Reader Question: Debt & Budgeting Priorities

by Mike on March 9, 2011

I received the following email the other day. Here is the email below and my reply. What other stories / advice can you offer this reader. I asked her to check back here for more info from this great community!

I am currently taking the Dave Ramsey Financial Peace University class that is being offered by FREE by my employer. At first I was excited but now it seems I have just fallen off. Since I have been taking the class I gotten a tax refund and money from a car accident. I didn’t do the things I was suppose to, not even start the $1000 emergency fund. However, I did pay off a few bills.

I feel that I just wasted the money. Let me add that I didn’t go out and splurge on things like new cars and flatscreen TVs. I didn’t by anything come to think of it, but we did eat out more than we usually do but surely all of the money didn’t go to eating out. I was also going to ask what do you think of this.

My husband hurt his back and has been out of work for a year. My job alone can’t pay our normal household bills not to mention excess bills. I just got a part time job and if I take my entire check from my full time job it can pay all the bills and the part time we can use or gas, food, etc. What do you think?

– Sandra

My reply:

First I’d like to thank Sandra for reaching out and allowing me to publish her question and my response. There are other readers who may have a similar situation and hopefully the responses from the community will be a benefit to others!

I see 3 issues and I’ll attempt to address each of them:

1. Financial Peace University ~ Don’t beat yourself up for not completing this. I am a HUGE advocate of FPU and while it is a proven way to financial stability it is not the only way. Dave Ramsey says that when it comes to finances it is 80% behavior and 20% head knowledge. Ask yourself “why” you didn’t complete this task and address that.

2. It’s good that you paid off a few bills. However you probably feel you’ve wasted it because you can’t account for a good chunk of it. You’d be surprised how fast money flies when you are eating out. Whatever your plan of attack, YOU NEED AN EMERGENCY FUND. I can’t stress the importance of this enough. If $1,000 is out of reach right now, set a goal of $500. Practice saving!

3. I’m sorry to hear about your husband’s back injury. It can be a drastic change to go from 2 incomes to 1. I think your part-time job solution is a decent short term solution, but you need to think long term. You need to immediately increase your cash flow. A part-time job will do that, but how long do you think you can sustain 60 hr work weeks? Are there expenses you can cut / decrease? Cable? Cell phone plans? Insurance premiums?

Hope this helps!

Readers, it’s your turn! What advice can you offer Sandra? Leave your responses in the comments!

{ 9 comments… read them below or add one }

1 ross July 6, 2011 at 6:31 pm

I like to track my expenses in a spreadsheet i use for Mac called numbers. It’s really easy to use and if you are in a little trouble, since your husband is out of work, it should really help you out.
It’s not a good feeling when things are tight and you don’t know where the money is going to come from to pay all your bills at the end of the month. I’ve been there also;)
.-= ross´s last blog ..What is a CD (Certificate of Deposit)? =-.

2 Fred April 15, 2011 at 11:43 pm

Personally, I think emergency funds are counterproductive for people fighting large debt. What sense does it make to have $1000 sitting in your savings account earning practically nothing while you have credit card debt producing huge interest at alarming rates? You *might* have an emergency and have to go more into credit card debt, but it is a mathematical certainty that you are losing money every month that you don’t pay the max on your debts. Put the $1000 toward debt and use a credit card for the emergencies.

3 Pam Sheraton March 24, 2011 at 7:59 am

I can completely relate to your situation. In my opinion, the fact that you managed to pay some of the bills instead of splashing the money on unnecessary things clearly demonstrates that you have the determination to improve your financial situation.

The problem that you are facing is that you cannot track where all your money is going and now you have even started losing hope and trust in yourself and this is not the appropriate attitude. What I can suggest is that, you need to set achievable goals, start low, then gradually take things to higher levels. Like start by saving $250, and you will gradually build up the confidence that you can definitely save more than that.

4 Ben Brown March 20, 2011 at 5:43 pm

Here’s something that worked for me. You mentioned that you eat out sometimes, let’s assume that you normally spend $25 on food whenever you go out. Just take $25 every two days and hide it somewhere or simply put it in a big box and pretend like you used this money to buy food and you cannot recover it back! If you have the discipline to do that, trust me you will save a lot. My husband and myself we did that for almost 3 months now, every time we set money aside we say to ourself that here’s the money we should have spent on McDo’s or fancy restaurants! And we never touch the money again… both of you need to work towards this goal.

5 LaTisha @FSYAonline March 17, 2011 at 11:59 pm

Save 10% of your income even when it hurts. You will be surprised at how quickly it adds up. And it will help you find ways to save money other places.

6 Sandra March 10, 2011 at 10:11 am

When people advise you to pay down debt do they mean just pay down things you are current on such as car payments, credit cards, etc. What about things that are on your credit report such as charged off accounts or things in collections

7 PF Journey March 9, 2011 at 10:20 am

Great observations Pete! What would you suggest for tracking? I’m a fan on Mint, or other online software. Some use the Mvelope system, which can be as effective. Actually, any system can be effective as long as it is used consistently.

8 Pete March 9, 2011 at 9:56 am

To me it sounds like the reader doesn’t completely know where the money went to. To me that’s an indication that the money isn’t really being tracked – which is a big mistake if you’re in dire financial circumstances brought on by things like a medical situation – like this. My advice would be to start tracking – everything. If you buy something, track it. If you earn something, track it. Do a zero based budget – like talked about in FPU – and give every dollar a name, and a job.

Also, this speaks to the importance of having an emergency fund, and to having insurance for long term disability – for when things happen where you can’t work.

Best of luck!

9 Sandra March 9, 2011 at 11:01 am

I have start to track things and am using the envelope system that came with the course material, I do think my problem with the tax money is that I didn’t have. Any leftover because I really wanted to start my emergency fund btt at the tme I wasn’t tracking expenses, but thanks so much for ythe I also add that my working in the medical field and being the only one working is a great reason to start the longterm disability.

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