Budget help from Penny Saver

 I am reposting this to my blog! :) Thank you Penny Saver for your budgeting help! :)

 

Cut Your Budget: Erin

by Penny Saver on June 2, 2011
A few weeks ago, I asked, “Can I cut your budget?” I was so pleased to hear from several readers with their budgets and am excited to present the first budget in this series!
Today’s budget comes from Erin at Healthy Branscoms, who is trying to get her budget in line to pay her van and student loan, totaling $26,900, so she can stay home with her kids. Here is the budget Erin shared with me, along with her notes.

Current Budget

Income -
Husbands income: $2800 (these are all after taxes)
Erin's $2200
Child Support: $636
Total: $5,536
**I also sell Shaklee but since it varies from month to month I put all of income from that towards my student loans to pay extra. **
Expenses -
Mortgage $1250.12
van $350 (refinanced last month from 7% interest to 4%, will be paid off in 14 months)
student loans $337 (two loans. 4k=2% interest. 18k=6% interest)
daycare $350
Groceries $800 (I would like to keep it at $400 but its not happening. We are building up a stockpile right now of loss leaders/coupons)
vitamins/meds $190.25
xmas club $35 (saves money to give me a big check in October for xmas money)
gas/electric $185
ADT $44.08
Gas for vehicle $150 (I carpool A LOT)
me and husbands spending money $200-we each take $100 and use that for anything we want and when its gone, its gone for the month
veh reg/ins $146
verizon $142.26
Qwest internet/home phone $82.81 (we are looking at dropping home phone)
Direct TV $92.40 (we want to drop this to basic cable/combine internet)
trash $21.50 (I just recently dropped this from $29 a month!)
netflix/hulu $18.62
school lunches $100
Husbands IRA $124
Koda the husky $15 per month food
Total: $4,633.98

Erin’s Budget Issues

As you can see, her income and expenses don’t add up, and Erin isn’t exactly sure where the extra money is going. It slips away in meals out, which Erin describes as her weakness and in the past added up to an extra $400 a month. It’s also used for irregular expenses, such as plane tickets for her kids to visit their dad, clothes, birthday gifts, etc.
Erin said, “We had the attitude that we both were working so we had the money to spend.” Unfortunately, that’s an easy feeling to fall into (I’m guilty of it myself), but it’s not one that helps you to meet your financial goals. Fortunately, she and her husband are both on board with making changes to get their spending under control and meet their goals together
At the current debt repayment rate, Erin will be out from under the van and student loans in 39 months. Let’s cut the budget and double the debt repayment to have the loans paid off in under 2 years. New items are listed in red and my notes are in italics underneath lines I changed. 

Updated budget
Income –
Husbands income: $2800 (these are all after taxes)
Erin's $2200
Child Support: $636
Total: $5,536
Expenses –
Savings – $426
I am a firm believer in paying yourself first! Erin and her husband have $10,000 in savings but aren’t adding to it. Financial experts recommend having at least 3 months expenses, if not 6 months, in an emergency fund, so I’m adding this to the list. Between this savings and IRA, 10% goes to them first.
Mortgage – $1,250.12
They refinanced a few months ago, pushing their payment up $200 per month but moving from a 30 year loan to a 15 year loan and lowering their interest rate to 4.25%. Great move! Erin will have her mortgage paid off significantly faster and save thousands in interest. Their mortgage includes property taxes, and does not include PMI.
Van – $350
I left this alone, as Erin recently refinanced and it will be paid off in 14 months. If Erin has extra money, it better serves her to put it toward the student loan with higher interest.
Student Loan – $337 + additional payment of $382.93
Be sure to check your contract to see if extra payments are allowed or if there is a pre-payment penalty. If extra payments are allowed, apply the extra amount the $18k student loan principal the amount. Once the van is paid off, add that $350 a month toward the student loan as well.
Daycare  - $350
Groceries – $600
Erin is currently spending $800 on food, $100 on school lunches, and $15 for dog food. I’m cutting her budget to $600, which she feels is reasonable for her family of 5. This includes packed lunches for school and food for Koda, the husky, as well as household supplies like diapers, toilet paper, etc.


Dining out – $100
Dining out is a weakness for Erin’s family, and an item that wasn’t on her budget. It’s unrealistic to cut it entirely, but it can be done affordably! I recommend that Erin check out the blog Dining Out Challenge, where blogger Melissa from Mom’s Plans shares how she and her family dine out once a week for $25 for their family of 5. She has an excellent eBook coming out later this month, so keep an eye out for that! We love restaurant.com at our house, buying $25 gift certificates for $2 with their frequent 80% off coupon codes. I sign in through ShopAtHome.com to get a 24% cash-back rebate on my purchase as well. When we go out, we have to spend $35 before tax and tip ($10 cash and $25 gift certificate), and including tax and tip, we routinely go out for $20 per visit, bringing home leftovers for lunch the next day. Additionally, we try to pick places that have “kids eat free” nights, use newspaper coupons, Groupon (signing in through Mr. Rebates for 6% cash back), the Entertainment book, or other deals. We also drink water at restaurants.


Vitamins/meds  -$190.25
This line item was non-negotiable for Erin. Others might have luck in cutting their vitamin costs by using coupons and store brands.
Christmas club – $35
I love that Erin is saving ahead, but by having it in a Christmas club, she doesn’t get the money until October, potentially missing great deals all year long. Check out my $100 Holiday for ideas for giving gifts on a budget and acquiring them throughout the year when the deals are available.
Gas/electric – $166.50
Erin is going to ask her utility company for a free energy audit. Making a few small changes to cut her heating bill and energy use around the house, and saving on laundry could help her cut 10% or more off of their gas/electric bill.
ADT $44.08
Gas for vehicle – $150
Spending money for Erin and her husbands – $150
I’ve cut their spending money to $75 each.


Veh reg/ins –  $115
This cut is an estimate, because I haven’t researched insurance for their particular situation, but Erin hasn’t changed insurance in the past 6 years and it’s reasonable to  expect that she could cut 20% with a few quick calls. This guide is helpful in knowing what to you need and discounts to ask for.
Cell Phones – $80
Erin and her husband both have smart phones through Verizon. It might be worth looking at pre-paid options, which now include smart phones. Metro PCS, for example, has a smart phone with unlimited text, talk, and data starting at $40 per month including taxes and fees.
Internet – $45
Drop the home phone and use your cell phones instead.  Call your internet service provider to ask for the retention department. Let them know that the bill is too high and ask how they can help you. When I called last year, our DSL cost was cut from $45 to $20 a month for a promotion they were offering! It never hurts to ask!
Direct TV – $0
I cut this altogether. Netflix, Hulu, and internet can cover this family’s viewing entertainment far cheaper! Also consider the public library, which often has DVDs available.
Netflix/Hulu $18.62
Trash $21.50 (I just recently dropped this from $29 a month!)
Husband’s IRA $124
Irregular Expenses – $600
This is purely a guess, and should  be configured by Erin and her husband based on their actual expenses for the year. This would include clothes (see how I get kids clothes close to free), school supplies, vacations, household supplies, car repairs, etc. Add up all of the irregular expenses for the year and divide by 12 to get your monthly expense on this item.
Total: $5,536
*****
With a few minor changes and no significant changes to their lifestyle, Erin and her husband will be debt free and have 4 months’ expenses saved for an emergency in 2 short years! They can then re-evaluate their budget to work toward the next goal of Erin staying home full time with her kids.
Readers, how would you help Erin to trim her budget? Do you have suggestions that I overlooked? Share your ideas in the comments!

Please note that I am not a financial expert. I’ll give my best suggestions for the situations you share with me, but you should always do due diligence to be sure an idea works for your situation, is legal in your municipality, and will actually save you money.