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January 24, 2012

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Hi,
Forgive me for my total ignorance about tithing, as it's not something I've ever practiced: could you potentially tithe annually instead of monthly?

According to my math, and assuming you didn't add any more debt to your credit card during the year, you'd pay it off in October at a total cost of $985.

If instead you committed the monthly tithing money to your credit cards, your debt would be gone by March at a total cost of $940.

You could then keep your discipline by contributing $320 per month April-December (SmartyPig would be really good for this) and donating that money at the end of the year. You could even give a little extra for interest earned. :D

Keep up the great discipline (and the positive attitude!), and tell your husband to stop dipping.

Thanks for sharing TB, You really seem organized and dedicate to your family, so hold your head up high!

As a health policy researcher (and someone who has been in a similar situation) my first thought is that you might be able to cut down on your medical costs (healthcare and prescription medications). Ask your church coordinator, social worker, local health clinic, women's center, etc if they offer any services for free or a discount that you are already aging for. You may find, for example, that medicines are partially covered. I recommend opening the phone book (internet) and calling your local women's health center or community health center first. Tell them you are looking for ways to cut down medical/prescription costs and if they are able to provide assistance or direct you to someone that can assist you (the second question is important). then, call the second place. Sometimes, food pantries also are connected with health centers that provide assistance and they may be able to help out.

You rock and inspire! Keep it up TB!!!!!!!!

I have a guess where that $559 is going. Looking at your expenses I don't see car or life insurance listed, or any money for gifts (kid's birthdays and xmas must cost something), or clothing, or car maintenance, or home maintenance. If you have a computer, surely it needs replaced every 4-6 years. Once you account for all those irregular expenses, I bet you'll find they add up to nearly $500 a month. We wrote out all those type of expenses we could think of (ours included vet visits and vacations as well) and how much we thought we would spend in a year. It turned out to be rough $6k a year, or $500 a month.

It seems that $150 is a little excessive for cell phones, especially if you're on such a tight budget.

If you have not done so already, check with your doctor as to other drug options that have available generics. Secondly, you should consider putting your education on hold and picking up a part-time job until the debt is paid off and a bit of an emergency account is established.

You mention 401k savings as a future goal.

1) If your husband is already putting 10% of his pay into the city retirement plan and he participates in social security then that is probably sufficient for retirement. I would not be putting more money into retirement above other priorities. Paying off all your debts, building an emergency fund, getting some life insurance, etc. would all be more important goals then beefing up retirement savings.

2) If you did save for retirement then 401k would not be a good retirement savings option in your situation. If you pay no income tax then you would want a Roth IRA instead of a 401k. Right now you're paying 0% tax. The Roth IRA would pay tax today and pay no tax in the future. The 401k pays no tax today yet pays tax in the future. Since you have NO tax today then paying tax today and paying no tax in the future would be NO tax today AND NO tax in the future.
So if you don't pay income tax now then you ABSOLUTELY want a Roth IRA rather than a 401k. That could change for you in the future if your income and tax bracket goes up significantly over time but right now you would want the Roth over a 401k hands down.


3) Is the city retirement plan mandatory? How does it work? If its optional it may work like a 401k. In that case you may be better off saving for retirement outside of the city plan in a Roth IRA.

TB,

It seems that you are pretty close to making ends meet, if you could make a couple hundred more a month or spend a couple hundred less it would balance out. The part-time job should put you into the black.

I wouldn’t worry about pre-paying the mortgage now- you have higher immediate priorities:
Stop needing in-law generosity- that has to be awkward, and they may need that $200/month for their retirement savings.
Pay off the CC debit - since you don’t have a huge balance you could knock that out quickly with some hard work.

Given your situation, $200/month is a lot for the cell phones. If you aren’t locked into a contract you should shop around. Look into a pre-paid minute plan, I only spend less than $100/year for my cell phone- it is just a phone, not a smart phone – it’s old and ugly but it is reliable and quite inexpensive.

You might want to shop insurance as well- that could help a reduce the monthly expenses as well.

If you have good credit and sufficient equity you could potentially refinance the mortgage down to around 4%, that could save around $1500/year in interest, and give you some breathing room in the budget. It is worth trying to find out what kind of a deal you could get.

If there is any way to cut down the medication cost it would certainly help- such as generics or even a different provider. Since you know the medical insurance is a big expense in Jan you need to plan for it and side aside $60/month for it so that you don’t have to put it on a CC for the entire year.

-Rick Francis

This probably goes against the grain here, but I don't understand why you're tithing. It seems that if you didn't, you wouldn't need your budget subsidized by your in-laws.

To echo what others have said - cell phone bill is way too much for your budget.

I don't understand how you're paying 1% to the government for "erroneous" checks. If they paid too much and it's their fault, they shouldn't get a free 1% from you! I would fight that, as hard as possible.

Paying down your credit card should be your top priority. If you know you'll incur ~$700 on your card annually, you could potentially save up and be able to pay it down as it occurs (and then have 17% more money to save for next year).

I think if you found a job (even part-time) when you graduate and don't allow any lifestyle creep you'll start to be in a much better position. Your kids are getting to the point where they'll be old enough to be home alone if they need to, so I wouldn't worry too much about daycare expenses. The additional income should stop you from living paycheck to paycheck (or close to it).

TB - first of all, hug your husband and thank him for his service - both military and police. Police officer is a heroic job and one of a handful of jobs that I simply could not do. I admire his courage and he should know that there are lots of others out there that do as well.

In terms of your finances, here are my thoughts:

* I would look into ways to reduce your prescription costs. There might be cheaper generics where you would get a cost break from your medical plan. Or, you might talk to your doctor about things you can do outside of taking meds forever and ever to get yourself (and your kids) healthy. For depression, for example, physical exercise, prayer/meditation, etc might be ways to effectively treat it without spending so much money. Just a thought.

* You should also have your husband find out from the Police Dept's HR person if they offer a Flexible Spending Account. If you know you are going to spend $1000 per year on meds, you should pay that $1000 in pre-tax money. I know you don't pay any federal income tax today at your income level, but a FSA might enable you to get even more money back. Worth looking into at least.

* If you don't know where the other $559 is going, the best way to find out is to write it down. Every expenditure. Have your husband bring his receipts home for his quick meals and for his dip. Do that for about 3 or 4 months and you should have a pretty good idea. My guess is that others have hit on it - you have to allow some money for things like clothing, kids' gifts / activities, car and home maintenance, insurance, entertainment, etc. But it would be good to see if there is something that you're not thinking of where you might be able to save.

* It's ridiculous that the government is charging you 1% on money that you didn't even intend to borrow from them. It was their mistake. I would do whatever you need to do to fight that interest penalty.

* You mentioned that you follow Dave Ramsey and try to adhere to his advice. In which case you have already made it priority #1 to get those credit card balances down to $0. That has to be the priority with any extra money you have. Before saving for a rainy day or for retirement. Get those balances to $0. 17% interest will kill you financially.

* $21 per month for Netflix? Drop that and either rent movies for free from your local public library, or go with Redbox for $1 or so per rental. I would be that you don't watch anywhere near $21 worth of stuff on Netflix.

* How many minutes are you paying for on your cell phone? When your current contract is up, you might look into a lower minute plan if you are not using them all (and I suspect you are not). Or you might even look into a "pay per minute" plan, although given that you have no land-line, that might not be the right answer. But $150 is way too much for cell phone service in your circumstance. Also, do you have a data plan? Do you need a data plan? A question worth considering.

* Kudos to you for tithing. I believe that is the single most important thing and should not be cut under any circumstance.

* Once you get the credit card balance paid off, your priorities (in order) should be #1 build an emergency fund (at least 2 months of expenses, $5k would be a good start), #2 pay off the car, #3 pay off the mortgage, #4 save for retirement. Given that your husband is already putting 10% into the PD's retirement plan, I would put extra dollars into #1, #2, and #3 above before worrying about beefing up retirement.

Best of luck to you and yours and God bless.
Brad

I also completely agree that tithing is a reflection of your generosity and in reverence to God to give Him the first fruits of your labor. It should not be removed from your budget.

If you can get a handle on where the $559 is going, you can apply the remainder directly to your CCs. Use the debt snowball and pay of CC #2 then CC #1. Once you have paid off your credit cards, look into ways to no longer be reliant on the in-law's financial support.

I also agree with Rick Francis that paying your mortgage down early should not be a priority at this point. You should build up some liquid savings first instead of tying up that money in your home equity.

Keep up the great work, sounds like you've got a nice plan and are sticking to it!

I would not tithe in this situation, unless you can do so using your own money. Basically you are just funneling the $200 from the in-laws to the church + an extra $40, so it's really the in-laws that are doing the tithing. Instead of tithing, why not volunteer your time?

@Bad_Brad: If you received $3200 in undeserved pay (e.g. a check mistakenly deposited in your account) why would you expect to be allowed to keep it and gradually repay it over time?

I think the government is being remarkably generous charging only 1% interest on this loan.

@Mark - because it's their error. They paid this family money, which the family (thinking it was theirs) then spent. Then they turn around and say, "Oops, that wasn't really your money, it's really a loan, and we're going to charge you interest." Can you imagine if a payday lender did the same thing? They would be arrested for predatory lending.

Does the city or the health insurer offer free tobacco cessation treatment? If not, they ought to! It's in their own long-term financial interest to get your husband off that stuff.

Like others, I can't comprehend the tithe in these circumstances...

@Bad_Brad: I do not understand your analogy to a payday lender. Do you have any real-world example of involuntary conversion of a gift to a loan?

Also - Do you believe that someone could receive two extra paychecks and not know they were unearned?

It seems to me that anyone who receives "two paychecks erroneously paid" and goes ahead and spends the money is either dishonest (if they knew it was unearned) or sadly unaware of their financial situation (if they didn't know). If the former, they deserve far worse treatment than this family received. If the latter, it will take far more than the advice in this blog to get their finances in order.

There would have to be some very special circumstances that led to this before I would have any sympathy whatsoever. Perhaps the OP can explain this debt.

@Mark - I agree, ideally, the receiver of the money knows immediately that the money is not theirs, but ours is not an ideal world and I take it that the OP was most likely unaware that the paychecks were unearned at the time. I also agree that they must be paid back, but I think charging someone an interest penalty to pay for something which was caused by your mistake is wrong.

I would also love to get more clarity on how exactly that situation came about from the OP.

The good news is that if you stick to a financial diet, these problems will all go away once you fix your income problem.

I agree with Jclimber. Your in-laws are sharing their good fortune with you in the amount of $200 every two weeks. They are helping a family member in need. It seems strange to me that you would give an almost equivalent amount of money to the church. For those that have said that they agree that she should tithe, can you explain why it makes sense in this case?

Clarification: The government balance listed above as $3200 because we have paid back approx $1800 of the original $5000 debt (all numbers approximate).

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