Author Topic: Case Study: save my SpendyFriend from ruin  (Read 6967 times)

frugalfoothills

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Case Study: save my SpendyFriend from ruin
« on: August 02, 2018, 01:33:24 PM »
Hello, Mustachians! Here’s a case study to test your brains AND your resolve.

Some of you may remember a depressing (for me) thread from about a year ago about my roommate & close friend, whose finances are a certifiable Dumpster Fire. I am happy to report that she has been doing a great job this year of paying her rent in full and on time each month!

Not shockingly, it seems that the method she has employed in order to make her rent payments has been to simply NOT pay on various other things she owes. She has recently had an epiphany and realizes that her situation is not sustainable (understatement), and that she is most definitely headed for disaster if something does not change ASAP. She has asked me for help. I have agreed on the condition that I continue to receive rent on-time and in full each month, regardless of how dire these straits are. Turns out, they’re pretty dire.

Annual take-home pay: $40,776
Monthly take-home pay: $3,398
Take-home pay per paycheck: $1,699

She does contribute $71 per month to an IRA. These are her only savings. Unsure what the balance is, but she mentioned once that there is enough money in it that she “could cash it out and pay off all her credit card debt.” I told her that’s a bad idea, but that was before I witnessed the below…

Monthly expenses:
•   Rent: $400
•   Auto Insurance: $143
•   Vision (contacts): $30
•   Verizon: $143
•   Rent the Runway: $94 (this is a clothes rental subscription… wish I was joking)
•   Apple Music: $10
•   AmazonPrime: $14
•   Groceries/food: $400 (see note below)
•   Gas: $120 (see note below)
•   Entertainment: $400 (see note below)
TOTAL: $1,754

Debt:
•   Student loans: $272/month
              Unsure of full balance but close to 6 figures…
•   Auto loan: $543/month @ 6.99%
              2015 Toyota Tundra (not kidding)
              Balance owed is $28,317
•   CC #1 (First Financial): $246/month
              Balance owed is $8,692
              Credit limit is $8,300
              Over limit by $392 & on forced payment plan
•   CC #2 (American Express): $50/month
              Balance owed is $1,897
              Credit limit is $1,000
              Over limit by $897 & on forced payment plan
•   CC #3 (Fifth Third Bank): $50/month
              Balance owed is around $1,500
              Credit limit is $1,000
              Over limit by $500
•   CC #4 (Capital One): $100/month
              Balance owed is $1,683
              Credit limit is $1,000
              Over limit by $683
•   CC #5 (Discover): $34/month
              Balance owed is $1,197
              Credit limit is $1,200
              Under limit by $3.00
TOTAL (in minimum payments): $1,295

TOTAL MONTHLY EXPENSES: $3,049
TOTAL MONTHLY TAKE-HOME: $3,398
DELTA: $349

Notes: I have listed food and entertainment spending at $400/month each, when in reality I believe it has historically been much higher than this. She is starting to track her spending (has NEVER tracked before) and in the past 2 days since she was paid, she has already managed to spend over $80 on eating out, shopping, etc. I’m listing $400.00 for each for now as I think this is a temporarily realistic goal for her to aim for while she tracks more precisely. I’m hoping that confronting the horror of her situation will be motivation for her to slash spending aggressively, but who knows.

So, friends. There you have it. The truck is obviously the most egregious offense here, but as of now, it’s a complete non-negotiable for her. I’m going to attempt to get her to drop the Rent the Runway subscription along with her Apple Music and Amazon, and look into cutting her cell phone bill. There isn’t a ton of flexibility here since she’s on payment plans for 4 of the 5 cards to get her under the credit limits, but some thoughts I’ve had:

1.   Look into opening a card and transferring one (or more) of the smaller balances – problem: her credit score is probably terrible so that might not work
2.   Turn off IRA contributions for now to free up cash flow and direct toward smaller balances – problem: it’s only $71
3.   Have her cut up all her cards and go full-on cash envelope strategy for spending

The goals she has laid out to me so far are as follows:
1.   Pay all minimums on time every month without skipping/missing payments
2.     Get back under credit limits on all cards
3.   Pay for a trip she’s taking to Orlando in November without using credit (not like she has any to use, anyway)

My goals for her are:
1.   Pay all minimums on time every month without skipping/missing payments (she can EASILY do this with a little discipline and schedule)
2.   Save enough cash for her trip in November (she will find a way to go whether she can truly afford it or not, so at least get her to pay for it with cash savings)
3.   Build an emergency fund
4.   Get her on the Dave Ramsey debt snowball path

Fire away, all. Is this a lost cause? Should she actually consider dipping into her IRA to pull herself out of this situation? I should mention, she is only 30, so (hopefully) plenty of life ahead of her. The path she is on is certainly headed for charge-offs, bankruptcy, or worse. The only reason she has avoided complete destruction is that she has very few living expenses living with me.

MrsDinero

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Re: Case Study: save my SpendyFriend from ruin
« Reply #1 on: August 02, 2018, 01:38:40 PM »
You can't save someone from ruin, you can't change someones behavior. They have the save themselves and change their behavior.  Have her create a login on here, read some articles and post her own case study. 

frugalfoothills

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Re: Case Study: save my SpendyFriend from ruin
« Reply #2 on: August 02, 2018, 01:52:53 PM »
You can't save someone from ruin, you can't change someones behavior. They have the save themselves and change their behavior.  Have her create a login on here, read some articles and post her own case study.

Totally agree, and know it will be up to her to ultimately change her behavior to fully right the ship, but she has asked me for help and hopefully that is a step in the right direction. Until 2 days ago she didn't even have a list of expenses and debts.

kei te pai

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Re: Case Study: save my SpendyFriend from ruin
« Reply #3 on: August 02, 2018, 02:07:42 PM »
If you can take this one step at a time, and keep YOUR emotional distance, go for it.
I would ask her to track all spending in detail and review it together every couple of days.
If there are yes buts, step away.
If it goes ok, then get her to target specific areas to reduce spending in the next week.
She has identified goals, now she needs to identify the steps to get there.
If there is pushback and you start to feel like the grumpy parent step aside.
Best wishes, you are a good friend.

frugalfoothills

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Re: Case Study: save my SpendyFriend from ruin
« Reply #4 on: August 02, 2018, 02:16:56 PM »
If you can take this one step at a time, and keep YOUR emotional distance, go for it.
I would ask her to track all spending in detail and review it together every couple of days.
If there are yes buts, step away.
If it goes ok, then get her to target specific areas to reduce spending in the next week.
She has identified goals, now she needs to identify the steps to get there.
If there is pushback and you start to feel like the grumpy parent step aside.
Best wishes, you are a good friend.

SO important here. I am happy to give advice, it will be up to her whether she chooses to take it or not. I will have to watch to make sure I don't get too invested in her success or failure... invested beyond continuing to be paid rent, at least. :)

CalBal

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Re: Case Study: save my SpendyFriend from ruin
« Reply #5 on: August 02, 2018, 02:55:42 PM »
So when I read that all I could think was OMG. If I was in her shoes (which I never have been thankfully!) I would look at these numbers and think it was a complete lost cause, why even bother. HOWEVER, I agree with MrsDinero, have her create an account here and THEN I think you should deliberately point her to those journals of other people on this forum who have come back from the brink of similarly dire-looking situations. I know there are some, and their stories are inspirational! If she sees it is possible, and sees all the support on the forum, maybe it will give her the motivation she will surely need.

for-profit noodle

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Re: Case Study: save my SpendyFriend from ruin
« Reply #6 on: August 02, 2018, 02:59:19 PM »
It has to get more specifically bad before it gets better. What are her avenues for entertainment? If I fill my life with inexpensive/free activities, I do not have time to spend money. Can she start a movie & potluck night with a group of friends? Can she host a clothing swap if she craves novelty in her wardrobe and ditch Rent the Runway? If I was her, I'd be freaked by how dire this is and shut down, thinking it is impossible to change because it is overwhelming and hard to break habits. So small solutions and substitutions are key, and that can be where your creativity and access to this forum can help her (I agree that she should join too). Maybe each week she can tackle one line item at a time. I'd start with groceries. Can she meal plan for $25/week? Just one week!

As for the IRA contribution, I think she's losing more $ paying all of that debt interest than she'd be gaining by saving it. I'd pause it for now until the payment plans are met.

fuzzy math

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Re: Case Study: save my SpendyFriend from ruin
« Reply #7 on: August 02, 2018, 03:04:07 PM »
Reading that makes my palms sweat (like watching sky diving videos).

Under no circumstances will another credit card company grant her a new card. She is going to have to figure out how to pay her balances because she can't get more credit. That leads her back to either not paying you, or having to dramatically change her behaviors.

The truck is the biggest piece of the puzzle. Dumping that payment would lower her auto insurance, gas etc. The main issue is that she can't get another vehicle loan and she lacks the cash to get another vehicle. Until she is willing to deal with that she is just going to be making extra $20 payments here and there for 20 years. There simply isn't a way to get a debt snowball going and she's one flat tire away from being over her credit limit again. Is she willing to seek out other employment either as a primary job or a side gig?


frugalfoothills

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Re: Case Study: save my SpendyFriend from ruin
« Reply #8 on: August 02, 2018, 03:14:34 PM »
It has to get more specifically bad before it gets better. What are her avenues for entertainment? If I fill my life with inexpensive/free activities, I do not have time to spend money. Can she start a movie & potluck night with a group of friends? Can she host a clothing swap if she craves novelty in her wardrobe and ditch Rent the Runway? If I was her, I'd be freaked by how dire this is and shut down, thinking it is impossible to change because it is overwhelming and hard to break habits. So small solutions and substitutions are key, and that can be where your creativity and access to this forum can help her (I agree that she should join too). Maybe each week she can tackle one line item at a time. I'd start with groceries. Can she meal plan for $25/week? Just one week!

As for the IRA contribution, I think she's losing more $ paying all of that debt interest than she'd be gaining by saving it. I'd pause it for now until the payment plans are met.

Let's be serious, she CAN do any and all of the above. Whether she WILL remains to be seen ;)

She has already mentioned to me that she should "maybe cancel Rent the Runway," so I think that is definitely on the chopping block. The plan I've made for her has her saving $300/month in cash (to build an emergency fund and HOPEFULLY pay for this stupid Orlando trip), so I'd have her route that $94 to one of her cards. The fact that she is over the limit on basically ALL OF THEM blows my mind... I can't believe they haven't charged off yet. I'm sure her credit score is dreadful, but a charge-off event is very hard to come back from.

I think I agree on the suspending the IRA contributions. I'm honestly wondering whether it would be worth her actually pulling money OUT of there to at least get her underneath her credit limits, tax & lost growth be damned. I'm worried in the time that it takes her to adjust to new lifestyle changes, learn to track her spending, etc. she's going to end up having a card charge-off and get sent to collections.

CrustyBadger

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Re: Case Study: save my SpendyFriend from ruin
« Reply #9 on: August 02, 2018, 03:18:03 PM »
I see she is paying for Amazon Prime?

I encourage you to suggest to her that before you offer any advice, that she (and you together?) watch (at least) the first two seasons of Till Debt Do Us Part.

https://www.amazon.com/Drowning-In-Debt/dp/B075LRZ8RV/ref=sr_1_1?s=instant-video&ie=UTF8&qid=1533244567&sr=1-1&keywords=till+debt+do+us+part

It is very motivating!   

MrsDinero

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Re: Case Study: save my SpendyFriend from ruin
« Reply #10 on: August 02, 2018, 03:20:08 PM »
Ok I'll ask. What IS this Orlando trip that she is going on?


frugalfoothills

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Re: Case Study: save my SpendyFriend from ruin
« Reply #11 on: August 02, 2018, 03:22:03 PM »
Reading that makes my palms sweat (like watching sky diving videos).

Under no circumstances will another credit card company grant her a new card. She is going to have to figure out how to pay her balances because she can't get more credit. That leads her back to either not paying you, or having to dramatically change her behaviors.

The truck is the biggest piece of the puzzle. Dumping that payment would lower her auto insurance, gas etc. The main issue is that she can't get another vehicle loan and she lacks the cash to get another vehicle. Until she is willing to deal with that she is just going to be making extra $20 payments here and there for 20 years. There simply isn't a way to get a debt snowball going and she's one flat tire away from being over her credit limit again. Is she willing to seek out other employment either as a primary job or a side gig?

Speaking of tires, she mentioned that she needs new ones. Wants off-roaders (LOL she does not off-road... just one example of some thinking that needs reprogramming.) That is on my list of "how the fuck do you think you're going to pay for that?" questions I will be asking her when we go over all of this tonight.

The truck IS a huge issue because as you mentioned she can't get another loan and she has no cash, but also because I am fairly sure she's upside-down on it at this point. I can't believe they even gave her a loan to begin with... it was only last year when she bought it, and I don't think her debt situation was substantially different, other than maybe being inside her credit limits (but still close to maxed out.) *serious side-eye to Regions Bank*

I am going to be planting the seeds of a side-gig in her brain... I think the best option she has is to get involved with selling her clothes consignment (she's BIG into clothes, as you can tell.) There are tons of apps and she has made money doing that before when she has been very strapped for cash. She has dressers and closets full of clothes and shoes that she doesn't wear... I'm hoping she sees the potential in that. I seriously doubt she'd be willing to get a "real" part time job.

yodella

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Re: Case Study: save my SpendyFriend from ruin
« Reply #12 on: August 02, 2018, 03:22:45 PM »
I have been in her shoes, at exactly her age.

I didn't have the car loan, but I had more CC debt, some personal loans from family, and a leased car I was way behind in payments on (to the point where they attempted to repossess multiple times).

Now, six years later, I have almost $150k in savings and investments.

I have had some undeniable advantages in getting to this point so I'm not going to be all "It's easy! Anyone can do it!" However, those mostly came in the category of paying very limited rent thanks to my partner (and at $400/month she is getting a great deal living with you). I also aggressively pursued better-paying jobs.

One thing that helped me take control of the situation was doing what you've already helped her do - putting it all down on paper, in one place.

Then, I made color coded paper chains for each debt. Each chain link represented $100, and I hung them on my wall. For every $100 I paid off, I got to remove a chain link. It made it like a game, and was a very visual, daily reminder of my situation, and my progress out of that situation.

Depending on the status of her CC accounts, and her willingness to tolerate a poor credit report for awhile, she may be able to negotiate lower balances. At one point several of my credit card accounts had many missed payments, were overdue, and got sent to collection. Collection companies pay pennies on the dollar for this debt, in the hopes they'll be able to collect more from you than they paid Visa or whomever. Once that happens, it's possible to negotiate. I reduced several of my balances by 40-50%.

There is so much shame and avoidance that comes with this kind of financial situation. It feels hopeless, like you can never get ahead, like the money you earn cannot possibly make a dent and therefore, why bother? You feel inadequate. You feel like an idiot. You feel like you are just the worst, and could never possibly be good with money. It can be magnified even further when people you are close with (friends, roommates, partners) actually have their financial shit together.

For me, once I'd faced the music and put everything down on paper, and made the chains, I felt a LOT better - like I'd taken back some control of the situation. It was a slog and it took me years to pay it all off, let alone start saving. And even then, I saved in small amounts - enough in the 401(k) to get company match, a small emergency fund, etc. It wasn't until I found Mustachianism in 2016 or so that the FIRE dream took hold.

So your friend is 30 now. In 2023, she will be 35, whether or not she takes control of her debt and spending habits. So the question is, does she want to be 35 and have even more debt than she does now, with all the attendant feelings that come with it? Or does she want to be 35 and feel like a financial grown-up, with the money/power to weather a medical emergency, take a last-minute trip, or max out her IRA every January?

« Last Edit: August 02, 2018, 03:52:30 PM by yodella »

frugalfoothills

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Re: Case Study: save my SpendyFriend from ruin
« Reply #13 on: August 02, 2018, 03:24:27 PM »
Ok I'll ask. What IS this Orlando trip that she is going on?

Headed to Harry Potter World!!!! As a huge Potterhead myself, I am extremely jealous. That being said, she should one million percent cancel this trip. I have no idea how she expects to pay for it.

dandarc

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Re: Case Study: save my SpendyFriend from ruin
« Reply #14 on: August 02, 2018, 03:29:26 PM »
Mostly posting to say good luck, you can't do this for her, and so on, but some thoughts:

Basically, this is the person Dave Ramsey's material is designed for-

A textbook debt snowball situation - 4 small balances, 1 medium, 1 large (car), 1 very large (Student Loans).

As you've mentioned, the income/outgo numbers actually work with a little discipline - should be ~$300 extra every month and a relatively easy path to get that up to $600+.  Can pay off the discover in 2-4 months to get the ball rolling.

Also, this person has proven they can't handle credit. The best thing to do is to switch to a cash-based system and learn to control the spending.

Good luck!

frugalfoothills

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Re: Case Study: save my SpendyFriend from ruin
« Reply #15 on: August 02, 2018, 03:32:48 PM »
I have been in her shoes, at exactly her age.

I didn't have the car loan, but I had more CC debt, some personal loans from family, and a leased car I was way behind in payments on (to the point where they attempted to repossess multiple times).

Now, six years later, I have almost $150k in savings and investments.

I have had some undeniable advantages in getting to this point so I'm not going to be all "It's easy! Anyone can do it!" However, those mostly came in the category of paying very limited rent thanks to my partner (and at $400/month she is getting a great deal living with you). I also aggressively pursued better-paying jobs.

One thing that helped me take control of the situation was doing what you've already helped her do - putting it all down on paper, in once place.

Then, I made color coded paper chains for each debt. Each chain link represented $100, and I hung them on my wall. For every $100 I paid off, I got to remove a chain link. It made it like a game, and was a very visual, daily reminder of my situation, and my progress out of that situation.

Depending on the status of her CC accounts, and her willingness to tolerate a poor credit report for awhile, she may be able to negotiate lower balances. At one point several of my credit card accounts had many missed payments, were overdue, and got sent to collection. Collection companies pay pennies on the dollar for this debt, in the hopes they'll be able to collect more from you than they paid Visa or whomever. Once that happens, it's possible to negotiate. I reduced several of my balances by 40-50%.

There is so much shame and avoidance that comes with this kind of financial situation. It feels hopeless, like you can never get ahead, like the money you earn cannot possibly make a dent and therefore, why bother? You feel inadequate. You feel like an idiot. You feel like you are just the worst, and could never possibly be good with money. It can be magnified even further when people you are close with (friends, roommates, partners) actually have their shit financial together.

For me, once I'd faced the music and put everything down on paper, and made the chains, I felt a LOT better - like I'd taken back some control of the situation. It was a slog and it took me years to pay it all off, let alone start saving. And even then, I saved in small amounts - enough in the 401(k) to get company match, a small emergency fund, etc. It wasn't until I found Mustachianism in 2016 or so that the FIRE dream took hold.

So your friend is 30 now. In 2023, she will be 35, whether or not she takes control of her debt and spending habits. So the question is, does she want to be 35 and have even more debt than she does now, with all the attendant feelings that come with it? Or does she want to be 35 and feel like a financial grown-up, with the money/power to weather a medical emergency, take a last-minute trip, or max out her IRA every January?

This is such a motivating post, you are a BADASS! I know what you mean and relate HARD to everything you said about the emotions that come with carrying such a burden... I actually paid off all of my ($12k!!) CC debt earlier this year. That's why she has asked for my help -- and I'm hoping that will be motivation for her that she CAN do it, despite how hopeless she feels at the moment.

As her cards are still active and performing, she won't be able to negotiate a lower balance (yet). I'm actually in the collections industry (wild, right?) so I have a very, very hard time advocating for her to let them charge-off and go to collections in the hopes that she will be able to settle, especially when I feel like hope is not lost for her to right this ship before that happens. I mean, in the "budget" I listed (and "budget" I've created for her), she is still getting $400 per month in "fun money", plus keeping her stupid Rent the Runway, PLUS, driving that idiotic truck. Tons and tons of fat to trim. Advising her to let them charge-off before at least giving it a shot feels gross to me, even if it might ultimately be to her financial gain in the end. (Not saying what you did was gross... yours were already in collections, and you 100% made the right choice to settle at a lower balance! She's just not there yet.)

Totally agree that writing it all down and facing your demons is half the battle. I've struggled with my weight since she and I have lived together, and she has watched me find success only after I was forced to take accountability and start tracking the food I was shoving into my face every day.

Holy shit, maybe I'm her Weight Watchers!!

frugalfoothills

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Re: Case Study: save my SpendyFriend from ruin
« Reply #16 on: August 03, 2018, 08:26:37 AM »
SpendyFriend and I went over her numbers last night and she seemed super overwhelmed by her situation (understandable). It was very telling when, before we really even started, I pointed out that even if she stays within a very generous margin of $800 per month between food spending and entertainment she should still have a positive cash flow of $350/month, and her response was "so that means I'm spending that right now? On what?!" Yeah girl, that's the million dollar question.

I think she was surprised to see that she actually does bring home enough money each month to easily pay the minimums on all of this... something she was adamant about not being the case before.

Plan for now is to let her digest everything and come back to me with any questions. If she shows signs of progress, I might recommend that she turn off IRA contributions for now until she gets her spending and debt paydown more under control. I don't want to throw that out just yet... not until she shows that she can be trusted to divert those contributions toward debt. It's entirely possible she would turn them off and then just spend the money on other crap stuff.

CrustyBadger

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Re: Case Study: save my SpendyFriend from ruin
« Reply #17 on: August 03, 2018, 08:36:32 AM »
SpendyFriend and I went over her numbers last night and she seemed super overwhelmed by her situation (understandable). It was very telling when, before we really even started, I pointed out that even if she stays within a very generous margin of $800 per month between food spending and entertainment she should still have a positive cash flow of $350/month, and her response was "so that means I'm spending that right now? On what?!" Yeah girl, that's the million dollar question.

This was why I suggested she watch that TV show, "Till Debt do Us Part". It is a Canadian tv show where the host, Gail Vaz Oxlade, takes 6 months of a couple's expenses and analyzes it to show them what they are spending every month.  They are always so surprised!  They estimate they are spending $200 monthly on clothes but it turns out they spent on average $450.  Things like that.   She also shows them or has them calculate how much they are spending monthly on interest.  Often it is an insane amount like $500 a month!   She then puts them on a cash only spending budget (weekly cash deposited in jars) and at the end they all invariably say that was the best part of the program -- it forced them to spend only what they had. 

After you watch a few of these episodes you see how similarly the couples are in how they handled their finances -- i.e. just not thinking about what they were spending.  And by the end of the program with their new budget set up they have a plan to be out of debt within 18 months to three years and on the track to really good savings.

MrsDinero

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Re: Case Study: save my SpendyFriend from ruin
« Reply #18 on: August 03, 2018, 08:56:46 AM »
SpendyFriend and I went over her numbers last night and she seemed super overwhelmed by her situation (understandable). It was very telling when, before we really even started, I pointed out that even if she stays within a very generous margin of $800 per month between food spending and entertainment she should still have a positive cash flow of $350/month, and her response was "so that means I'm spending that right now? On what?!" Yeah girl, that's the million dollar question.

I think she was surprised to see that she actually does bring home enough money each month to easily pay the minimums on all of this... something she was adamant about not being the case before.

Plan for now is to let her digest everything and come back to me with any questions. If she shows signs of progress, I might recommend that she turn off IRA contributions for now until she gets her spending and debt paydown more under control. I don't want to throw that out just yet... not until she shows that she can be trusted to divert those contributions toward debt. It's entirely possible she would turn them off and then just spend the money on other crap stuff.

If she goes back over the last couple of months of her credit card statements, that should start to give an insight as to what she spends her money on.  If she is like I was when I was younger and so many other people I know, they use their credit card to pay for those little things when the checking account starts to run low.  Clothes, food, entertainment, etc. 

therethere

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Re: Case Study: save my SpendyFriend from ruin
« Reply #19 on: August 03, 2018, 09:48:19 AM »
Can she load her accounts into Mint? That should pull past transactions for 3-6 months I would think. This would get an idea of where it all went. Even having a "uncategorized" category would be eye opening.  How much stuff she bought she forgot about.

dcozad999

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Re: Case Study: save my SpendyFriend from ruin
« Reply #20 on: August 03, 2018, 10:40:51 AM »
Can she load her accounts into Mint? That should pull past transactions for 3-6 months I would think. This would get an idea of where it all went. Even having a "uncategorized" category would be eye opening.  How much stuff she bought she forgot about.


May be nitpicking, but these numbers are confusing me:

Annual take-home pay: $40,776
Monthly take-home pay: $3,398
Take-home pay per paycheck: $1,699


Is her 2 week take home pay $1,699? Or is her annual take home pay $40,776?

I'm guessing the biweekly pay is correct and if so you left out 2 pay periods in your annual calculation. Should be $1,699 * 26 = $44,174.



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Re: Case Study: save my SpendyFriend from ruin
« Reply #21 on: August 03, 2018, 10:54:47 AM »
SpendyFriend and I went over her numbers last night and she seemed super overwhelmed by her situation (understandable).

snip

If she shows signs of progress, I might recommend that she turn off IRA contributions for now until she gets her spending and debt paydown more under control. I don't want to throw that out just yet... not until she shows that she can be trusted to divert those contributions toward debt. It's entirely possible she would turn them off and then just spend the money on other crap stuff.

Knew she would be, I'd feel the same! Now it's baby steps time. Nothing makes me feel better about a bad thing than taking action to eliminate the bad thing, even if it's as simple as canceling a subscription ;)

As for the IRA, I think your hesitation is reasonable. If she's just going to spend it she might as well keep saving it. Best to save that baby step for later, when she's making progress on reversing old habits.

How are YOU feeling, as the helper in all of this?

dandarc

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Re: Case Study: save my SpendyFriend from ruin
« Reply #22 on: August 03, 2018, 01:17:29 PM »
Can she load her accounts into Mint? That should pull past transactions for 3-6 months I would think. This would get an idea of where it all went. Even having a "uncategorized" category would be eye opening.  How much stuff she bought she forgot about.


May be nitpicking, but these numbers are confusing me:

Annual take-home pay: $40,776
Monthly take-home pay: $3,398
Take-home pay per paycheck: $1,699


Is her 2 week take home pay $1,699? Or is her annual take home pay $40,776?

I'm guessing the biweekly pay is correct and if so you left out 2 pay periods in your annual calculation. Should be $1,699 * 26 = $44,174.
Semi-monthly (twice per month) payroll is also a thing. I'm 1099, but the company I work for now does this for employees.

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Re: Case Study: save my SpendyFriend from ruin
« Reply #23 on: August 03, 2018, 02:37:02 PM »
First off, are you sure she is ok with you putting her whole financial life out for us to see?  It is somewhat anonymous, but it's still a lot of personal info. 

Also, how willing is she going to be to accept your advice?  Us helping you is only as good as how much she will listen.  If she's eager to get your help it's going to be different than if you're pushing her. 

It's really good that she's tracking all her spending.  I think that's a big step.  I track calories too, and even when I go off the rails eating, I go less off the rails if I can make myself track it all.  I think money works the same.  (As a side note, this motivated me to track today's food.  Thanks.)

What are the interest rates on all those cards? 

You mentioned she was eating out.  If you aren't already, maybe the two of you could start cooking and eating together.  Get some containers and get her to pack leftovers for lunch at work. 

Canceling Amazon Prime would probably be good because even if it's not a lot of money in and of itself, it reduces the temptation to buy stuff on Amazon. 

If she is dead set on keeping the truck, at least see if she is open to driving less.  Less shopping would help that.  See if she can live within a smaller radius.  Maybe the two of you could carpool for errands.  Eating together would mean you could go grocery shopping together.  How far is her commute?  Is it possible she might carpool or bike to work? 

I don't think touching the IRA or stopping contributions would be good.  It keeps her on track to at least have something, and it keeps her from just blowing it.  Even more important, I think the IRA would be protected if she ends up declaring bankruptcy. 

All the talk of having her post here could go either way.  The folks here are good for people who need tough love, but it can be a little more hit and miss for people who respond better to gentle encouragement. 

A big one is that getting finances in order is just as much psychological as it is financial.  Is it possible she has trouble in some other aspect of her life that's pushing her towards being financially self-destructive?  Back on the food-spending analogy, I eat when I'm having a bad mental health day. 

dcozad999

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Re: Case Study: save my SpendyFriend from ruin
« Reply #24 on: August 03, 2018, 02:43:18 PM »
Can she load her accounts into Mint? That should pull past transactions for 3-6 months I would think. This would get an idea of where it all went. Even having a "uncategorized" category would be eye opening.  How much stuff she bought she forgot about.


May be nitpicking, but these numbers are confusing me:

Annual take-home pay: $40,776
Monthly take-home pay: $3,398
Take-home pay per paycheck: $1,699


Is her 2 week take home pay $1,699? Or is her annual take home pay $40,776?

I'm guessing the biweekly pay is correct and if so you left out 2 pay periods in your annual calculation. Should be $1,699 * 26 = $44,174.
Semi-monthly (twice per month) payroll is also a thing. I'm 1099, but the company I work for now does this for employees.


Perhaps. But if I were a betting man, I'd wager she has 2 extra pay periods.

And if so, that $3,400 extra per year pays off a couple of her credit cards. knowing that may perk her friend up a little bit.

Jrr85

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Re: Case Study: save my SpendyFriend from ruin
« Reply #25 on: August 03, 2018, 03:22:08 PM »
If those numbers are her real numbers, she's really not that bad off except for the student loan and car.  Yea, $13,072 in credit card debt (at I'm guessing something like 28% or whatever the max is) is bad, but she can knock out several of them within a year even if she only dedicates the $349 of delta to them. 

Drop the clothing subscription, and amazon prime and apple music and she's got $467 a month extra to pay.  And what is she doing as a single person to have a $140+ monthly bill with Verizon?  Financing an Iphone and Ipad or something?  Or does she use their home service that is basically a cable/satellite alternative?  Surely she could cut that down and get to at least $500 a month extra. 

She will still take some good luck to avoid any unexpected expenses, but if she rents, her risks are basically her car and health.  But she could pay off her credit card debt in less than two years. 

Of course, then she'd still have a ridiculous car for her income and a terrible student loan debt after sacrificing for two years.  But if she got through the credit cards, she'd probably be motivated enough to downsize the car, and if her student loan debt is twice her income and she doesn't expect a lot of income growth, she can probably just do the income based replacement and laon forgiveness program. 


neophyte

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Re: Case Study: save my SpendyFriend from ruin
« Reply #26 on: August 03, 2018, 07:00:41 PM »
She's got a decent income. Aside from the student loans, this looks like an easily fixable situation to me.  It's just a matter of whether she really wants to fix it or not.

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Re: Case Study: save my SpendyFriend from ruin
« Reply #27 on: August 03, 2018, 07:19:42 PM »
She should switch to Cricket or some other low-cost cell provider (Cricket's been fantastic for my group of 4.  Unlimited data, minutes for $100/mo all-in). 

If she's so wedded to that damn truck then maybe she should be an Uber driver to earn extra money.  Before she adds bigger tires, she should ride with someone who has them and endure enjoy the extra road noise.  It's not fun.

and OP, you're very generous!  Perhaps give her a copy of The Millionaire Next Door for some additional instruction?  I don't think newish trucks are on the menu.

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Re: Case Study: save my SpendyFriend from ruin
« Reply #28 on: August 04, 2018, 03:24:24 PM »
You can help her crunch numbers all day long, but you're not getting to the WHY of so much debt.  Is she just really bad at math and so avoids numbers?  An impulsive spender?  "Low self-esteem" and so spends to feel better about herself?  Thinks she "deserves" all this stuff because she "works hard?"  Trying to keep up with friends who earn more?  Thinks this level of debt is just normal and everyone has it?  Etc, etc.  Helping her to identify the real reason behind all the spending is the key, in my opinion.  Also, what are her goals for the future, beyond just enjoying today?  If she has something she's working towards, a tight budget feels feels like progress, rather than deprivation.

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Re: Case Study: save my SpendyFriend from ruin
« Reply #29 on: August 15, 2018, 12:16:39 AM »
I agree with the others. 

The biggest hurdle here isn't money at all: it's emotional.  Why's she spending so much?  Did she just not track it?  Learned behaviors?  Does she have the actual motivation to change?  Ability to see it through?

You're a huge asset to her. 

I strongly recommend the Dave Ramsey course for her - it's made for someone in her situation.  It focuses on the emotional components and then adds in practical training in a community context.  It sets people up to succeed, especially in situations like this where you need basic budgeting training and don't understand how compound interest works against you.

This is entirely fixable; it's just a question of motivation. 

You probably don't need to scare her more, but she will have a hard road ahead if she stays on this path.  Without you, I'm guessing her rent goes way up (even with roommates), and I'm also guessing that her $350 delta is more like a -$300/month delta, ergo the credit card debts.  She's probably right that she doesn't have enough to pay her minimums - certainly not at her current spending level.  (What of maintenance for her car, repairs, and so on?) 

She's likely to continue digging that hole until she's forced to stop using the credit cards and switch to cash. 

She may need a come-to-Jesus moment at some point where she decides whether she's going to bear down and show some grit, learn a lot, live like a poor person (because she is now!), or go bankrupt, begging friends for rent money, or being kicked on the street's/a friend's couch/living in her truck. 

If she had more dischargeable debt, she might consider bankruptcy, but most of her debt is locked into things that are impossible or almost-impossible to unwind: cars and student loans.  She needs a car (and bankruptcy will make that harder) and she has to repay the student loans.  That's how dire the situation is though. 

It's tough switching from a lifestyle where you buy whatever you want (within what you think is reasonable) and then go on to a lifestyle where you have to learn restraint. 

I won't belabor what others have said, but I would be hesitant about emotionally investing in helping her - she's not quite desperate yet, and may have to slip further before she wants to turn around. 

Dave's course is great at motivating people to change and isolating some of the issues that they face. 

--

Now, as for other practical things: she should forego the trip.  If nothing else, it shows her level of commitment: not terribly high at this point. 

Explain it in terms of what she's trading: her freedom, her future ability to pay rent, and so on.  (I hope, for your sake and her sake, that you're not subsidizing her rent in terms of the rate you charge.) 

Another tip: get a debt spreadsheet calculator.  That will truly inventory the problem.  It will show how much she's going to pay in interest.  I even look at interest per day (on that much debt) to make a direct comparison to how much money you're paying for past spending.  That's step #1: inventory the problem. 

I'm sure there's far more fat to cut once you know more about her actual spending habits; $800/month on food + entertainment is more than enough for a family of three.  Eating out absolutely kills a budget. 

You're at a level where I think more general and more emotional things will be helpful: she doesn't yet understand that she's trading her life energy - the amount of time it takes her to work and be productive - for all the food and junk she's buying.  Once she does, she may be more willing to reform (versus working more, working longer, and eating Alpo in retirement). 

Other practical notes: Prime & music can go.  Verizon is overpriced - they're the most expensive carrier in my experience.  Google FI or another will do it (link/referral there) at a fraction of the cost.  Why pay 3x as much for 1.1x the service??? 

Shop around for auto insurance - you can usually lower costs by shopping around.  But again, the truck will hurt since the bank insists upon full coverage most likely.

The truck's a massive waste, but it's harder to fix so I would coast on that for now.  Once she pays the CCs, she can then save enough to buy a beater and get out from under that truck (either with a personal loan for the difference or by saving it up).  For now, she needs to kill the CCs since those rates will be far higher and she has no flexibility to deal with the truck. 

The truck is tough, because if she gets in a deep hole, as she will if she keeps up, she'll have to decide whether she likes her wheels or her bed more...

--

All told, I count about $15,000 in CC debt, $28.3k in truck debt, and "almost six figures" of student loans ($90k?): $133,317.  Almost all of it is at high rates - the student loan is the main unknown. 

If she saved 50% per year, she's looking at close to a decade to fully repay those debts.  In reality, she can kill the truck + credit cards more quickly, and the student loan may be a while. 

You're right, she'll have trouble switching to a low-rate or zero-rate card, and given her history, opening new credit lines may be asking for more trouble. 

Finally, another tip: she needs an emergency fund, and now.  She isn't budgeting for things like maintenance on the car.  That budget you gave us has a few holes like that - which I suspect leads to erratic and overbudget spending.  (E.g., what's she saving to move next time, or for a deposit on her next place, her next set of tires, next vehicle, etc.?  As of now: $0.)  The first line of defense is even a basic emergency fund: I would get $1,000 in a safe place that she won't spend before doing anything else.  Without one, all new spending is debt.  She can't take on any more debt.  This fund is going to save her from accruing more debt, or truly hitting the edge when she needs new tires and has no more income. 

This is a "hair on fire" situation that has been kicked down a hill and doused in gasoline again.  It's good that you're there to help ease her into realizing the gravity of the problem while encouraging her towards positive steps. 

You probably realize this, but you'll want to prepare yourself for the likelihood that this does not end well.  If so, it will likely affect your relationship with her, especially as her landlord.  You mentioned she stopped paying rent on time for a while: that's as bad of a sign as you can get, financially - she's skimping on debts she thinks she can get away with due to the relationship, which means she's on the edge already.
 
I really hope this goes well for her - she can do it, and others have dug out of even greater holes - but she has to grow a lot for it to work out, and that's out of any of our hands.  Sometimes people only learn by failing, and she may well have a bankruptcy ahead of her, but either way, hopefully one day she learns better financial management. 

Kudos to you for guiding her some, even if it takes a while to pan out.

frugalfoothills

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Re: Case Study: save my SpendyFriend from ruin
« Reply #30 on: August 15, 2018, 09:50:09 AM »
Thanks for the advice, everyone. Really taking to heart all the comments about how emotionally exhausting it can be to try to help someone out in this way, especially if they're not ready to be helped. The good news is, after we had the initial conversation going over her monthly take-home, expenses, and schedule, I have not brought it up again. I actually feel fairly relieved... I feel like I passed her a map that could lead her to a better, happier place, and now my work is done. Whether she chooses to follow the map is up to her!

She gets paid today, and she mentioned to me when we went over everything that she was going to do a "check-in" on payday so we could evaluate how the first few weeks went. She hasn't mentioned it since and I am not going to ask her (I'm not her mom!) I am, however, expecting to receive at least half her rent today, since I suggested she pay half her rent from each of her paychecks to help her with cash flow.

A couple people stressed Dave Ramsey--we definitely discussed Dave and she mentioned she has his book and read it, though it's been almost 10 years since then. I tried to encourage her to read it again but who knows whether she will or not. I agree, she's a prime candidate for him! She's also semi-religious so, right up her alley.

Agree with everyone who said she needs an Emergency Fund STAT. I encouraged her to pay herself first each paycheck, and one of her "homework" assignments was to open a savings account. She told me she was going to... have not heard anything else about it, though. The lack of an EF became painfully obvious on Monday when she ended up with a flat tire and needed it patched. Turns out, she actually needs an entirely new set of tires (not going to come cheap on this truck) and has no way to pay for them. Though, I would argue a new set of tires isn't an EMERGENCY, and ideally one would save separately for a planned expense like that, but... baby steps.

So, all things considered, I'm hoping I'll have an update soon, not just for this thread but to satisfy my own curiosity. I am happy at least that the emotional investment I feel in her situation is limited to just that at this point... curiosity. Now that she has the tools she needs to make better choices and take control, I can just observe from the sidelines and continue collecting her (very low) rent payments each month.

Also, she is definitely not cancelling the Orlando trip!

ABC123

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Re: Case Study: save my SpendyFriend from ruin
« Reply #31 on: August 15, 2018, 10:31:55 AM »
I truly hope this turns out the way you want it to.  This is a huge life makeover for your friend, with major changes.  You are doing a good thing trying to help her.  If she does get her finances fixed, you can feel really great about that.  Just make sure that if she doesn't change, you don't try to take that onto yourself as a failure. 

-- Rent the Runway is $94 a month?  I always thought it was just something you did when you need a really fancy dress that you will only wear once so you pay $100 to rent it instead of $500 to buy, or whatever.  People do this every single month?
 -- It's always a truck.  I swear, truck dealerships should be required to make their customers sign a waiver before leaving the lot that they understand this darn vehicle is going to ruin their finances.

I'm a red panda

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Re: Case Study: save my SpendyFriend from ruin
« Reply #32 on: August 15, 2018, 10:55:43 AM »
I truly hope this turns out the way you want it to.  This is a huge life makeover for your friend, with major changes.  You are doing a good thing trying to help her.  If she does get her finances fixed, you can feel really great about that.  Just make sure that if she doesn't change, you don't try to take that onto yourself as a failure. 

-- Rent the Runway is $94 a month?  I always thought it was just something you did when you need a really fancy dress that you will only wear once so you pay $100 to rent it instead of $500 to buy, or whatever.  People do this every single month?
 -- It's always a truck.  I swear, truck dealerships should be required to make their customers sign a waiver before leaving the lot that they understand this darn vehicle is going to ruin their finances.

You can rent individual dresses or get a subscription to rent the runway.  4 pieces a month is $89, unlimited is $159.  (So I'm guessing $94 is 4 pieces with tax?) 
Now that I've looked it up, that's insane. Instead of renting 4 things a month for nearly $100, why not buy one thing a month from a store? Then in a year you'll have a full wardrobe!   I figured $100 would give you a full trunk to choose from.

Also, RTR gives you the option to buy "at a discount". I would bet this person is also buying pieces occasionally, not always just renting.

galliver

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Re: Case Study: save my SpendyFriend from ruin
« Reply #33 on: August 15, 2018, 11:07:41 AM »
I won't reiterate what's been said about the trouble with helping others and so forth, although those are good points.

With that bill from Verizon, I would guess she has an unlimited plan and is paying off her iPhone? She can probably cut her bill down painlessly by reviewing her actual usage and cutting down to a not-unlimited plan. It may require more financial flexibility than she currently has to switch providers (i.e. that would require paying off her phone, if I guessed correctly...), or even to transfer to Verizon Prepaid which is exactly the same service but a lot cheaper.

I would rather she enjoyed Amazon movie nights and Apple music while prepping a tasty dinner for herself and friends, and instead cut her food+entertainment down by 25-50% from your suggested budget.

Possibly fun note...if she cancels RTR and forgoes entertainment for one month (or cuts the food+entertainment down by half, total), she can *almost* pay off the Discover in one month. Wouldn't that be a hit of motivation, to see that balance go from 1200 to 300?

Just thoughts you can share next time you talk, assuming you do. I would expect this to go as "two steps forward, one step back" so...good luck.

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Re: Case Study: save my SpendyFriend from ruin
« Reply #34 on: August 15, 2018, 11:10:08 AM »
Ok I'll ask. What IS this Orlando trip that she is going on?

Headed to Harry Potter World!!!! As a huge Potterhead myself, I am extremely jealous. That being said, she should one million percent cancel this trip. I have no idea how she expects to pay for it.

Is this trip already scheduled with someone else, or could you convince her to postpone it? Since she refuses to cancel. Maybe she can go in the spring if she manages to pay off 4/5 credit cards or something. (Idk what a realistic timeline here is.) Calculate her interest on debt per day and say she can go when it's below a certain threshold. Make it a positive reward for getting on the right track.

(This thread helped me understand for the first time what a friend of mine meant when she celebrated being under her cc limits so they would stop charging her extra. I didn't realize you COULD go over a credit limit - I thought the card would just be declined. Whoops.)

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Re: Case Study: save my SpendyFriend from ruin
« Reply #35 on: August 15, 2018, 11:12:59 AM »
I truly hope this turns out the way you want it to.  This is a huge life makeover for your friend, with major changes.  You are doing a good thing trying to help her.  If she does get her finances fixed, you can feel really great about that.  Just make sure that if she doesn't change, you don't try to take that onto yourself as a failure. 

-- Rent the Runway is $94 a month?  I always thought it was just something you did when you need a really fancy dress that you will only wear once so you pay $100 to rent it instead of $500 to buy, or whatever.  People do this every single month?
 -- It's always a truck.  I swear, truck dealerships should be required to make their customers sign a waiver before leaving the lot that they understand this darn vehicle is going to ruin their finances.

You can rent individual dresses or get a subscription to rent the runway.  4 pieces a month is $89, unlimited is $159.  (So I'm guessing $94 is 4 pieces with tax?) 
Now that I've looked it up, that's insane. Instead of renting 4 things a month for nearly $100, why not buy one thing a month from a store? Then in a year you'll have a full wardrobe!   I figured $100 would give you a full trunk to choose from.

Also, RTR gives you the option to buy "at a discount". I would bet this person is also buying pieces occasionally, not always just renting.

Why not pay $100 to rent 4 things a month, PLUS buy new items from a store!!!!!!!! *Hannah Montana voice* it's the beeeest of both woooorlds

Seriously, though, she definitely buys on top of renting. Here's something else that's wild: she damaged a shirt recently which had a retail value of $350, so not only did she pay $100 to rent this shirt (to wear to dinner one night with close friends, WHY?) but she now has to pay to purchase the shirt since it's damaged. There is insurance included in the subscription but apparently it only covers things like spills, etc.

What a freakin racket!

frugalfoothills

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Re: Case Study: save my SpendyFriend from ruin
« Reply #36 on: August 15, 2018, 11:19:12 AM »
I won't reiterate what's been said about the trouble with helping others and so forth, although those are good points.

With that bill from Verizon, I would guess she has an unlimited plan and is paying off her iPhone? She can probably cut her bill down painlessly by reviewing her actual usage and cutting down to a not-unlimited plan. It may require more financial flexibility than she currently has to switch providers (i.e. that would require paying off her phone, if I guessed correctly...), or even to transfer to Verizon Prepaid which is exactly the same service but a lot cheaper.

I would rather she enjoyed Amazon movie nights and Apple music while prepping a tasty dinner for herself and friends, and instead cut her food+entertainment down by 25-50% from your suggested budget.

Possibly fun note...if she cancels RTR and forgoes entertainment for one month (or cuts the food+entertainment down by half, total), she can *almost* pay off the Discover in one month. Wouldn't that be a hit of motivation, to see that balance go from 1200 to 300?

Just thoughts you can share next time you talk, assuming you do. I would expect this to go as "two steps forward, one step back" so...good luck.

You're right, very little flexibility on the phone since (according to SpendyFriend), about $60 per month is going toward the phone payment. Because of course when she signed up for a new plan she went ahead and got the newest, biggest iPhone available, retail value $850+. Pretty sure it has another 1.5 years on the contract.

Agree on Apple and Amazon, they're drops in the bucket compared to the hemorrhaging happening over in Food/Entertainment Land. I've also gotten more vocal about my own decisions to opt out of events due to not wanting to spend the money in the hopes that she will see that it's OK to pass if you need to. Example: last weekend a friend of ours wanted to go to dinner/have drinks out on Saturday night. I made it clear to SpendyFriend that I would like to have her over to our house instead and get a bottle of wine/cook, seeing as I'm having my house painted next month and am trying to be extra conscious of my spending at the moment. Our other friend wasn't interested in that idea and only wanted to go out to dinner/bars, so I basically said "sorry, not going, and not going to feel bad about it." SpendyFriend ended up going, staying out til 2am, and spending money she could have otherwise saved.

I'm thinking it will take her a little while to get comfortable with setting and keeping those boundaries... she was clearly WANTING to opt out, but in the end, the FOMO got the best of her. Maybe next time she will be able to stand her ground a little better.

frugalfoothills

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Re: Case Study: save my SpendyFriend from ruin
« Reply #37 on: August 15, 2018, 11:22:23 AM »
Ok I'll ask. What IS this Orlando trip that she is going on?

Headed to Harry Potter World!!!! As a huge Potterhead myself, I am extremely jealous. That being said, she should one million percent cancel this trip. I have no idea how she expects to pay for it.

Is this trip already scheduled with someone else, or could you convince her to postpone it? Since she refuses to cancel. Maybe she can go in the spring if she manages to pay off 4/5 credit cards or something. (Idk what a realistic timeline here is.) Calculate her interest on debt per day and say she can go when it's below a certain threshold. Make it a positive reward for getting on the right track.

(This thread helped me understand for the first time what a friend of mine meant when she celebrated being under her cc limits so they would stop charging her extra. I didn't realize you COULD go over a credit limit - I thought the card would just be declined. Whoops.)

Unfortunately the trip is already scheduled with someone else. The someone else has already booked the hotel and flights, and SpendyFriend will be paying her back (eventually?), so backing out at this point (while not impossible) is highly, highly unlikely.

You can go over, but they will eventually turn the card off on you. That's the situation for at least 3 of her cards: over the limit, unable to be used, but not yet charged-off.

A bit of good news: I just received her rent payment! Hopefully that means she is taking care of some business today (payday) and paying on her other obligations, too.

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Re: Case Study: save my SpendyFriend from ruin
« Reply #38 on: August 15, 2018, 11:24:41 AM »
I truly hope this turns out the way you want it to.  This is a huge life makeover for your friend, with major changes.  You are doing a good thing trying to help her.  If she does get her finances fixed, you can feel really great about that.  Just make sure that if she doesn't change, you don't try to take that onto yourself as a failure. 

-- Rent the Runway is $94 a month?  I always thought it was just something you did when you need a really fancy dress that you will only wear once so you pay $100 to rent it instead of $500 to buy, or whatever.  People do this every single month?
 -- It's always a truck.  I swear, truck dealerships should be required to make their customers sign a waiver before leaving the lot that they understand this darn vehicle is going to ruin their finances.

You can rent individual dresses or get a subscription to rent the runway.  4 pieces a month is $89, unlimited is $159.  (So I'm guessing $94 is 4 pieces with tax?) 
Now that I've looked it up, that's insane. Instead of renting 4 things a month for nearly $100, why not buy one thing a month from a store? Then in a year you'll have a full wardrobe!   I figured $100 would give you a full trunk to choose from.

Also, RTR gives you the option to buy "at a discount". I would bet this person is also buying pieces occasionally, not always just renting.

Why not pay $100 to rent 4 things a month, PLUS buy new items from a store!!!!!!!! *Hannah Montana voice* it's the beeeest of both woooorlds

Seriously, though, she definitely buys on top of renting. Here's something else that's wild: she damaged a shirt recently which had a retail value of $350, so not only did she pay $100 to rent this shirt (to wear to dinner one night with close friends, WHY?) but she now has to pay to purchase the shirt since it's damaged. There is insurance included in the subscription but apparently it only covers things like spills, etc.

What a freakin racket!
But she only damages what, 1 out of 20 items right? So she's still saving big-time compared to buying! This is a smart move financially!

omachi

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Re: Case Study: save my SpendyFriend from ruin
« Reply #39 on: August 15, 2018, 12:23:35 PM »
Setting aside the student loans, the repayment for which isn't by any means crippling, this doesn't look like it's a lost cause situation, unless your friend has no intention to take control of her situation. Even if she doesn't, with the ridiculous budget you posted she's in the black, so she could learn nothing, never grow up, and still end up free of debt eventually.

But, assuming she wants to get her house in order, here's a reasonable plan of attack:

Step one, cancel the Orlando trip. This isn't something she can justify on any grounds not cancelling. If need be, it can be her reward for getting debt free (and when she can afford it in cash). Her choices have led her to grossly overspending and this is the very first test of whether she's going to be responsible or if she's going to carry on the status quo. If she's unwilling to admit that her terrible spending choices have landed her in this situation and won't do the first thing to fix that, you should be unwilling to invest any more of your time. This trip is the embodiment of somebody that can't see the choices they're making are what have brought them to this point. Oh, and find a new roommate in the case she goes, because you're setting yourself up for problems if she's not changing. Tough love.

Do note, hotel rooms typically can be cancelled. Flights aren't refundable, but can be cancelled and then changed later for a fee. She may have to pay the cost of the flight now, and will have to pay the fee later, but it's still better than paying for the whole trip now.

Step two, destroy the credit cards and remove their numbers from any online stores that keep them, like Amazon. They're off limits. She's proven she can't be trusted with credit, so no more credit cards. She could write that out a few dozen times longhand as penance, wouldn't be the worst use of her time. No recurring bill pay allowed on credit either. She's done with credit cards.

Step three, cancel unnecessary services. Amazon, gone. Apple Music, gone. Renting clothing, gone and at close to $100/month deserving of ridicule. For the first two, modern libraries tend to have CDs and movies available for checkout. If not, books are an excellent medium and they'll have those in spades. I'd say change the phone, but you've explained she's made terrible choices there, so she'll live with it for now. She can use it for YouTube and other non-paid entertainment if the library isn't good enough.

Step four, apply for unsecured personal loans to refinance some of this credit card debt to a rate that isn't usury, if her credit isn't so completely wrecked as to make this impossible.  If she can get them, these should save some money in interest. Though please do insist this is a one-time, definite emergency, last time you're accessing credit sort of event. Being on repayment plans may make this a no-go, but applying for and being rejected for a half dozen loans might be a good bucket of ice water on her head anyway. I'll proceed assuming this isn't happening.

Step five, time to buy glasses. $30 per month on contacts is a luxury for when one's hair isn't on fire. Get a cheap pair of frames and lenses, bonus if covered by insurance, and stop buying contacts until she's out of consumer debt. Also a good avenue to teach long term payoffs. A pair of glasses can last for many years, and she'll be reaping the benefits of not paying for contacts every month relatively quickly if she doesn't go out and buy designer frames.

Alright, so far, we've spent a one time couple hundred dollars on glasses and cut $148 per month, plus staved off debt from a trip. Aside from the glasses, all done quickly and effortlessly. Next come bigger changes.

Step six, set up disciplined amounts for food and entertainment. She's spending more than some families here on food. This can easily come down to $200 without resorting to beans and rice every meal. Her entertainment budget, even at your set point of $400 is out of control. Assuming going out every Friday, Saturday, and Sunday for four weeks each month, the $400 budget yields $33 per night out. Since she has a negative net worth, my recommendation is hit up the library, have friends over to chat with, and spend zilch. Assuming that's just too much, let's instead move to one night out per week at $33, and put a hard limit on entertainment at $133 per month.

That step takes discipline, but saves an additional $467 per month. We're now getting somewhere at a total reduction of $615 per month, while servicing all debts and paying for obligations. Add in the $349 surplus she's running under your budget, and she's in the black by $964. This is progress.

Step seven is to take the first month's savings and put it away as an emergency fund. It's for true emergencies only. Not off-road tires. Not a trip to Orlando. Not a cracked phone screen. Emergencies.

Step eight is to unload the truck. She'll save another couple months and then sell the truck and buy a servicible sub-$1500 Fit, Civic, Corolla, or similar. The balance of the $1928 saved in this time can be used to fix lingering issues that make it less than road-worthy if needed. Otherwise, preferably, put it in the emergency fund. Do this sooner if she has equity in the truck. This saves an amazing $543 per month. And of course this assumes she's not underwater on the truck. Please tell us she's not underwater on the truck.

That has knock-on effects of reducing gas used and insurance costs go to liability only. Without real details, let's call it a conservative halving of the expenses in that regard. So $131 per month there. So before she was in the black by $964. Now she's in the black by $1638. Nearly 50% of take-home available to direct and it's only been three months!

So the obvious next thing is to destroy credit card balances. We'll ignore minimum payments and assume same balances at this point, for sake of simplicity.
  • Month four sees CC#3 paid in full and excess paid on CC#4. Frees up $50 per month.
  • Month five sees CC#4 paid off and excess paid on CC#2. Frees up $100 per month.
  • Month six sees CC#5 paid off (because closing balances is encouraging) and excess paid on CC#2. Frees up $34 per month.
  • Month seven sees CC#2 paid off and finally starting to tackle CC#1. Another $50 per month free.
Four card balances closed in four months. Now a practical fire hose of $1822 per month to put at debt. Should be able to pay off CC#1 in five months or so.

One year later, your friend has no consumer debt and excess income in the amount of $2068 per month. Within a month, she should be able to have her trip to Potterworld.

This plan is only slightly optimistic. It assumes no true emergencies, which would necessitate refilling the emergency fund. It assumes she can keep to a budget and not give in to the temptation of having credit available again, or a cash flow that she can spend on things she doesn't need. While it cuts the mindless spending pretty deeply, it doesn't cut them out entirely, or even to excessively low levels. We're still assuming she's spending about $1600 on entertainment over the year.

You'd also be remiss to stop here. Increase retirement saving. Maybe pay off the student loans faster. Help her set up a budget that prioritizes her real desires in life and keep the crap like clothing rental out of it. You could help her do this now as a goal to get to that isn't just paying off debt. Something to strive for. A meaningful way of living that she can move into once her house is in order.

BrightFIRE

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Re: Case Study: save my SpendyFriend from ruin
« Reply #40 on: August 16, 2018, 12:00:20 PM »
But, assuming she wants to get her house in order, here's a reasonable plan of attack:

Step one, cancel the Orlando trip. This isn't something she can justify on any grounds not cancelling. If need be, it can be her reward for getting debt free (and when she can afford it in cash). Her choices have led her to grossly overspending and this is the very first test of whether she's going to be responsible or if she's going to carry on the status quo. If she's unwilling to admit that her terrible spending choices have landed her in this situation and won't do the first thing to fix that, you should be unwilling to invest any more of your time. This trip is the embodiment of somebody that can't see the choices they're making are what have brought them to this point. Oh, and find a new roommate in the case she goes, because you're setting yourself up for problems if she's not changing. Tough love.

Do note, hotel rooms typically can be cancelled. Flights aren't refundable, but can be cancelled and then changed later for a fee. She may have to pay the cost of the flight now, and will have to pay the fee later, but it's still better than paying for the whole trip now.
***
Step five, time to buy glasses. $30 per month on contacts is a luxury for when one's hair isn't on fire. Get a cheap pair of frames and lenses, bonus if covered by insurance, and stop buying contacts until she's out of consumer debt. Also a good avenue to teach long term payoffs. A pair of glasses can last for many years, and she'll be reaping the benefits of not paying for contacts every month relatively quickly if she doesn't go out and buy designer frames.

Alright, so far, we've spent a one time couple hundred dollars on glasses and cut $148 per month, plus staved off debt from a trip. Aside from the glasses, all done quickly and effortlessly. Next come bigger changes.
***
This plan is only slightly optimistic.

I have to disagree with your assertions that these things are "reasonable" and "effortless". These are going to be very big deals for this person. They seem effortless to you because you already live like this. If you come at her with such extreme changes all at once, she's likely to shut down completely.

Specifically:
1) Another person paid for the hotel and flights already - that sounds like a prepaid hotel to me, that can't be canceled for free, and it would be a pretty crap move to back out of a trip after the other person has already committed financially themselves. I get that it's a bad idea, but it was already a bad idea, and it's water under the bridge now.

On any of the major carriers, canceling a ticket will cost you ~$200 and that payment does not wait until you want to make the change - if there's anything left after the $200 is paid, that amount would be a credit to the account. This can actually be more than the cost of the original ticket. And if the 2 of them are on the itinerary together, the airline may even charge per person fees. I've just let a ticket go rather than cancel because of this.

Side note: there should be no tough love. This is a roommate and friend; the OP should not be giving ultimatums like cancel the trip or get out.

2) $30/month isn't an isane amount for disposable contacts and solution. My SO manages $19/mo because he bought online from Lens.com and got a $80 rebate. You're supposed to get your eyes checked every year or minimum every other, so you can't actually say if the glasses will last "many years". And really, this is just not that big a deal compared to the other spending.

omachi

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Re: Case Study: save my SpendyFriend from ruin
« Reply #41 on: August 16, 2018, 02:00:28 PM »
I have to disagree with your assertions that these things are "reasonable" and "effortless". These are going to be very big deals for this person. They seem effortless to you because you already live like this. If you come at her with such extreme changes all at once, she's likely to shut down completely.
Being a big deal doesn't make it less reasonable. Not taking much effort to cancel a recurring charge doesn't mean there isn't going to be an internal struggle. But so what? You can pat them on the head and say $15k of credit card debt, a truck payment equal to 16% of take home, and a trip that there's no money or available credit for is fine if you want. Or propose your own smaller changes that will take several years to get to zero if you like. If she wants to tackle this and actually sees it as a problem, she can do it and do it fairly quickly. People can make hard choices without their brain circuitry frying. She's ostensibly an adult.

Quote
Specifically:
1) Another person paid for the hotel and flights already - that sounds like a prepaid hotel to me, that can't be canceled for free, and it would be a pretty crap move to back out of a trip after the other person has already committed financially themselves. I get that it's a bad idea, but it was already a bad idea, and it's water under the bridge now.

On any of the major carriers, canceling a ticket will cost you ~$200 and that payment does not wait until you want to make the change - if there's anything left after the $200 is paid, that amount would be a credit to the account. This can actually be more than the cost of the original ticket. And if the 2 of them are on the itinerary together, the airline may even charge per person fees. I've just let a ticket go rather than cancel because of this.
Yes, carriers charge fees as I mentioned to change flights, and yes, they may happen now for the ability to make that change later, and yes, they can be substantial. Sure, if the ticket is cheap enough, let it go. Even here though $200 or less is probably less than all the tickets, food, souvenirs, transit, and so on that will be taking place if she goes on the trip. So if we're optimizing the spend of money that doesn't exist, this is still better and leaves the option to fly later when money is good rather than just dump it all.

The hotel is reported booked, not specifically paid for. I guess it could be paid for, but hotels that are just booked can typically be cancelled without fee up to a week before the stay. Paid for would be worse.

It is incredibly rude to back out to something committed to, but I can't bring myself to condone somebody with $15k of consumer debt, no apparent savings, and $3 of available credit to taking a trip they really shouldn't. I'm all for polite, but saying you'll change after you do this one more financially awful thing is a good way to find another thing, then another. Perhaps it is possible that spendy friend could find a different spendy friend not in dire straights to go on the trip and turn this from incredibly rude to mildly annoying. Still have the airfare issues, but any other things like a prepaid hotel or committed travel partner would be worked out.

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Side note: there should be no tough love. This is a roommate and friend; the OP should not be giving ultimatums like cancel the trip or get out.
I meant line one up, not throw this one to the curb. At some point the lease will be up or the roommate will fail to pay again and it will be a natural, predictable time to make a change. Protecting yourself isn't evil. Informing somebody who has a choice about their actions that you plan to find a different roommate when the lease is up if they continue to make highly questionable choices is pretty gentle coercion as far as tough love goes. I'm not saying don't be friends or cut them out of life.

Quote
2) $30/month isn't an isane amount for disposable contacts and solution. My SO manages $19/mo because he bought online from Lens.com and got a $80 rebate. You're supposed to get your eyes checked every year or minimum every other, so you can't actually say if the glasses will last "many years". And really, this is just not that big a deal compared to the other spending.
So what if it's a good price for contacts? It's an unnecessarily more expensive option for a recurring expense. The difference in cost between those contacts and inexpensive glasses isn't chump change. Over a two year period you give as a recommended max before another vision checkup, it's over $500. And even inexpensive frames will last many years. Even if you get a checkup and a prescription change every year, just lenses is cheaper than new frames and lenses, which is cheaper than contacts.

I wouldn't have suggested it if the payoff didn't come within the one year of the plan I put together. But there's probably a good $160 to be saved in that year, which itself is 13% of CC#5's balance. The not a big deal compared to other things is exactly how people get themselves into five figure consumer debt. Oh, it's just $10 here, $30 there. No big deal. Nothing like my $100 a month clothing rental habit. A change like this is a shift in mentality, not an all at once answer to debt because it saves a few dollars in isolation.

AMandM

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Re: Case Study: save my SpendyFriend from ruin
« Reply #42 on: August 16, 2018, 04:37:30 PM »
She gets paid today, and she mentioned to me when we went over everything that she was going to do a "check-in" on payday so we could evaluate how the first few weeks went. She hasn't mentioned it since and I am not going to ask her (I'm not her mom!)

You're not her mom, but she has asked you to kind of be her mentor. I think it's reasonable to say, "Hey, did you still want to go over your expenses together?" She's facing a huge challenge, and simply having the numbers in front of her is not going to be enough to get her to turn her spending habits around.  I appreciate you not wanting to infantilize her, but OTOH setting her loose might just lead to her getting paralyzed and making little progress.

More generally, it might be worth making the terms of the mentorship a bit more explicit--how much initiative should rest with her vs come from you, whether you should remind her of things she said she wanted to do, whether you should offer suggestions along the way, how often she wants to review her situation, etc.

Finances_With_Purpose

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Re: Case Study: save my SpendyFriend from ruin
« Reply #43 on: August 18, 2018, 09:49:22 AM »
Ok I'll ask. What IS this Orlando trip that she is going on?

Headed to Harry Potter World!!!! As a huge Potterhead myself, I am extremely jealous. That being said, she should one million percent cancel this trip. I have no idea how she expects to pay for it.

Is this trip already scheduled with someone else, or could you convince her to postpone it? Since she refuses to cancel. Maybe she can go in the spring if she manages to pay off 4/5 credit cards or something. (Idk what a realistic timeline here is.) Calculate her interest on debt per day and say she can go when it's below a certain threshold. Make it a positive reward for getting on the right track.

(This thread helped me understand for the first time what a friend of mine meant when she celebrated being under her cc limits so they would stop charging her extra. I didn't realize you COULD go over a credit limit - I thought the card would just be declined. Whoops.)

Unfortunately the trip is already scheduled with someone else. The someone else has already booked the hotel and flights, and SpendyFriend will be paying her back (eventually?), so backing out at this point (while not impossible) is highly, highly unlikely.

You can go over, but they will eventually turn the card off on you. That's the situation for at least 3 of her cards: over the limit, unable to be used, but not yet charged-off.

A bit of good news: I just received her rent payment! Hopefully that means she is taking care of some business today (payday) and paying on her other obligations, too.

Congrats on rent + your success there. 

Makes sense about the trip - so ignore my comments above.  That's unfortunate; you can't back out of something like that fully, and it's even harder to have a conversation about how you'll honor your obligation for half of joint expenses but can't go (and the difference may only be truly marginal).  So it may actually be only a minimal difference ($50?) in practice - the cost of eating a few meals out. 

I wondered if that were the case with the CCs...and unfortunate, as they'll start stacking penalties on top if she misses a payment, so her effective interest rate may be even higher. 

As for Dave, I'd highly recommend the course - more than the book - since it's visual and also includes the opportunity to participate in a community of folks in similar places.  Though it sounds like she may not be that open to the idea anyway. 

Nice job highlighting the details of possible changes and their impact @omachi !  (Though @BrightFIRE has a good point.)  Good luck with this, @frugalfoothills - now you've created yet another thread I'll have to keep watching, but hopefully with great results in this case...


frugalfoothills

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Re: Case Study: save my SpendyFriend from ruin
« Reply #44 on: August 20, 2018, 10:26:21 AM »
I fear things are not going well for SpendyFriend, despite my hopeful attitude last week when I received her rent payment. This past weekend we (myself, SpendyFriend, and 3 other girlfriends) took a quick weekend trip down to the beach. I thought this would be a great way for her to get some practice and experience with frugal traveling -- all the makings of a fun, cheap trip were there, since the cost of lodging was $0 (condo owned by a friend), cheap transportation to get there (no flights, and she caught a ride with others, so maybe could toss $15 in for gas), and minimal expenses once down there (quick trip to the grocery store for some sandwich stuff  to have on the beach and maybe 1 restaurant meal.) All in all, this should have been an easy win!

…and yet, SpendyFriend somehow found a way to turn this into a $250+ trip for herself. It’s like that scene from Anchorman where Baxter eats the entire wheel of cheese. “I’m not even mad, I’m just impressed!” We are talking $85 at the grocery store (for 3 days worth of beach food!), choosing the $55 bottle of Patron to use for blended margaritas (instead of the $15 bottle we were all looking at splitting) and saying “I want the Patron, so it’s my treat!” Two dinners out, ordering surf & turf at BOTH. Mixed drinks. Couple stops at Walgreens and various stores for (totally unnecessary) items.

I have to say… while I *kind of* saw it coming, I am still surprised. One thing I did notice—one of the other girls I was there with is also a SpendyFriend (though she clears $200k/year working in BigLaw, so not really a comparable situation), and the two of them together seemed to feed off each other. In the grocery store, at the restaurants, etc. It was like they each saw the other livin’ it up, and that implicitly gave permission that they, too, should be livin’ it up. It was wild.

The good news – I actually feel very at peace with this situation. I mean, I unfortunately think the situation may be past the point of fixing. She’s like the conductor on a steam engine that is barreling down on Complete Fucking Destruction and Ruin, and she has zero interest in using the brakes, but… I’m feeling pretty removed from it at this point. I think sitting down with her, making sure that she understood her situation fully, and laying out a gameplan to help her change her ways has kind of “let me off the hook” in a sense. Her eyes are wide open and she sees that she’s headed directly for a huge cliff. Not my fault if she walks right off the edge.
« Last Edit: August 20, 2018, 10:28:36 AM by frugalfoothills »

AMandM

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Re: Case Study: save my SpendyFriend from ruin
« Reply #45 on: August 20, 2018, 11:39:00 AM »
Oh, I'm sorry, FFH. It must be hard to watch. Glad you're at peace. You've led the horse to water, it's up to her to drink.

MrsDinero

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Re: Case Study: save my SpendyFriend from ruin
« Reply #46 on: August 20, 2018, 11:55:16 AM »
That really sucks.  I know it is hard to watch, I'm watching a similar situation with a friend.  The only thing that is keeping my sanity is "not my circus, not my monkey".   

Your friend is responsible for her spending and the consequences of it. I hope one day she will figure it out, but quite frankly it sounds like she will have to go deeper in debt, denied a loan, or losing a job before she truly "gets it".

reeshau

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Re: Case Study: save my SpendyFriend from ruin
« Reply #47 on: August 20, 2018, 01:10:45 PM »
I have read through all the examples here, and I think she just hasn't hit rock bottom yet.  So many people learn the hard way, maybe what you can do is be there when this is the only way out for her.

PoutineLover

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Re: Case Study: save my SpendyFriend from ruin
« Reply #48 on: August 21, 2018, 07:26:17 AM »
It's sad, but it sounds like there's not much you can do if she absolutely refuses to do anything at all about her spending habits. I think most people here are like what the fuck that's so much debt how does she sleep at night, but she must not be bothered in the same way or she never would have gotten to that point. I literally can't even imagine carrying a balance, let alone maxing out cards and barely making the minimums on 5(?!) cards. Keep on making the rent mandatory, but don't get too emotionally invested because it doesn't sound like she really wants to put in the actual effort needed to change.

Jrr85

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Re: Case Study: save my SpendyFriend from ruin
« Reply #49 on: August 21, 2018, 09:23:37 AM »
I fear things are not going well for SpendyFriend, despite my hopeful attitude last week when I received her rent payment. This past weekend we (myself, SpendyFriend, and 3 other girlfriends) took a quick weekend trip down to the beach. I thought this would be a great way for her to get some practice and experience with frugal traveling -- all the makings of a fun, cheap trip were there, since the cost of lodging was $0 (condo owned by a friend), cheap transportation to get there (no flights, and she caught a ride with others, so maybe could toss $15 in for gas), and minimal expenses once down there (quick trip to the grocery store for some sandwich stuff  to have on the beach and maybe 1 restaurant meal.) All in all, this should have been an easy win!

…and yet, SpendyFriend somehow found a way to turn this into a $250+ trip for herself. It’s like that scene from Anchorman where Baxter eats the entire wheel of cheese. “I’m not even mad, I’m just impressed!” We are talking $85 at the grocery store (for 3 days worth of beach food!), choosing the $55 bottle of Patron to use for blended margaritas (instead of the $15 bottle we were all looking at splitting) and saying “I want the Patron, so it’s my treat!” Two dinners out, ordering surf & turf at BOTH. Mixed drinks. Couple stops at Walgreens and various stores for (totally unnecessary) items.

I have to say… while I *kind of* saw it coming, I am still surprised. One thing I did notice—one of the other girls I was there with is also a SpendyFriend (though she clears $200k/year working in BigLaw, so not really a comparable situation), and the two of them together seemed to feed off each other. In the grocery store, at the restaurants, etc. It was like they each saw the other livin’ it up, and that implicitly gave permission that they, too, should be livin’ it up. It was wild.

The good news – I actually feel very at peace with this situation. I mean, I unfortunately think the situation may be past the point of fixing. She’s like the conductor on a steam engine that is barreling down on Complete Fucking Destruction and Ruin, and she has zero interest in using the brakes, but… I’m feeling pretty removed from it at this point. I think sitting down with her, making sure that she understood her situation fully, and laying out a gameplan to help her change her ways has kind of “let me off the hook” in a sense. Her eyes are wide open and she sees that she’s headed directly for a huge cliff. Not my fault if she walks right off the edge.

It sad to say it, but it's hard to be friends with somebody making 5 times as much as you are unless the person making much more is conscientious about how they spend money around the lower earning friend or unless the person making less is very secure and content with their lifestyle. 

We constantly make spending decisions that would be disastrous for a family making 1/5 of what we do and don't even think about it and while we're not mustachian, we are definitely more frugal than average.