Tania and Carl Chandler
Mortgage and Day Care Eat Up the Paychecks
Ages: Tania, 39. Carl, 38.
Biographical info: Married with two children, Myles and Sydney, and living in a suburb of Maryland. She is a professional school counselor. He is a systems consultant.
Financial situation: Together they earn about $137,000. They don't have any emergency savings. She has two small retirement accounts. He just started saving for retirement. They owe $14,400 on four credit cards, although they had thought it was $12,000.
The Chandlers aren't wildly overspending. However, they do have some hefty expenses: Their mortgage and day-care take up about 74 percent of their net monthly pay. The bills get paid but just barely. And when they can't cover everything, Tania would use credit or borrow from her retirement plan.
New Year's resolutions: Above all they want to have an emergency fund. "I want to look at my bank statement and see $10,000," Carl said. They both want to get rid of the credit card debt. They also would like to begin saving for their children's college education.
The plan: The key to achieving a New Year's resolution is to be realistic. Right now the Chandlers can't afford to start a college fund. So I suggested they concentrate on building up their savings and paying down their credit card debt. To meet those two goals, they need a budget. A preliminary look at their expenses showed that they need to start cutting -- and deep. But not too much: You have to leave room for some fun, otherwise this financial diet won't work.
Beginning Jan. 1, they are to track every penny they spend for one month to help them identify areas where they may be overspending.
Tough love: I also took away every credit card from Tania, who is the charger. I sealed them in an envelope, which the couple placed in their home safe. They are now on a cash-only basis.
While paying down debt, the Chandlers will begin to save some money from every paycheck before they pay any bills. At first, it won't be much because they want to get rid of the credit card debt.
The savings goal is not the $10,000 Carl thought would be safe. They need at least $19,000, which represents three months of living expenses. This won't be easy, but at least they have a plan.