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Question for the Money Doctors

Question submitted on Oct 25, 2011.

Question

This is my first time doing this, but I really need help. I am a 33 year old married male with three young children. I currently work at the Department of Veterans Affairs. My wife runs a small business from our home. Here is a look at our financials for the past few years

- Son Born in 2004
- Daughter Born in 2006
- 2nd Daughter Born in 2008
- Declared Bankruptcy in 2008
- Gave house back to bank in 2010 (still on the Bankruptcy)
- Lost my job in 2010
- Had two major car accidents in which the cars were totaled and I had to purchase new ones in 2010 ($1500) and beginning of 2011 ($3000)
- Currently have three payday loans (amounting to $2400) and one long term loan ($1000 plus interest)
- Credit Card debt ($2000)
- Rent ($875)
- Car payment ($450)
- Cable ($209)
- Electricity ($100)
- Water ($75)
- Gas ($100)
- Car Gas ($200)
- Preschool ($139)
- Food ($400)
- Misc ($300)

My hourly rate is $20.41 and work 40 hours with some overtime, lates and call coverage.

My question is, how do I get out of this downward spiral and how do I start saving? I am tired of telling my kids that I do not have money to do this or that.

Answer

I've always said financial planning for a millionaire is easy, but financial planning for a young family without the assets of a millionaire tests your abilities. 

You didn't mention how much money your wife earns from her at-home business, but I would imagine it is limited and discretionary.  You also said you lost your job but later you said you make $20.41 per hour so I will presume you found another job.

Your debt is not overwhelming and remains manageable, but you have to be careful not to extend yourself any further.  Your salary slightly exceeds your expenses, before debt reduction, which implies you remain within your means.  Your expenses are ordinary and necessary which means they cannot be trimmed or eliminated without undue duress.

Barring winning the lottery or the passing of a long lost aunt worth millions, there is not much that can be done.  Because your debt is under control, there is no debt consolidation program that will help.  Because your income is essentially fixed and your expenses are normal, recurring expense, there can be no recommendations that you cut your expenses to save money.  You need your cars for transportation, utilities must be paid, etc.  If your wife decided to enter the workforce, your cost of child care would spiral up and the end advantage may be slight.

I'm not certain what your educational level is or your skill level so I cannot recommend changing jobs.  Perhaps looking for another career is a possibility based on your age.  The government should provide some educational benefit if you wanted to change your occupation.

I wish you luck, but there is no magic.  As long as you get cost of living increases in your salary you should be able to cover your expenses providing you continue to manage your spending. 


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