Case Study - Any option besides re-financing for this single mom?

[k_ryan]

Hi everyone,

I'd like to present this case study of a friend of mines in the hopes of finding another solution besides re-financing and additional debt.

Her annual budget is presented below. The figures shown are in Trinidad & Tobago (TT) dollars.


Income    $65,000
After tax income
     
     
Savings    $8,400   
House Fund: $6,000 - savings towards a mortgage down payment,
Annuity: $2,400 - towards a Government approved annuity that's tax deductible
       
Insurance    $10,632
Life Insurance: $4,020
Health Insurance: $6,612

Debt   $26,364   
Loan Payment   : $23,964 - Repaying loan balance of $40,000 @ 1.5% per month. Payment is $1,997 per month
Credit Card Payment: $2,400 - Minimum Payment on $3,000 Medical expense until Insurance reimbursement

Education    $24,700   
Tertiary: $4,000 - Government subsidised tuition
Pre-school: $20,700 - Private institutaion caple of tending to daughter's medical needs

Groceries    $24,000
       
Public Transport    $15,840   
       
Other Expenses $22,644
Baby Supplies: $2,040
Utilities: $9,204
Building Fee: $1,200
Cell Phone: $5,280   
Land line + Internet Access: $4,200   
Netflix: $720
       
Non-Recurring Expenditure (2017)    $23,200
Healthcare : $9,000 - Medical procedure for daughter. To be re-imbursed by Insurance at a later date
Home Repairs: $11,200


TOTAL EXPENSES $152,780

TOTAL RECURRING EXPENSES $132,580   

TOTAL RECURRING EXPENSES less SAVINGS $124,180   




Her major issue is the expense surrounding her daughter's medical condition. Critical medical procedures and special schools are non-negotiable in her budget.

Also, she lives with her mother and is responsible for utilities and repairs at their house.

She is considering taking an additional $50,000 loan and re-financing her existing $40,00 debt to make ends meet. However, from what I can tell, these funds won't last the year given her current expenses.

Any insight would be greatly appreciated. Thanks.

[SwordGuy]

This is face-cannon worthy.

$2000 per month for GROCERIES?   Seriously?    Does she have a dozen children? 

$440 per month for CELL PHONE?  Seriously?   Is it made out of solid gold?

$767 per month for UTILITIES?   We have a 3500 sqft home and our utilities aren't that high when it's 100 degrees F outside with high humidity as a bonus and all for an entire month!

$350 per month for ANOTHER PHONE plus internet?

I'm sorry, but those numbers are absolutely ludicrous.     Those would be stupid numbers to be paying if she actually made enough money to pay for it without getting more into debt.

If she starts to explain how she simply must must must have whatever it is that is causing those crazy numbers, point her to MMM's article on Tiny Details Exaggeration Syndrome.

She doesn't need to save for a house with a mortgage.  She can't afford one.  Unless she either doubles her income or cuts her expenses in half, she'll never be able to buy one.   (Unless she sells the one she's in and buys a smaller one, and uses the equity to pay off those debts.)

If she cuts out the stupid stuff - ALL the stupid stuff - and renegotiates that debt down to much smaller payments, she can make it.

One more thing - broken stuff in a house IS a recurring expense.   So are medical expenses.  Maybe not the exact same item/procedure, but stuff goes wrong.

This is a disaster in the making unless she makes dramatic changes.

[cpa cat]

This is face-cannon worthy.

She says it's Trinidad dollars. Google says 1 TT $ = 0.15 USD

[marty998]

Are you mixing up debt (liabilities) with expenses?

Is the $26,364 listed as part of the annual total expenses or only $1,997 of that?

Either way with $65,000 coming in and $100k+ going out your friend* has some difficult choices to make.

*It's ok if it's you, you don't need to lie and pretend it's your friend.

[AMandM]

I can't really judge how much fat there is to trim in this budget, since I don't know what's reasonable for Trinidad.  But there are some costs that seem like good candidates for reduction or elimination. Some of these may be hard, but your friend's only choices are to cut costs in painful ways or to descend deeper into painful debt.

Phone--Cancel either the cell phone or the landline+internet
Netflix--Cancel
Life insurance--cancel or switch to a cheaper policy if possible. Is this term or whole?
Home repairs--can she DIY some of these to reduce the cost, or barter with someone? Ho essential are these repairs, can they be deferred or scaled back?
Education--Is there any possibility of scholarships or financial aid for her daughter?
               --Unless her tertiary education is *soon* going to result in a higher-paying job, she should take a leave of absence until she can afford tuition.
Savings--She should not be putting money into savings when her income is way less than her expenses! She's paying 18% per year interest on that money!  Any savings she already has should be used to reduce her debt. I would pay off the credit card (probably saving a lot of interest), then when the $3000 medical reimbursement comes in use that for some of her other expenses.

However, even after doing everything I suggest, expenses still way outstrip income. Your friend needs a new job or a side hustle or two, or a very creative way to care for her child.

[With This Herring]

Hi k_ryan!  As a US poster, I find it difficult to look at "other" dollars and mentally discount them to US values, so I prepared the table below for US eyes to easily follow the actual values here.  For US people:  OP's friend is making closer to $10K per year using our dollars.

CASE STUDY NUMBERS FOR US READERS	ANNUAL TT$	ANNUAL US$	MONTHLY TT$	MONTHLY US$
Post-tax income	$65,000	$9,587	$5,417	$799
House fund - savings towards a mortgage down payment	$6,000	$885	$500	$74
Annuity - towards a Government approved annuity that's tax deductible	$2,400	$354	$200	$30
SAVINGS TOTAL	$8,400	$1,239	$700	$103
Life insurance	$4,020	$593	$335	$49
Health insurance	$6,612	$975	$551	$81
INSURANCE TOTAL	$10,632	$1,568	$886	$131
Loan - TT$40,000 @1.5% (US$5,900)	$23,964	$3,535	$1,997	$295
Credit card - Minimum Payment on TT$3,000 (US$442) Medical expense until Insurance reimbursement	$2,400	$354	$200	$30
DEBT PAYMENT TOTAL	$26,364	$3,889	$2,197	$324
Tertiary – Gov't subsidized tuition	$4,000	$590	$333	$49
Preschool – Private institution capable of tending to daughter's medical needs	$20,700	$3,053	$1,725	$254
EDUCATION TOTAL	$24,700	$3,643	$2,058	$304
GROCERIES TOTAL	$24,000	$3,540	$2,000	$295
PUBLIC TRANSPORT TOTAL	$15,840	$2,336	$1,320	$195
Baby supplies	$2,040	$301	$170	$25
Utilities	$9,204	$1,358	$767	$113
Building fee	$1,200	$177	$100	$15
Cell phone	$5,280	$779	$440	$65
Landline phone + internet	$4,200	$619	$350	$52
Netflix	$720	$106	$60	$9
OTHER TOTAL	$22,644	$3,340	$1,887	$278
ONGOING CASH OUTLAY TOTAL	$132,580	$20,794	$11,748	$1,733
ONE-OFF CASH OUTLAYS EXPECTED FOR 2017:
Health care - Medical procedure for daughter. To be reimbursed by Insurance at a later date	$9,000	$1,327	$750	$111
Home repairs	$11,200	$1,652	$933	$138
TOTAL CASH OUTLAY EXPECTED 2017	$152,780	$23,773	$13,432	$1,981

I'm afraid that the medical expenses do put your friend in quite a bind.  But, maybe you can give some more answers that would help. 

• What is the expected timeline on insurance reimbursement?
• Is there only one sick child, or does your friend have multiple children?  I ask because there are two lines for tuition.
• In the US there are multiple options for cell phone providers.  Can your friend switch providers so that she only pays for the minutes she uses?  What about getting rid of her cell phone entirely and relying on the home phone she is covering?
• Would your friend be able to make more money?  Could she get an additional job at night?
• What about taking in a boarder or AirBNB guests (if legal)?  Could she work out an arrangement with her mother where they split the boarder's/guests' rent and, in return, your friend takes care of anything needed for the boarder/guests?

As it is, I don't think your friend is coming close to surviving with these numbers.  If we take out all the debt payments, all the education, Netflix, cell phone, and all savings, your friend still comes up short for just covering regular expenses for the year, and that isn't even counting the home maintenance and extra medical expense expected for 2017.  She needs much, much more money.  See below:

HYPOTHETICAL NUMBERS	ANNUAL TT$	ANNUAL US$	MONTHLY TT$	MONTHLY US$
Post-tax income	$65,000	$9,587	$5,417	$799
Life insurance	$4,020	$593	$335	$49
Health insurance	$6,612	$975	$551	$81
INSURANCE TOTAL	$10,632	$1,568	$886	$131
GROCERIES TOTAL	$24,000	$3,540	$2,000	$295
PUBLIC TRANSPORT TOTAL	$15,840	$2,336	$1,320	$195
Baby supplies	$2,040	$301	$170	$25
Utilities	$9,204	$1,358	$767	$113
Building fee	$1,200	$177	$100	$15
Landline phone + internet	$4,200	$619	$350	$52
OTHER TOTAL	$16,644	$2,455	$1,387	$205
ONGOING CASH OUTLAY TOTAL	$67,116	$9,899	$5,593	$825

[havregryn]

I think that you should maybe seek out someone in your community who is in a similar situation but has a better cash flow and see what they are doing differently.
I am saying this because it will probably be very difficult for people here to relate to this income level and to really get an idea how reasonable some expenditure is.
I grew up in  a setting where this would be a realistic budgetary situation both in terms of expenses and income and I can tell you from first hand experiences of myself and my friends that people end up with very different outcomes based on choices they make even if their starting position is this hopeless.
I have a close friend who grew up in poverty even by our third worldly definition of it and still her parents managed to arrive at a situation where they are financially quite stable and own three small apartments in our country just by being frugal.  At the same time I know plenty of people who earn relatively high salaries for the context (a 1000 US$ per month after tax is a high salary and if it's two of you working you are rich) and live in free accommodation provided by parents and have the kind of income - expenses mismatch that you are describing. Someone who is in a similar economic situation would probably be more qualified to identify true weaknesses of this budget.

With that said I see now after a quick google search that this is a low salary for Trinidad&Tobago, meaning that the combo of a single parent, ill child and low salary is probably a terrible situation that might be very hard to get out of.
Can your friend earn more?
Does she have any kind of skills she could use to earn extra money online?

[With This Herring]

K_ryan, you might get some good perspectives if you edit your first post to put [Trinidad and Tobago] at the beginning of the case study name.  That would make it stick out as interesting for anyone who lives there or near there and is more familiar with price levels and what might be good solutions that we American posters can't see.

[LadyStache in Baja]

What is healthcare like in Trinidad?  Is it socialized?  Could possibly cut health insurance if there's a public option.

[k_ryan]

Hello all. Thanks for all of the responses so far.

To clarify some of the questions raised...

Life insurance--cancel or switch to a cheaper policy if possible. Is this term or whole?
Home repairs--can she DIY some of these to reduce the cost, or barter with someone? Ho essential are these repairs, can they be deferred or scaled back?
Education--Is there any possibility of scholarships or financial aid for her daughter?
               --Unless her tertiary education is *soon* going to result in a higher-paying job, she should take a leave of absence until she can afford tuition.

Life insurance is whole. Home repairs aren't essential, but are being demanded by her mother with whom she lives. It's a culture thing here that children are obligated to fulfill their parents' wishes. Her tertiary education is will result in a certification that will pay off with a higher salary in mid-2018. Regarding financial aid for her daughter, I'll have her do some more research.

• What is the expected timeline on insurance reimbursement?
• Is there only one sick child, or does your friend have multiple children?  I ask because there are two lines for tuition.
• In the US there are multiple options for cell phone providers.  Can your friend switch providers so that she only pays for the minutes she uses?  What about getting rid of her cell phone entirely and relying on the home phone she is covering?

The timeline for insurance reimbursement is 5 months. There's only one child. The tertiary education line is for the mother's current studies. A pre-paid cell phone is an option, yes.

What is healthcare like in Trinidad?  Is it socialized?  Could possibly cut health insurance if there's a public option.

Public health care is available. However the system is terribly inefficient and people have to wait almost a year for surgery.


The general consensus, it seems, is that she should supplement her income. With finances already constrained as they are I doubt she can risk the investment necessary to buy goods for resale. And the property she lives in isn't hers, so renting out a room isn't an option either.

Is there any way to sell/profit from her skills online? She's pursuing an IT qualification, so she has some knowledge of web development, coding, etc?

Thanks again for all the responses.

[AMandM]

Life insurance is whole.

If she can switch to term, she'll reduce her premiums (and there are tons of threads on why whole life is a bad idea).

Home repairs aren't essential, but are being demanded by her mother with whom she lives. It's a culture thing here that children are obligated to fulfill their parents' wishes.

I respect this--and after all her mother is giving her free rent.  Still, could her mother reduce her wishes for a while--say, until the daughter has the certification and better job in 2018?

Is there any way to sell/profit from her skills online? She's pursuing an IT qualification, so she has some knowledge of web development, coding, etc.

The side hustle thread has a lot of ideas, but I don't know how many of them are feasible in Trinidad.  I know I've looked at a couple of online tutoring sites, for instance, that require a US SSN or Canadian SIN. Perhaps there are local equivalents? Does her uni/college have a career center that could help her?
http://forum.mrmoneymustache.com/welcome-to-the-forum/talk-to-me-about-side-hustles/