*This post may contain affiliate links, please see my disclosure
Hey everyone! Welcome back to another episode of Budget Friday. This is seriously my favorite part about personal finance, the chance to help others get on a budget, get out of debt and reach their financial goals. I love showing the power of a well-thought out budget plan and the long term results it can have. I really want to convince everyone to get on a budget, even Jeremy from Modest Money (yup, totally calling you out, dude 😉 ). I think I have decided that by default, all submissions will be anonymous unless otherwise specified, so if that was any bit of a deterrent to sending your info in, no fear!
Today’s budget is an exciting one, so I’ll get right to it:
This couple is a little older than my first few budgets and the only one with kids so far. Only one of their kids is still in school, and they are now looking at what it would mean to be debt free and start saving. They do have a retirement savings plan, but I am not sure what amount is in there. Based on the details I was given, retirement savings isn’t a huge worry. They are focused more on getting out of debt and building a good emergency fund at this point. Here are the stats:
Debts (Balances):
- AT&T – $6,000 total, $250 per month minimum
- Income Interruption Loan – $6,000 total, $250 per month minimum
- American Express – $10,000 total, $280 per month minimum
Goals:
- To have a fully funded emergency fund.
- To be debt free!
- To be a month ahead in terms of income.
- To be able to tithe.
- To start saving for Gifts/Christmas, Travel, Clothes, College (for
Mom someday), Entertainment (movies, dinner out, field trips with son, etc.).
- Would like to have fun money for both Mom and Dad.
Priority List
I was not given a list of priorities, but as I always say, you can tell someone’s priorities based on their budget, and it seems their priorities are definitely family and church.
And here is their budget:
| OLD | NEW | Comments | |
| Starting Balance | $ – | $ – | |
| Total Income | $ 6,060.00 | $ 6,060.00 | |
| Total Expenses | $ 5,530.00 | $ 5,990.00 | |
| Projected Ending Balance | $ 530.00 | $ 70.00 | |
| Income | |||
| Paycheck #1 | $ 3,000.00 | $ 3,000.00 | |
| Paycheck #2 | $ 3,000.00 | $ 3,000.00 | |
| Cell Phone Contribution | $ 60.00 | $ 60.00 | |
| Total Income | $ 6,060.00 | $ 6,060.00 | |
| Donations | |||
| Tithe | $ 300.00 | One of their goals it to start tithing. I have added in 5% giving to start, and after the debt is paid off, they can move this up to 10% if they feel called to. | |
| Total Donations | $ – | $ 300.00 | |
| Bills | |||
| Mortgage | $ 1,800.00 | $ 1,800.00 | |
| Electric | $ 125.00 | $ 125.00 | |
| Natural Gas | $ 75.00 | $ 75.00 | |
| Cell Phone | $ 230.00 | $ 230.00 | I would say this is a bit high, but they are receiving $60 a month toward the bill for the family plan. I’m assuming these are smart phones, but I don’t really see this as a budget buster. |
| Home Phone/Internet | $ 75.00 | $ 75.00 | |
| Water/Sewer | $ 125.00 | $ 125.00 | |
| Car Insurance | $ 250.00 | $ 200.00 | They are insuring a vehicle that is not currently running, so this can definitely be lowered. I suggest removing the insurance coverage until the vehicle is up and running again. Also, feel free to shop around for better rates, and car insurance is a fierce competition right now. I would say to call Farmers and Geico to get quotes if they haven’t already. |
| Netflix | $ 20.00 | $ 20.00 | |
| Family Academy | $ 350.00 | $ 350.00 | |
| Debt #1 – AT&T | $ 250.00 | $ 500.00 | Ok, this is the debt snowball in action. We are going to double the payment to the lowest balance loan, which is AT&T. |
| Debt #2 – Income Interruption Loan | $ 250.00 | $ 250.00 | |
| Debt #3 – American Express | $ 280.00 | $ 280.00 | |
| Total Bills | $ 3,830.00 | $ 4,030.00 | |
| Necessities | |||
| Food | $ 600.00 | $ 500.00 | For a family of 4 living at home, I think this can be lowered $100 a month. A solid meal plan will help you win in this category, which is why we use eMeals (<- affiliate link) for our food budget. I know that they are on a very strict food diet (so eMeals won’t work), but I know that planning out each meal for the week in advance can save them money here. |
| Gas | $ 500.00 | $ 450.00 | $500 seems a bit high for 2 running vehicles. Apparently, they have a long commute with a decent gas mileage car, and the other vehicle is a gas hog. I’ll address this a bit more below. |
| Date | $ 60.00 | I am declaring the date budget a requirement! This has been something that brings great joy to Michelle and I, and I want to pass this on as a gift. Go ahead, go on a fun (frugal) date and enjoy yourselves 🙂 | |
| Spending Cash | $ 100.00 | One of their goals is to have a little spending money during the month. I totally get that, and I think that having spending cash can actually save you money. I have given them each $50 a month to spend on whatever they’d like. Food, movies, Justin Bieber bobble head dolls… | |
| Total Necessities | $ 1,100.00 | $ 1,160.00 | |
| Savings Buckets | |||
| Christmas | $ 50.00 | One of their goals is to set aside some money for things like Christmas, Bdays, Travel, etc. I call these savings accounts “Savings Buckets.” Basically, you set a goal (say, save $600 for Christmas), set a date to achieve that goal, and then save money each month to reach that goal. I am picking $50 a month for most categories, but these are adjustable as needed. They just cannot exceed the total of $500. | |
| Birthdays | $ 50.00 | Same as Christmas | |
| Clothes | $ 50.00 | Same as Christmas | |
| Car maintenance | $ 500.00 | $ 100.00 | I am addressing this below, but $6,000 a year on car maintenance is the biggest pain point in this budget. Hopefully we can address this! |
| Vacation | $ 50.00 | Same as Christmas | |
| Home Maintenance | $ 100.00 | $ 100.00 | Saving for home repairs/maintenance is a great thing to do, and will help relieve the stress of unexpected home expenses. |
| Emergency Fund | $ 100.00 | One of their goals is a fully-funded emergency fund, but I would say that being debt free should happen first. I suggest saving $100 a month until they have about $1,500-$2,000 put away, and then throw all this money at the debt until it’s gone. | |
| Total Other | $ 600.00 | $ 500.00 | |
| Total Expenses | $ 5,530.00 | $ 5,990.00 |
What To Do With The Cars
So, the one thing about the above budget that really stuck out to me was dropping $1,000 a month on vehicle related expenses. I inquired a little about this, and here’s the breakdown:
- 1987 Volkswagen Diesel pickup: Does not run, not insured
- 1992 Dodge Caravan: Does not run, still insured
- 1998 Plymouth Neon: Running, but needs work
- 2004 Volvo XC90: Runs fine, bad gas mileage
Here is my proposed plan: Sell all the vehicles that are not running well. I say sell the Volkswagen and Caravan, as they are not running now, so they are not needed. If the repairs will cost less than, say, $400, do the repairs and then sell them. If they will cost more than that, they would be dumping money into vehicles that will never recover that repair cost. Those vehicles are draining $500 a month, or $6,000 a year. If they could get rid of the car repair costs, or at least greatly reduce them, that will take YEARS off their debt payoff date. I also would suggest selling the neon, as Dodge (Plymouth) vehicles are not known for their reliable transmissions or engines when they get high in miles. I would sell all three vehicles using Craigslist private sale, and then replace the Neon with a low-mile, early 2000’s Honda Civic or Toyota Corolla. Stellar reliability, great gas mileage, and very low (if any) maintenance costs. This could save up to $400 or more a month in vehicle maintenance, and maybe even some gas costs.
Debt Snowball
As many of you know, I am a big proponent of the debt snowball. It’s basically this: take your debts and place them in order from smallest to largest. Pay the smallest debt off first, and then take the extra money you were paying toward that debt and put it toward the next smallest debt. This allows you to gain some momentum in paying off your debt, and psychologically feels better! Based on the above numbers, here’s the snowball breakdown:
- $500 a month toward AT&T $6,000 debt – PAID OFF IN 12 MONTHS!
- Take the $500 and add it to the $250 for the loan (which now only has a $3,000 balance) – PAID OFF IN 4 MONTHS
- Now we’ve got some momentum. $750 a month plus the $280 per month to pay on American Express (which now only has a $5,520 balance) – PAID OFF IN JUST OVER 5 MONTHS!
That is something to get excited about. If they can stick to this budget, they would be able to pay off $22,000 in debt in just 1 YEAR 9 MONTHS! WOOOOHOOOOOOO!
Goals
At this point, they will have an extra $1030 a month (if their income/expenses stayed the same). First things first, I suggest upping their tithe to 10%, as the word tithe literally means 10%, and one of their goals was to be able to tithe. Second, they want to (as I always suggest) get a month ahead on their bills so they don’t have to worry about when to pay things, as the money would be in their account before the month begins. This would take about 6 months. Then, I suggest building their larger emergency fund. I would take part of that money and put it toward their goal of college as well. If there is any money left over at that point, they should definitely look into a plan to pay off their mortgage early, saving thousands on interest in the long run. I do suggest sitting down with a good financial advisor to go over their retirement savings plan sometime soon to ensure they are on track to reach their retirement goals. This can help them think bigger picture, and help them set some realistic monthly investing goals to ensure they are in a great place when retirement rolls around.
And that’s it! I would love to re-visit this budget after they are debt free, and see how things have changed. 🙂
Comments: So, what do you think? Is there anything you would have changed about my proposed budget? I’d love to get some reader feedback on what you would do. Are you excited for them to potentially be free from the heavy burden of debt in LESS THAN 2 YEARS?! I know I am! Also, if this has helped or inspired you at all to get on a budget, please send me an email using the contact form on the site. I would love for you to be the next Budget Friday submission.
I think your plan sounds awesome. I think that $230 a month for a cell phone plan is insane though. Do people really pay that much? I would go to the cheapeast pay-as-you-go plan that I could until I was out of that mountain of debt!
But even if they don’t, they will still do awesome following your plan.
Thanks Holly! The cell phone plan is a bit high, but knock $60 off that number (as they are being paid for 2 of the phones), and it’s $170 for 3 smart phones. I agree, getting aggressive and going pre-paid could save them another $30-$50 a month, but I think it’s a great start for now. We’ll see how things go, as I do want to follow up with people down the road.
Wow that AT&T money seems very high! And I think your plan looks great.
Thanks Michelle. The AT&T is 5 phones, but they are being paid $60 a month for two of them, so it works out to $170 for 3 phones.
Nice budget. I think the $230/mo is reasonable if their children have phones on it too.. I mean mine is like $65/mo so if I had a spouse and two teenagers that would be nearly $300 so they’re doing good!
I wonder how they got so in debt with AT&T?
I think it’s generous that you accounted for tithing. Sometimes people trying to work out a budget for another person don’t really understand why tithing is important to a family and always try to cut it out (after all, an extra $300 towards their debt every month would make a huge difference). I also like that you made date money haha
There are 5 phones on the plan, and they are being paid $60 a month for 2 of those phone, so it’s not bad for a smartphone plan. Also, as a Christian, tithing is something I enjoy and and excited to help others who have that as a goal as well.
And the date budget is set in stone at our house, no matter what 🙂
General suggestion for this series to make it even more enjoyable: It seems that you don’t have much of a back-and-forth with the people who submit their budgets for review since you say at various points in the posts that you aren’t sure of some details or whatever. Do they get to look over your proposal before you post it? Do you know if these changes are reasonable for them? It might be even more interesting for you to post a more final budget that they’ve agreed on and note where they asked for changes from your original suggestions and why. For instance, $500 on groceries for 4 people – are the children teenagers and therefore voracious? – on a strict way of eating may not be feasible unless they are really wasting a lot now.
Thanks for the suggestions Emily. I do have a bit of back-and-forth over email, but there are just some questions that don’t get answered. The goal of this series was more of a “first look” at their proposed budget, for both the readers and the person submitting, that way both them and I can garner feedback from readers and incorporate suggestions as needed.
But, I do like the idea of sending them a preliminary budget for discussion and making adjustments before posting. I’ll keep that in mind, and if timing and circumstances work out, I’ll give it a shot for next time 🙂
Thanks!
I agree with pp, and maybe add a follow up in six months? Might help them feel more accountable and be a nice inspiration down the line!
I’m hoping to do something similar to this 🙂
I noticed that you have them paying off the $6,000 AT&T debt as it is the “lowest balance loan”. However, wouldn’t it be more beneficial to increase the loan with the highest interest rate? When we paid off our debts, we ensured that any extra money paid into debts were from highest APR to lowest, effectively decreasing the month-over-month compound interest we paid.
Hey Aaron! While I agree in theory, in practice, I find this to be only beneficial to the most disciplined of budgeters. In my view, if you are just getting started on a budget, motivation weighs much more heavily and can have greater returns (for the beginning budgeter) because it keeps you going. I am counting on the psychology of paying off one debt quicker to motivate them to kill the other 2 even faster because they feel the excitement of a financial win. I know that killing my small balance credit card debt felt awesome, which motivated me to get even more agressive with my personal loan payoff back when I was paying off debt. I am hoping for the same motivation to kick in here.
Overall, I’d say their budget looks pretty good. The only issue I have is $50/month for birthday presents. I guess you’d need to know who all they buy gifts for, but $600/year for bdays is a lot of money (so there better be a lot of presents/kids they’re buying for). Also, make sure they’re refinanced their mortgage recently. That’s a big expense in their budget so if they haven’t refinanced recently they could likely save quite a bit of money.
Hey Jason, we didn’t get into the specifics of the birthday budget, but knowing their family size and generosity, I think it’s a good starting point. They can definitley lower it if they don’t need that amount of money per year for gifts.
Great idea on the ReFi, I’ll ask where they are at with that (I still need to send them my awesome budget excel worksheet). That could speed up their debt payoff as well!
Also, there is no category for other gifts besides Christmas. Maybe that birthday category covers things like weddings and baby showers. If they are active in their church they may have a wide net of friends and have lots of events they need to get gifts for.
Birthdays is $50 a month 🙂
I think your tips are right on, Jacob! I would definitely sell all cars that aren’t necessary. But you love cars? Sorry, dude! Sell! You’re in debt…you gotta make some sacrifices. Also, the $600/mo may not be crazy for a family of 4 if there are teenagers especially, and if they’re not eating out at all. Ours is $600/mo for 5 of us, and we don’t eat out ever, so we’re still saving money. Btw, I want to submit ours, but Jeff doesn’t want to! He says it would feel like being in our underwear while everyone else is dressed. I told him that only you would see…and he said “that’s gross, Michelle.” lol!
$230 a month for Cell phone is crazy! I like your proposal for the vehicles as well. Getting rid of those vehicles that don’t run will be huge for them and purchasing a nice reliable vehicle will help in their maintenance costs. However not all of this budget can go into effect until that happens therefore they need to take immediate action on that one.
Very fun exercise… I agree on the cell phone bill. $230 is very high, should be about $100 less, even with 2 smartphones.
I disagree on the food budget. $500 would be tough for a family of 4 these days. (although it is doable) I would save the $100 from the cell phone bill and keep the food budget at $600, but otherwise I think your budget changes are great!
It’s technically 3 phones, one for their teenage son. There are also 2 other phones on the plan, but they are re-imbursed $60 for them, so the bill is actually 3 phones for $170.
$500 may be difficult, but I believe it is doable. If anything, they shoot for $500 and get close, that’s still a win!
That’s awesome that you do this. I love that you give them hope of getting out of debt so soon.
I LOVE doing this. Just FYI, if you ever want a budget analysis, just hit me up 🙂