month extra income to play with. That likely covered all the extras everyone was asking about. That probably took care of some stuff not on the list.
I’m not sure what the unemployment for her DH would be but that would help. Definitely all the cuts would help.
It is possible that her husband could stay at home with the baby saving on daycare. That would be a huge money saver where we live. The running cost is $2200/month for a newborn in the city. That is almost what one of them makes. Sigh.
9 Kristy @ Master Your Card // Feb 5, 2009 at 12:02 am
I’m in agreement with everyone else here, cut the car and quick. That is immediately going to bring her out of the red because, even if they get a cheaper car, they’re likely to get cheaper car insurance as well. The next thing I’d cut would be the eating out. While the car is pretty expensive, so is their eating out budget – they must be eating out almost every meal! That can’t be healthy for mother and baby, either. The next thing on the list to cut is the int-cable-phone package. It’s probably not necessary to have a home phone with two cell phones. I’d consider cutting that out altogether, and you’re not really getting all that much in savings on those stupid bundles. Then I’d slash cable to the bare minimum. They’re going to have to learn the meaning of being frugal, and quickly.
Did she happen to mention whether or not they had an emergency fund? As much as they were making, a little less than half was disposable income, so where was that going?
10 Don // Feb 5, 2009 at 8:49 am
This is the irresponsibility I am talking about!!!
Now you want all these socialist policies to help these idiots out???? They didnt take care of themselves and didnt plan. they relied on someone else (their parents for rent, govt, etc) and didnt buy groceries and bought a $600 a month car?
I feel for them I do but this is the idiotic irresponsibility of socialism. You enable individuals to not think of their responsibilities now or in the future!
11 Fabulously Broke // Feb 5, 2009 at 9:11 am
Drop the car, eat at home.
Just like what you said.
Fabulously Broke in the City
“Just a girl trying to find a balance between being a Shopaholic and a Saver.“
12 tom // Feb 5, 2009 at 10:16 am
Don,
Look at their income before, looks like they could afford everything.
Yes, they should have more of an E-Fund and should have paid of CCs, but come on, you never see these things coming. They had two good jobs, you want them to live like misers? That’s ridiculous. They could afford a luxury car, they could afford to eat out, they were living within their means.
Get off your high horse. They deserve as much of bailout as the people who did the opposite.
13 Lynn // Feb 5, 2009 at 11:20 am
Don’s response doesn’t even make sense. I didn’t vote for Obama and don’t support socialism but that wasn’t even mentioned in the post and it has nothing to do with it. LAL mentioned the word “bailout” as in their ship is sinking and they need to start bailing themselves out. She said nothing about the government and help to this couple in a difficult financial situation. Maybe he should have read the post a little more carefully because going on an attack of the couple.
14 Kristy // Feb 5, 2009 at 11:59 am
Tom, They should have had more of an emergency fund before buying a luxury car at $650 a month. And why are they still living at home? And why do they even have credit card debt….they had the income before to pay it off.
15 Kara // Feb 5, 2009 at 2:53 pm
I would question “they were living within their means”. If they hadn’t had subsidized rent, would they have been able to afford the luxury car? $8000 in credit card debt, while below the national average, is also not “living within their means”. If they had $3700 extra a month to “play” with, why carry an $8000 balance on credit and pay interest on it. What about an emergency savings fund? 6 months of savings to tide over in this situation?
And even considering they may have been spending somewhat within their means, it looks like there wasn’t even any attempt to be conservative with the money coming in. One can be fiscally conservative w/out being penny pinching.
That said – I echo everyone else. Ditch the car – trade it in on something less expensive and less luxury. That will not only lower the $650 a month payment, but the insurance and the maintenance. Drop the home phone and make the cell phones main numbers. Call the cable company and talk to them about repackaging the internet/cable to a better rate. Cut back on the eating out. They don’t have to eliminate it, but $500+ a month is excessive.
And start thinking long term rather than “now”. Start that savings account with the emergency fund.
16 Kara // Feb 5, 2009 at 2:56 pm
Oh and one other comment about this:
“They had two good jobs, you want them to live like misers? That’s ridiculous. ”
What’s ridiculous is assuming that anyone will always have “two good jobs” forever. Even before the massive crash of the last 6-8 months, our economy has been on a downswing and unemployment has been rising. It’s not the 50′s anymore where people stay in one job for 30 years and retire. Assuming that you’ll always have your job is playing financial roulette. It’s foolish. You should *always* assume that your job could be cut at any time and make sure you’re financially able to weather it.
17 Miss M @ M is for Money // Feb 5, 2009 at 3:08 pm
Just goes to show you can never be too comfortable. The husband should get unemployment, which would help a lot. Here in CA it’s $450 a week. I thought my car payment was high at nearly $500/mo, I can’t imagine paying $650. They need to get a handle on this quick before the baby comes, it’s only going to get harder. I know a couple in far worse shape and their baby is due in a month.
18 tom // Feb 5, 2009 at 4:35 pm
LAL said they live in a HCOLA. If my parents rented me an apartment for $500 a month, I would take it!
We know nothing of their credit card debt – Could be 0% APR. Who knows. They surely made enough to pay it off pretty quickly so why didn’t they? Probably because it was a very low APR.
The point is they had two good jobs. They spent money a little more freely than they should have, but it wasn’t more than they could afford. What’s the point in working your ass off to live like you’re just getting by when you’re able to afford more?
19 Kara // Feb 5, 2009 at 5:49 pm
“What’s the point in working your ass off to live like you’re just getting by when you’re able to afford more?”
There’s a huge difference in living “like you’re just getting by” vs. being prudent. At the very least .. what happened to emergency savings? At that level of income, there is absolutely no excuse for not having at least 3 months worth of emergency funds … and more like 6 months worth.
Especially when you’re getting parental subsidized rent on top of it.
So the point is that they *HAD* two good jobs. Now they don’t. Had they been a little less about being “able to afford more” and a little more about being prudent … they’d be better able to weather this patch of unemployment.
20 Don // Feb 5, 2009 at 8:27 pm
Thank god we have more sensible people on here! If they could afford it then why are they in the situation they are in now Tom!!?? they couldnt afford it that is the point. Tom is like the others, living for the now and can’t see it.
21 tom // Feb 5, 2009 at 10:11 pm
Wow, Don, lots of hostility… easy boy.
Kara, I agree with you. They should have had an E-Fund. They were living within their means, even if they had an e-fund they probably would still have been spending they way they were. My point is, a lot of people were chastising them for living within their means. A lot has now changed, so they are asking for advice.
22 Kristy // Feb 6, 2009 at 4:20 am
Tom, yeah times have changes, however, that doesn’t mean that they shouldn’t have prepared for an emergency. I don’t begrudge them a luxury vehicle if they so choose, however, they should have been prepared for a job loss before purchasing a car like that.
And I don’t care if $8,000 in credit card debt is below the average in this country, if they were living within their means, they wouldn’t have credit card debt.
23 tom // Feb 6, 2009 at 9:21 am
Kristy, I agree, at least have something before buying a vehicle like that.
Since they could afford to pay off the debt before they suffered the job loss, I am assuming it is a 0% finance or a 0% balance transfer. If it’s a 0% finance, I would have hoped they could have bought whatever it was outright before taking advantage, that way you only pay the minimum and leave the rest in a high-yield savings account. I’m also hoping for their sake that they aren’t paying interest on their balance.
24 JoeP // Feb 6, 2009 at 4:08 pm
Unbelievable!
I’d *immediately* sell the car and get something more economical to get out from under those car payments.
Go with prepaid cell phones, like T-Mobile, and maybe start out with just one.
Cable/internet/phone can be greatly reduced by dumping cable all together and getting a local phone plan for less than $30/mo. Long distance can be reduced by going with something like SpotTalk for $0.09/min and $1.99 max per call.
Eating out??? What’s that?!? Seriously, though, this should be limited severely. I think we go out once every other month.
And how do you let a credit card get up to $8k?
25 LAL // Feb 9, 2009 at 1:24 pm
I don’t believe they had an EF. They apparently were doing better, paying off CC, and getting their finances more in order because of the baby.
Don you ramble and make no sense. Try to read the post before responding.
Sadly tom, while perhaps they could afford things, they certainly weren’t planning for anything bad to happen. They probably should have not bought the car in the first place.
Kristy they aren’t living at home. But in an apartment her parents own.
Kara, I think they were turning the situation around, albiet slowly. The job loss compromised a lot. I think they could be okay if her husband finds a job quickly.
Tom there is nothing wrong with living well. But I have no wonder if perhaps they didn’t consider a baby is expensive? What happens if the woman wanted to become a stay at home mom? Shouldn’t they have considered it?
I agree with Kristy. Before the car purchase they should have saved more. They were turning it around but I’m guessing, though she didn’t write it, that the baby was “unplanned”. I am guessing they figured that they could survive on one income, and they could if they didn’t have a baby on the way. They could cut their eating out, cable, cell phones.
But with a baby? I am guessing that things are going to become expensive.
Joe I think they were paying it down. Then the job loss struck.
26 fengshui // Feb 9, 2009 at 6:49 pm
“What happens if the woman wanted to become a stay at home mom? Shouldn’t they have considered it?”
I would certainly hope that people think about this and consider all options prior to the conception of the child……
That IS one area that I’m a hardcore planner. I have an IUD in AND I’m on the pill. No accidents here….
27 LAL // Feb 9, 2009 at 8:54 pm
Well most babies are “unplanned” or so I hear. Rarely do I hear “we planned” the baby.
28 Kristy // Feb 9, 2009 at 9:20 pm
LAL – I have planned both of my pregnancies! Now you have heard it! LOL!
29 LivingAlmostLarge // Feb 9, 2009 at 9:34 pm
Finally someone who “planned” their children. WTF. Everyone never admits it or is not fucking planning.
30 fengshui // Feb 10, 2009 at 12:25 am
I can’t afford an “accident” right now, for many reasons…. mainly that I may be going through a divorce and I don’t need to complicate the matter any further. And, in *my* opinion, if you’re not using birth control and having unprotected sex, then you ARE indeed planning to get pregnant….
34 Cyndi // Feb 15, 2009 at 10:15 am
We obviously don’t have all the details here. (Their monthly budget leaves out a lot of expenses). If their $8000 debt is from medical expenses, or school loans, I can understand that. But if it’s from freewheel spending – I don’t understand not paying their credit card bills off each month. I would never, ever buy a luxury car while owing money. But like them, I didn’t get serious about funding an EF until 12 months ago, even though I’m single and thus the sole breadwinner. Sounds like dumping the luxury car/insurance will be all they really need to stay solvent while the husband job hunts, as long as the wife’s job remains.
Scary times.
35 LivingAlmostLarge // Feb 17, 2009 at 6:40 pm
I believe they were overspending, BUT had gotten serious about paying down debt and were in the process of doing so.
And yes the car was a mistake, but easily rectifiable. Problem is that the job loss hit.
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