New Series | Frugal Tuesdays + Reader’s Question: Is there hope for us?

Frugal-Tuesdays

Hello there.

For my American friends, don’t be sad about our government’s inability to get along & have the maturity & wherewithal to agree on anything. I have a new series for you!

I’ve been thinking a lot about self-reliance, living within our means, being practical/frugal & smart about money. You know, most of the things the government can’t seem to figure out right now. These are themes that don’t seem to go away–they’re ever present, particularly when the weight of debt is on your shoulders.

So, for the next while (maybe permanently) I’ll be devoting Tuesdays to everything money related: saving, how to be more frugal, getting out of debt, & so on. I welcome any of your questions or suggestions for future posts.

Today, I’ll be sharing a question from a reader, Amanda.

Email #1 she writes:

My husband and I currently have no extra pennies to pinch. I work full time and make about $34,000 a year.

My husband is in school full-time and works part-time for a landscaping company making $10/hr for about 10-15 hrs a week. Three years ago he received a diagnosis of stage 3 brain cancer. He is doing GREAT currently (yay!) but he has an MRI ($$$) every 4 months.

I guess my question is: is there hope for us?

We have about $100 in savings and $4,000 in credit card debt. I want to build a savings account  so if the worst happened (Kyle’s tumor coming back…) then we could float. But with our low income we have nothing to save after paying bills at the end of the month.

I appreciate you taking the time to read this. Thank you so much for the inspiring and motivation topics you cover on your blog. I wish you and your family all the best!

Thanks again,
Amanda

I wrote her back & declared: “YES THERE IS HOPE FOR YOU.” & then asked for more details about their spending & budget.

Email #2

I live in a university town in Oregon, population about 55,000 people. It is about 1.5 hours away from Portland, Oregon.
My salary is pretty pitiful but I am a young, recent college graduate so I’m grateful that I had a job coming right out of college!
Here are the basics on our home/life expenses:
Per month
Rent: 1085
Utilities: 70
Cable: 80 (negotiable)
Car Payments: none- we own two pre-2000 Subarus outright (I think we’re in a place to sell one car and just have a shared vehicle between us!)
Medical: 250
Gas: 200/roughly
Groceries: 300/overestimate
Credit cards: 300
Do we eat out? Not really. An occasional McDonalds run for Kyle but I’m a vegetarian so we mostly eat at home.
Date nights? Not really. Lately it’s been catching up on episodes of Breaking Bad.
Income:
Take home (after taxes):  Amanda – 2,300
                                                   Kyle – 400
Total:                                 $ 2,700
Okay, so that’s my life story! Thanks so much for your advice and input!

 

 

My take

I think Amanda’s situation is not unlike so many–fresh out of school, not much money, some debt, no savings.
The bright spots:
1) Amanda has a job! So does her husband. They might not pay as much as they’d like, but it’s something, & in this uncertain economic climate, that is a thing to celebrate.
2) They seem to have relatively frugal habits–eating at home, don’t go out much–which is helpful when needing to ratchet down expenses.
3) They don’t have any car debt!
4) From what info she gave me, I’m going to assume they don’t have other debts other than credit cards, which is awesome, especially for a recent grad.
The struggles:
1) Income is low & Kyle is only working part-time.
2) $4,000 in credit card debt, & the interest is accruing all the time.
3) Rent is kind of high–42% of their take home pay.
4) Only $100 in savings.
Let’s address the struggles & figure out what can be done about it.
1) They need to figure out a way to increase their income.
The obvious is for Kyle or Amanda to find any (I mean anything, including minimum wage stuff) type of extra work. At this point, an $8.95 an hour is not bad. Oregon’s minimum wage–$8.95/hr–is only second to Washington state ($9.10) in being the highest minimum wage. (If you’re a minimum wage earner, don’t move to Wyoming where the minimum is only $5.15/hr!).
Since he works for a landscaping company, I’d recommend saving up $200-$300 to start his own freelance business mowing lawns. He could earn more (potentially a lot more) working for himself. Not only that, but a few clients a week would really help add hundreds of dollars a month to their income. Amanda may be able to add a weekend or part-time work (a little creativity is needed here, but delivering pizzas, though not necessarily a savory thought, does make some extra cash at night & on weekends).
Another option for Amanda is donating plasma. I’m not giving this advice to old folks, pregnant women, or terminally ill people–this option is for the young & healthy (which by all accounts, is Amanda). Joseph donated plasma all throughout undergrad & sometimes in law school. It helped fund our date nights, birthdays, & Christmases. Joseph donated twice a week, & at that time made about $200 extra dollars a month. It’s not for everyone, but it’s something to consider–you can do it when you want/can, it’s a service people need, & you instantly get paid (& it’s all tax free!).
2) Sell the extra car, sell the extra car!
I recommend craigslist, or some other free listing service. We’ve sold everything from our car to our house (yes, our house!) on craigslist & everything in between. I’m a big advocate of craigslist (for buying & selling). Used cars, particularly below the $3,000 range, are in high demand (we sold our $1200 car for $1350 within 24 hrs of listing because there were so many people who wanted it).
The money from selling the car could go towards funding an emergency fund (at least $1,000) + Kyle’s medical fund (to pay for the quarterly MRI’s), paying Kyle’s start-up costs for a lawn mowing service, & then the remainder going towards debt. A no-brainer, in my opinion. I admit only having one car is sometimes an inconvenience, but as long as a couple can work out getting each other to & from work & school, it’s definitely do-able. Plus there’s the extra savings of not having to pay car insurance for that extra car.
3) Let’s get real about rent.
A general rule is to spend 25-30% of your take home pay on housing which includes rent or mortgage + insurance, utilities, hoa fees.
As a side note, we spend 28% of our income on housing which is higher than I’d like, but we decided on this house because of it’s location (closer to Joseph’s work, so we save money on gas, not to mention time), the fact it has a community pool & is in walking distance of our kid’s school. It’s also a very safe neighborhood, & all of these factors are important since we have young children. Since Amanda & Kyle don’t have kids, they are able to be more flexible with where they are willing to live.
Amanda is spending 42% of their take home pay on rent.
Now, they could remain in their place & earn more income, but at this point, the easier (& in my opinion, obvious) way to save money is to move to a much cheaper place, even if it’s in a less desirable part of town. It will only be temporary–until they can pay off their debt & get a substantial savings in place. Also, I understand every part of the country has different rent rates. Texas, for example, has one of the cheapest housing costs in the nation, while California, New York, & many metro areas can have unbelievably high housing rates. I did a quick look-up for 1 bedroom apartments in Corvallis & was happy to find that there were plenty of options in the $550-$700 range.
Since Kyle is a student, they should find a place close to campus so he can walk/bike thereby saving some money on gas. If they could find a place that was in the $600 range, they’d be nearly $700 ahead each month!
Bottom line: They should move to a cheaper place as soon as their lease/rental agreement runs out & save anywhere from $500-$700 a month just by downgrading their housing.
4) Cut the expenses.
Amanda estimates they spend $300 dollars a month on groceries. While this is not an exorbitant amount, for a family of 2, they could easily spend less. I recommend reducing their budget to $200 a month (this is about $1 a meal for each one of them, plus a little extra for things like toilet paper & misc. kitchen items). Savings: $100.
Also, cable is absolutely non-essential. Cut the cable & watch shows on a free hulu account.  If this includes internet, I’d cut that too & use internet at work/school. Also, if you have an iphone, I’d sell it/get out of your contract, & reduce to basic text/call phone with absolute lowest plan as soon as possible. An iphone, despite popular belief, is not a necessity (unless required for work).  Savings: $80.
So let’s review:
Current Income: $2700
Current Expenses: $2285
Left over: $415
If they….
Move to a $600, 1 bedroom apartment, they will make $585 extra a month (!)
Increase their income by at least $250 net (after taxes & expenses like extra gas) a month
Reduce groceries, cut cable & save $180
+ their leftover income ($415)
Then they will have a total of $1045 extra income a month.

Plan of action:

1) Sell the extra car. Use money to fund Kyle’s lawn mowing service, create an emergency fund (they need $900 more), & pay towards the $4,000 credit card debt. If they can sell for $2,000, they have $800 for Kyle’s MRI’s & lawn mowing, $900 for emergency fund, & $300 to go towards debt.
2) Debt is now reduced to $3700.
3) If they do the above 3 things (move, increase income, & reduce groceries), they will have $1045 extra a month. Let’s say $100 of it goes to misc. stuff, so they have $945 a month to go towards debt. In a little less than 4 months from making these changes, they will have their debt paid off. Let’s say they don’t/can’t increase their income, they are still able to save about $800 a month by reducing expenses & moving to a cheaper place.
4) If they continue with this budget & lifestyle, & saving around $900-$1000 a month, they will have about $12,000 in savings in about 12 months.
5) After a year or so (realistically about 15-18 months, depending on how well they stick with their budget), they can be debt-free & have a full funded 6 month emergency fund.
6) Once they reach this point, I’d recommend adjusting budget a bit (increasing grocery budget, adding some vacation money) so they don’t live quite the spartan lifestyle. I’d recommend continuing the stricter budget, so that $700 or so a month was going towards savings for at least another year to cover potential medical expenses. I think a good goal for them to shoot for is to have somewhere around $20,000  in the bank. Once they reach that point, they can slightly adjust their budget to accommodate a higher-cost lifestyle.
Lastly
While it’s easy to lay out a plan like this, I know from personal experience, the best laid plans are always broken. Meaning: life happens. But, despite the unexpected expenses & twists & turns of life, there is so much within our realm of control. If things get off track, you adjust & get back on. It may add some time to your initial goals, but staying focused on the end goal, being consistent with tracking your budget (& staying within it) are crucial for arriving at your final destination, which is DEBT-FREE!
Amanda & Kyle, there IS hope for you. You’re young, you have jobs, & your credit card debt is rather easy to tackle. You can do it.
♥♥
Do you have any advice, input, or words of encouragement for Amanda? Please share. 

 

 


Comments


  1. Mercedes White
    on October 8, 2013 at 4:02 pm said:

    once your reader has her debt paid off, i suggest she and her husband look into participating in a savings matching program. these programs are not typically well publicized, but they are such a great way for low income families to develop a nest egg.

    programs vary across the country but basically how it works is that families put a designated amount aside every month (usually not more than $60) and at the end of a set period of time (1-3 years) their savings get matched at an agreed upon rate. rates vary depending on the program (generally it’s at least 2:1). i know of a program in Utah that matches 3 dollars for every dollar a family saves and a program in Arizona that matches 7 dollars for every dollar a family saves….

    email me if you want the deets.

    love that you are talking about how to build wealth regardless of income level. it’s such an important part of financial “health.”

  2. Melissa
    on October 6, 2013 at 8:07 pm said:

    I concur about the Hulu (for $8 a month) instead of cable and DVR — we were spending almost $100 a month for those services.
    And although one car is workable, if the car is paid off, the value to having it (our second car costs roughly $200 a year for minimal coverage insurance) outweighs the expense to having your only other car break down and you have nothing. Plus all the extra driving (dropping off and picking up)… sometimes there is a value to your time not to spend it in a car.
    And $200 a month for groceries is unbelievable. Like I cannot fathom. Even shopping with coupons, my goal is $500 a month. If I can do $10 a meal (for dinner), I’m happy, and that alone would be $300-$310 a month. (I’m not saying its not possible — just that to me it is unfathomable.)
    Lastly, there is no mention on the list of cell phones, internet, or other “incidentals” (toilet paper, laundry detergent, shampoo, etc.). You should also factor in car maintenance, since an oil change (per car) is every three months, and (at best) it costs $30 a vehicle, or $20 per month.
    And yeah, that seems like a lot for rent. I lived for 5 years in a tiny one-bedroom (600 sq ft) in a crappy apt building in a good part of Seattle because it cost us $625 ($745 by the time we moved out in 2010), and husband was a 15-minute-express-bus-ride away from UW. Price and location were the priorities; comfort was not.

    • Janae Wise
      on October 7, 2013 at 4:15 am said:

      Lots of great points & insights.

      Yes, cable is a ton of money! I wonder how it’ll survive in the future when everyone catches on, like we have that you can get similar programming at a fraction of the cost? I know you can’t get ALL of the programming that cable offers, but I wonder how much most people actually have time to watch very many programs to justify the expense?

      About the one car situation. I think it very much is one of those situations where you have to weigh all the costs associated. If both of you are working at the same time each day in two totally different directions of where you live, then maybe it’s not even feasible. We currently have two cars because are old 245K mile van is not dead yet and the resale value is about $200, so we’re holding on, and it’s actually a really nice convenience because, though I don’t drive much during the day while Joseph is at work, it’s nice to know I can run to the store or post office, or visit a friend if needed. So yes, great point about the car.

      About the grocery money, $200 is very low, I admit, but not impossible. Though, now that I’m thinking of it, you do live in WA state, where groceries are at least 20-25% higher than what I saw in Utah & in Texas, so I can see why you might think that. But I think when trying to get out of debt, it’s important to cut back to bare bones for awhile–rice (a 50 lb. bag which would easily last a couple two months is $24 at Costco, see: http://queenbeecoupons.com/costco-price-list/ ), beans (you can get a 25 lb. bag for around $20) , oatmeal (like $.05-.10 a serving), only produce that’s on sale, very little frills. It can be done. We try to keep our budget under $500 for our family of 6–but I make our own bread, soy milk, and buy in bulk, on sale, etc. She’s vegetarian so this makes it even easier, because meat is, even on sale much more expensive than say beans & rice. When nursing or preganant, I think it’s important to spend a bit more on fresh stuff, but this girl is neither, & a diet of mostly rice, beans, & produce, while monotonous & somewhat boring, can save a lot of money & meets your basic nutritional needs (just ask Joseph, whose diet was basically that for the first 18 years of his life!).

      Great point about all the other incidentals. They cost money, too.

      If we didn’t have kids to factor in the housing picture, I’d be fine living in a crappy apartment for awhile too. These folks don’t have children, so I think, as you point out, living in an a less than ideal apartment is absolutely do-able like you guys did (& $745 in Seattle is *proof* that these folks can do it in a small college town in Oregon, where I’m sure rent is far below what it is in metro Seattle).

  3. lfwfv
    on October 2, 2013 at 8:02 am said:

    love this series and your advice.

    I have a go-phone and love it (a cheap bare-bones phone and you pay for the minutes as you go). People are always shocked when i say i don’t really text, and that i only use my cell phone for emergencies. We have a land-line that we use (we have a good deal on it that gives me long-distance to Canada, covers our internet etc.) and i probably use under 15 minutes of cell time per month.

    I recently started working from home and we are finding the savings in gas/car expenses is amazing (we knew that going into it, but still, it’s always amazing how it adds up). Also, home business’ are a great option in terms of being able to write off a lot more stuff for income tax returns.

    • Janae Wise
      on October 2, 2013 at 8:10 am said:

      Awesome insights Tanya. I was self-employed for awhile when we first got married & I forgot about all those tax benefits. I’m going to have to get back into that again since I’m selling ebooks, so I’m going to have to refresh my memory about all the tax stuff. But yes, definite benefits to having your own business. Aside from the gas, there are the work clothes & eating out for lunch w/ co-workers, all stuff that adds up. I didn’t realize when I taught so many classes how much money I spent on workout clothes! All of these things need to be factored in when making decisions about work, for sure.

      I actually use texts a ton now for my kids (coaches text me, for example) & for appointments with friends. So…I wish I could make a cheaper plan (like yours) work, because in all honesty I don’t use my cell that much other than for texting & could easily use google voice for most stuff. I definitely need to look into downgrading my plan (which isn’t that bad–$80 for two phones & pretty much unlimited talk/text).

  4. Melanie
    on October 1, 2013 at 4:21 pm said:

    Since you mentioned phones, I just wanted to add a little tip to all that you’ve said…

    About a year and a half ago, we bought an Obi (a little box you can buy on Amazon). It cost ~$50, but then you can hook up regular home phones to the box and hook up the box to your internet…Using Google Voice, you can get unlimited free calls (local and long-distance) – as long as you’re already paying for the internet.

    You cannot, however, call 911 with Google Voice (or any other internet-based phone, I believe). I also wanted something I could have as back-up for when the internet doesn’t work, etc… So I bought an AT&T GoPhone. The phone itself is only $20, and $100 will give you 1000 minutes for a year. I use it mostly just for emergencies and trips, so 1000 minutes is plenty. Last year, I only used about $8 worth of minutes (10c/minute rate), so when I went to add money for my 2nd year, they just changed the expiration date on my minutes for me….So $120 for 2 years of having my cell phone for emergency calls and only $50 for unlimited calls for life! Pretty good deal to me!

    • Janae Wise
      on October 2, 2013 at 8:31 am said:

      What a savvy girl you are! As I said in my comment to Tanya, the only thing I really feel I need my phone for are emergencies & texting. I’ve found texting to be super helpful with church, friends, my kids activities. If it weren’t for texting, I could easily do without my phone. So, I wonder if there are super cheap plans for mostly just texting? That is something I haven’t looked into.

      • Melanie
        on October 2, 2013 at 9:30 am said:

        Hmm…I’ve never texted in my life (I’ve never paid for a fancy phone plan), so I honestly didn’t really look at those details…but I think there are options for texting with a GoPhone. My GoPhone has the capabilities, but I don’t remember how charging for it works! With the GoPhone, you just put a certain amount of $ on your phone with a set expiration date, and each call/text charge comes out of that. I’m pretty sure texting can work into the GoPhone plan! Just go ask them about it!

      • April
        on October 2, 2013 at 3:56 pm said:

        I have one of those go phones from a company called net10. Walmart is where we bought it. Similar to all the others -you buy minutes that expire or can be renewed. Testing is included and only “costs “half a minute per text!

        • Janae Wise
          on October 3, 2013 at 2:31 pm said:

          I will have to look into that April. Do you also have a land line or do you use google voice or skype for that?

          • April
            on October 3, 2013 at 3:01 pm said:

            We have a device called an Ooma. We got it off of Amazon. It’s completely legal-somehow your land line is connected to the internet (I believe). The device costs about $80 and after that you pay $4 a month in taxes. Period. So my phone bill is $4 a month. I have no idea about being able to call 911-i’ve never tried. Also, we were able to keep our original number. We had a regular land line when we moved in 8 yrs ago, switched to vonage and now the ooma-have had the same number throughout.

          • Melanie
            on October 3, 2013 at 4:51 pm said:

            Another thing to consider is how rural you are and what the different phone company ranges are. (I live rurally.) My friend used Vonage and Ooma and I remember she had some issues with them breaking out (I think she liked one more than the other but I don’t remember which). We used to have Net10 here, but the phone companies changed coverage ranges or something…I went to buy a Net10 phone and was told I could get one at the store next door, so I went ahead and bought $45 worth of Net10 minutes…then went to find out that they don’t sell Net10 phones here anymore because they don’t have coverage here. Aaaand they wouldn’t let me return my minutes card. 🙁

  5. Joy | Frock Files
    on October 1, 2013 at 12:22 pm said:

    Great, comprehensive advice, Janae! I’m totally on board with cutting things like cable and an extra car out. When I moved in with James we cut the cable, though we do subscribe to Hulu. Our bill went from $100/mo to $10/mo. He also had cleaning people coming every couple of weeks, which I put an end to. That was at least $200/mo! Since we have to fly to Hawaii each year to spend the holidays with my family, we use all the money we saved — and to be honest, it’s relatively painless to give up cable and house cleaning. I don’t really love strangers in my house anyway. 🙂

    • Janae Wise
      on October 1, 2013 at 12:29 pm said:

      Isn’t it amazing how little choices can add up? Little cuts in the budget really do add up in the long-run, just as a little overspending here & there does add up too.

      & I’m with you–I don’t like complete strangers in my house either. But I once had a babysitter who was a housecleaner as well & she always cleaned our house when she watched my kids & it was a beautiful thing.

  6. bitt
    on October 1, 2013 at 10:52 am said:

    The problem I’ve run into with trying to find a cheaper place to rent is usually that those places are run down or in a terrible area. Even in a small town, good places to rent are not easy to find. Living in a bad apartment (moldy or other issues) can only lead to health issues which is terrible for finances long term!

    • Janae Wise
      on October 1, 2013 at 11:01 am said:

      Good point! You do have to consider your safety & health. Although, I’m of course not suggesting living in an moldy apartment or in a drug-infested apartment complex. My point is, her housing costs need to be reduced, & I know they can be. 42% of your income isn’t a good ratio (& she’s actually making decent money, not a lot) by anyone’s standards. I’m confident they can find a smaller place for less rent that won’t compromise their safety or health & in the process save a LOT of money. Even if it’s just a few hundred bucks, that adds up to over a few thousand dollars in a years time.

      And finding a place to rent can be tricky, but she lives in a college town where I’m sure there are plenty of places to rent. I know it’s nearly impossible to find a decent place to rent in my home town in WA state, but it’s a small, rural community.

      Thanks for the insight!

  7. Erica { EricaDHouse.com }
    on October 1, 2013 at 6:55 am said:

    Great advice! My parents shared one car until I was in 3rd grade. I still remember having to wake up early when Mom had to drive Dad to work before we were dropped off at school. It was rough – but one of the reasons why Mom was able to stay home with us instead of working.

    • Janae Wise
      on October 1, 2013 at 11:03 am said:

      The one-car family seems to be something many people can’t fathom, but as you point out, it can be done (& I think used to be much more of the norm)! Sounds like you had great parents 🙂