This & That: Misconceptions & Misunderstandings Edition

S wrote:  I am dating a guy who is a single parent so I understand his financial responsibilities are greater than my own.  I also make a fair amount more than him.  My question is do I help him out as we are in a relationship or let him fend for himself as I do not really have the extra cash to help and would have to use credit.  (I don't want to hurt my own situation but feel bad I do help out with grocery shopping cooking etc as he was throwing $ away on take out.)  Also we have very different personalities when it comes to handling finances I save and can do with out but he's feast or famine and if he thinks he has some extra $ it's spent.  How do we come to a happy medium?

Gail says:  You should never,  NEVER put yourself at risk financially to "help" someone else.  It makes no sense for two people to be in a mess.  No matter how much you love a body, putting your own financial foundation at risk is not the answer.  Help in ways that you can — as you are doing — but don't "bail him out."  He's going to have to learn to put some of that feast money away for those famine days.

A wrote:  I am a hairdresser and work from home, my income is very unpredictable and it sometimes varies drastically from month to month, how do I figure out what my yearly income is to be able to fill out your budget sheet as accurately as possible.

Gail says:  You're going to have to use a tiered budget to deal with your variable income.  Make three budgets.  Budget A covers your most basic needs:  rent, food, bills you must pay every month.  Budget B is for things like clothes and entertainment — nice to have but you won't die if there's no money for it.  Budget C is for the very nice to have — more clothes, vacations, etc.  Base your A budget on the very least you'll earn in a month.  As you earn more money than you need to buy the things on your Tier A, you can buy some of the things on Tier B.  But you always have the basics covered.  Make sure you're building up a good emergency fund too.

B wrote:  I watched your show just recently and I think you're great.  You've really motivated me to get serious about our finances this year, right now and not waste another day or a minute in any sort of procrastination. I am married nearly 8 years, and we have 5 year old daughter.  Both my husband and are employed and make about $8,000/month (net) with expenses of approximately $3,700 (this includes rent, two car payments, insurance, groceries, utilities, and childcare).  However, we managed to save absolutely nothing all this time.  We frequently disagree on what are reasonable (necessary) expenditures and how we can do better.  We eat out quite a bit, and that I believe is where most of our money vanishes. Maybe we eat too much overall, b/c you see we buy groceries, but we also eat out.  The bottom line is that we need to save and we both agree on that.  We both agree we want to own a home, but I am beyond the strategic planning stages at this point, and I want to start implementing immediate action to start seeing immediate results.  We do not drink/smoke or gamble so there are no bad habits to support except I think we've somehow managed to live above and beyond our means for so long that we cannot seem to get ahead.  We owe nearly $10,000 to former landlord for rent, another $1500 for former nanny service we had.  There is some debt that we'd like to clear up so we can move forward and begin a new lease on life.  All in all our debt is not unmanageable, it would take perhaps $50,000 roughly to clear up some things and we could be debt free, but it seems more gigantic than it really is.  Does it seem reasonable that we could save somewhere between $200-400/wk so that we can save money and get ahead?  I wish I could be on your show or something.  I would absolutely do anything to get this behind us.  We want to do so many things, but we can't because of this debt.  We both want to travel abroad, or even a vacation within US is out of question at this point.  We want to do more for our daughter, and more importantly we both agree that we want to own a home.  Our credit scores are lousy and I am having frequent (daily) asthma and anxiety attacks because of this. I am desperate please help!!!

Gail says:  If, as you say, your income is $8K a month and your total expenses run to less than half that, I do not understand why you've got any debt.  Perhaps it is that you're grossly underestimating what you've been spending.  I recommend you use the tools on my website or get my book, Debt-Free Forever, and follow the steps outlined to figure out where your money has been going. Then decide how much to put towards debt every month.  You clearly have the means to have a great life.  Now it's a matter of figuring out your priorities.

Bob wrote:  We have read your book and wow.  I have been scared straight.  My wife and I now know where we stand.  $57,000 in debt.  $40,000 of that are student loans.  We have a salary of 99,000 a year with a 1400.00 mortgage.  My question is:  We think we can be out of consumer and student loan debt in 2 years if we crack down.  Do you think once this is done it is a good idea to pay off the home mortgage next….  I hear some financial experts who say not to do this and some that swear by it….  Thank you so much………..

Gail says:  It is an American thing to not pay off your mortgage because the mortgage interest is tax-deductible.  But this is the kind of delusional thinking that has got the U.S. into the mess it is in.  That being said, you should also be having a life, and as long as you're on track to have your mortgage paid off by the time you retire, you're doing fine.  Split the diff:  incorporate 1/3 of that money into your budget for a good life, save 1/3 and put 1/3 to your mortgage.

C wrote:  I LOVE your show and watch it all the time.  I have a question:   I have $15000 debt on personal LOC. 2.5 % above prime.  I have $226000 mortgage at 5.09%.  I owe $500.00 on my VISA.  I make $80000/year my husband is on disability and we have a 2 year old in daycare.  Besides paying off visa first, should I concentrate loc repayment on extra on mortgage?  My mortgage is new (2007) currently paying $773.00 every two weeks.  Any advice?

Gail says:  Even though the interest rate on your mortgage may be higher than on the line, the line should be paid off first because it is callable credit, meaning the bank can ask for it's money back at any time and you'd have to pay up.  So get rid of the credit card debt, then work on the line of credit.  Once that's gone, focus on the mortgage.  Make sure you're also setting aside a little something for emergencies and long term savings.  When the line is gone, build up your emergency fund.  Then split what you were spending to pay down your line 50/50 between repaying your mortgage and having some fun.

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