My fiance and I have a newborn baby, and I want to dedicate everything I can to making our lives better financially. I currently make roughly $65K at my company. My fiance works at the same company, and she makes roughly $85K. I invest 10 percent into my 401k and she invests 8 percent with each paycheck. Cumulatively, we have under $8,000 in credit card debt.
We continue to live paycheck by paycheck and can’t seem to get ahead of the game. Every time I save a few hundred, I end up spending it on a bill. We talk all the time about how to manage our money better and we try new things, but we still can’t seem to get what we want. Because of the baby, we moved out of our one bedroom condo and into a two bedroom. We’re renting out our old place so that’s still property that we own. I know there’s a solution there, but I can’t place my finger on it … Should I get a second job or a job that pays more? –
Question: What could be a more motivating event to settle your money issues than having a baby?
Answer: Not much.
A tiny being is wholly dependent on you and your soon-to-be wife for everything, and it’s your responsibility to make sure he or she is safe and secure. I have no doubt that you can do that financially — and here’s how.
The two of you earn $150,000 annually, not including the rental income. In most parts of the country, that’s considered a hefty sum, so you have a lot to work with. Still, you’re spending more than you make and are putting the deficit on your credit cards.
To solve this problem, figure out how much each of you takes home on a monthly basis — after all taxes, deductions and retirement contributions are taken out. At this stage, I’d rather you keep adding money to your
401(k) and what I presume is an IRA. Those contributions reduce your taxable income and investing in your later years long in advance makes sense.
Next comes expenses. You have a whole lot of new baby gear to buy. Or … well, not buy. Trust me on this — you don’t need half of what many salespeople and experts say you do. Purchase prudently, especially if you’re employing a caregiver to look after baby. Their costs can strain most budgets.
List everything you spend your money on in a month. Be conservative. For example, if you think the grocery bill is $500, bump it up to $550. Better to overestimate than underestimate. Also add in a slush fund of a few hundred bucks for the things you need to buy that you can’t predict. Deposit it into a savings account that you can dip into instead of charging.
And on the subject of charging and debt, I want you to pay that
credit card balance off in one year. To do that, you’ll have to send $730 every month (assuming a 17 percent interest rate). Add that figure to your expenses. Now, tuck the card away and don’t use it until the balance is zero.
Subtract the total of your expenses from your income. The number you end up with will either be positive or negative. If it’s the latter, reduce or cut out anything unnecessary. If you must lengthen the debt payoff time to close the gap, figure out how much you can send each month, and don’t waver from it.
Still fall short? Consider that second job option, though I hope you can make it without having to go that route. A higher paying job that leaves you time for your family would be best.
Finally comes mutual commitment. As new parents, you must come together to discuss the importance of staying on track. Check your bank balances weekly and confer with each other about spending and
saving. You can do this Jim. You have the means, now make it the will.