Author Topic: Case Study - Hair on Fire and all I've got is a Squirt Gun  (Read 5219 times)

Habilis

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Situation: Late 30s, in the middle of a mostly amicable divorce, 2 kids. Likely filing next year as HoH with 1 dependent. Iím living paycheck to paycheck, not able to pay down debt, sometimes whittling away at savings. I realize my hair is on fire and my debt is an emergency, thatís why Iím here. Looking for ideas, help, support in making changes to pay down debt.

Have a well-paying full-time job, also a side business in outdoor group/individual fitness coaching which has good potential but I havenít been feeding it. It needs marketing most of all, and with focus on divorce I have not prioritized this. I think it could contribute $300-500/mo quickly, and $1000/mo or more within 1 year.

Side Business
Expenses (monthly)
Web hosting $13.75
Insurance $14
Software $45

Income
$35 (one monthly subscription client)

Balance Sheet
Assets
Cash $3100
Savings $3860

Investments
Rollover IRA $112k
Roth IRA $39k
401k $157k (will be divided in divorce)

Liabilities
Loans
Personal Loan $6750, 0%, $100/mo
401k Loan, $22,790, 4.25%, $915/mo (will be divided in divorce)

Credit Cards
Joint Mastercard $25,202, 0% (expires 01/2016), $385/mo (will be divided in divorce)
Joint AMEX $3605, 16.24%, $145/mo (will be divided in divorce)
Personal Mastercard $9,900, 10.90%, $155/mo

Income Statement
Income
Gross Income: $13,200 (all numbers are monthly)

Pretax:
Flex Spending Acct/Dependent Care Spending Acct: $650
Medical Insurance: $550
Life Insurance: $75
Special Accident Insurance: $50 (plan to eliminate at next open enrollment)
Spousal Support: $2011 (temporary so final may be different)

Taxes:
Federal $1447
Medicare $174
SS $744
State $660
State SS $108

After Tax Expenses
Child Support: $2180 (temporary so final may be different)

Debt:
401k Loan: $915 (rolled over credit card debt)
Credit Cards Min Payments: $785

Rent: $1600 (this is a pretty good deal in my town, 1BR places range from $1200-2300)
Electricity: $30 (my only utility)
Internet: $35
Cell: $10 (airvoice)

Daycare: $325 (takes into account benefit of DCSA)
Gas: $175, about 225 mi per month, some is driving to 100mi round trip to airport which is reimbursed at $.47/mi so Iím making money when I do this. I live 3mi from work and I have biked to work a lot in the past, not so much now so that is an opportunity.

Groceries: $150, Iíve been eating out more since becoming single, plan to get back to cooking so this is lower and I expect it to go up to $250-300. Some of the expense is local/organic which is non-negotiable, but there are lots of ways to make this affordable by choosing what to cook, eating seasonally.

Dining Out: $200 some of this is managing workload/stress/overwhelm during divorce, as things settle out I will transition more to cooking since this is what I prefer for health and savings reasons.

Entertainment: $13, Netflix and Pandora. Plan to increase this going to more live shows, dance events, classes, etc. This was sorely missing in my marriage so this is a priority for me. That said, these things donít need to be expense, choosing an event that is $10 vs. $70 for example.

Clothes/Shoes/Drycleaning/Gifts/Other: $20 quite low, shop at discount stores and thrift stores, dryclean work clothes every 8 weeks, minimal gifts. Will track this to see what is actually happening in the future.

Irregular expenses: $135 car registration, smog, tires, daycare annual fees, Amazon Prime, Carbonite, VPN

Transportation
Car 18mpg about 225mi/wk average, distance to work is 3mi and have biked to work regularly in the past, not in last 3 months, so that is an obvious one to resume.


Specific Questions:
1. Do you agree that paying down debt should be my #1 financial priority?
2. If so, I see a combination of increasing income from the side business and reducing expenses as the way.
3. Looking for face punches in both of these areas, so bring it on.

THANK YOU!

Habilis


« Last Edit: May 20, 2015, 08:38:38 PM by Habilis »

rmendpara

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Re: Case Study - Hair on Fire and all I've got is a Squirt Gun
« Reply #1 on: May 20, 2015, 08:53:05 PM »
So by my calculation, after all the pre-tax expenses, taxes, and chile support, you have net cash income of 4.5k.

Then, after all your own living expenses which total 4.3k, you basically have $200 left. I'm assuming some random expenses creep up, and you are basically breaking even, or have a few hundred extra at best.

Dude, you're deep up the creek!

It's time to find a cheap living situation and get those debts paid off. The personal loan, 401k loan, credit cards are the 1, 2, 3 punch! They just drain your cash.

Specific answers.
1. Yes. You make good money, but are basically living paycheck to paycheck. Fortunately, you have some saved up for retirement, but even that isn't all that great and will be cut further.
2. Increase income, but find if you can cut expenses to help pay things down over the next few years.

It's no secret that you can go crazy nutty frugal and cut everything but basic food/water/shelter, so it's up to you how badly you want to pay off your debts and in what period of time. That's up to you.

MDM

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Re: Case Study - Hair on Fire and all I've got is a Squirt Gun
« Reply #2 on: May 20, 2015, 08:58:26 PM »

Specific Questions:
1. Do you agree that paying down debt should be my #1 financial priority?
At those interest rates, yes.

See http://www.vertex42.com/Calculators/debt-reduction-calculator.html if you don't have something similar already for planning pay down.

Habilis

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Re: Case Study - Hair on Fire and all I've got is a Squirt Gun
« Reply #3 on: May 21, 2015, 11:21:47 AM »
So by my calculation, after all the pre-tax expenses, taxes, and chile support, you have net cash income of 4.5k.

Then, after all your own living expenses which total 4.3k, you basically have $200 left. I'm assuming some random expenses creep up, and you are basically breaking even, or have a few hundred extra at best.

Dude, you're deep up the creek!

It's time to find a cheap living situation and get those debts paid off. The personal loan, 401k loan, credit cards are the 1, 2, 3 punch! They just drain your cash.

Specific answers.
1. Yes. You make good money, but are basically living paycheck to paycheck. Fortunately, you have some saved up for retirement, but even that isn't all that great and will be cut further.
2. Increase income, but find if you can cut expenses to help pay things down over the next few years.

It's no secret that you can go crazy nutty frugal and cut everything but basic food/water/shelter, so it's up to you how badly you want to pay off your debts and in what period of time. That's up to you.

Your summary calculations are exactly right. I will add those into the post.

As far as increasing income the actions there are:
1. Put up flyers
2. Talk to advisors about ways to increase cashflow immediately
3. Keep up healthy behaviors (sleep, healthy eating, meditation, walking/exercise, socializing, journaling, gratefulness) so that I have energy and will to act on the advice of advisors.

As far as cutting expenses, where do you see the fattest areas to focus my attention?

Thank you,

mm1970

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Re: Case Study - Hair on Fire and all I've got is a Squirt Gun
« Reply #4 on: May 21, 2015, 11:42:29 AM »
So by my calculation, after all the pre-tax expenses, taxes, and chile support, you have net cash income of 4.5k.

Then, after all your own living expenses which total 4.3k, you basically have $200 left. I'm assuming some random expenses creep up, and you are basically breaking even, or have a few hundred extra at best.

Dude, you're deep up the creek!

It's time to find a cheap living situation and get those debts paid off. The personal loan, 401k loan, credit cards are the 1, 2, 3 punch! They just drain your cash.

Specific answers.
1. Yes. You make good money, but are basically living paycheck to paycheck. Fortunately, you have some saved up for retirement, but even that isn't all that great and will be cut further.
2. Increase income, but find if you can cut expenses to help pay things down over the next few years.

It's no secret that you can go crazy nutty frugal and cut everything but basic food/water/shelter, so it's up to you how badly you want to pay off your debts and in what period of time. That's up to you.

Your summary calculations are exactly right. I will add those into the post.

As far as increasing income the actions there are:
1. Put up flyers
2. Talk to advisors about ways to increase cashflow immediately
3. Keep up healthy behaviors (sleep, healthy eating, meditation, walking/exercise, socializing, journaling, gratefulness) so that I have energy and will to act on the advice of advisors.

As far as cutting expenses, where do you see the fattest areas to focus my attention?


Thank you,

Emphasis mine.
Rent.

"Good deal" or not, you cannot afford this and pay off debt.  If you are in a 1BR, look for a studio.  Consider shared housing.  Hard with kids, I know, but you might find another divorced parent to rent a house with.

4alpacas

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Re: Case Study - Hair on Fire and all I've got is a Squirt Gun
« Reply #5 on: May 21, 2015, 11:48:47 AM »
As far as cutting expenses, where do you see the fattest areas to focus my attention?
To make any real progress, you need to attack your biggest issues--rent and dining out.  After you're done paying off your debt, you'll have a lot more breathing room. 

Mother Fussbudget

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Re: Case Study - Hair on Fire and all I've got is a Squirt Gun
« Reply #6 on: May 21, 2015, 01:20:32 PM »
Work with your Ex on dividing those joint credit card balances NOW. 
Use this as an opportunity to get a good individual credit card (or 3) with good sign-up, and category bonuses.  Then transfer balances at a low or 0% rate for whatever the new card's introductory 'transfer' period is.

Later, you'll both thank yourselves for being up-front with the balances.  Ex-spouse should be paying their half-of-those balances, and you should be paying yours.  Neither of you should be worrying about the total of 'joint debt'.

shotgunwilly

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Re: Case Study - Hair on Fire and all I've got is a Squirt Gun
« Reply #7 on: May 21, 2015, 02:23:32 PM »
Best thing you could do is withdraw from your Roth IRA (contributions can be withdrawn anytime) and pay off your credit card debt.

Habilis

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Re: Case Study - Hair on Fire and all I've got is a Squirt Gun
« Reply #8 on: May 22, 2015, 06:32:21 AM »
Best thing you could do is withdraw from your Roth IRA (contributions can be withdrawn anytime) and pay off your credit card debt.

I will look into the rewards credit cards, definitely an opportunity.

I like the Roth idea a lot, did not have this in mind. Just want to make sure the debt I'm paying off is mine, I can work with my lawyer on this. Divorce should be finalized in Aug or Sep so at this point I'll know for sure what is mine.

I also feel she should be paying her fair share but she has no income, lawyer said this makes it very hard to argue she can pay, so another priority is doing what I can to get her bringing in income.

Thank you for the help, please keep the ideas coming.

MDM

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Re: Case Study - Hair on Fire and all I've got is a Squirt Gun
« Reply #9 on: May 22, 2015, 12:06:14 PM »
Best thing you could do is withdraw from your Roth IRA (contributions can be withdrawn anytime) and pay off your credit card debt.
I like the Roth idea a lot, did not have this in mind.
The debt is expensive, but giving up tax free compounding on the $30K in your Roth will also be expensive.  Look before you leap....

uniFI

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Re: Case Study - Hair on Fire and all I've got is a Squirt Gun
« Reply #10 on: May 22, 2015, 02:03:13 PM »

Best thing you could do is withdraw from your Roth IRA (contributions can be withdrawn anytime) and pay off your credit card debt.
I like the Roth idea a lot, did not have this in mind.
The debt is expensive, but giving up tax free compounding on the $30K in your Roth will also be expensive.  Look before you leap....

I'm interested in seeing that trade myself.  Seems heavily dependent on the card payoff period assumption, which right now is unknown to infinite.  My gut says the card interest will eat you alive.

Run a couple scenarios and let's see the trade.