Q: I’ve watched you on a couple of recent shows, and everything you say is so true. The sad part is that, for a lot of people, it is too late. I am a stay-at-home mom, and my husband is a postal worker. He brings home about $2,500 monthly after his thrift savings, savings bonds, insurance and everything is deducted. I feel like we are living paycheck to paycheck. We do have one credit card on which we owe $7,800. I tithe and pay my offerings. Do you think my husband should cut out some of his deductions? Can you tell me the quickest way to pay off the one credit card that we have? I feel financially strapped. I love being home with my 2- and 5-year-old, but if I have to go back into the workplace, then I will. We haven’t even started saving towards their college education.
–A Viewer, Hampton, GA
A: First, breathe.
Then, count your blessings.
I started there because, before you continue worrying, you need to appreciate what you have. Yes, things are tough, but if you go after this problem calmly, you’ll have a better chance of coming up with a plan you can stick with.
Next, I need for you and your husband to sit down and do a monthly budget. You can’t begin to make important decisions, such as going back to work and leaving those precious children in daycare before you have done your homework.
On the “Road to Wealth” site, you will find a monthly spending plan (pdf).
Fill out the monthly spending plan so you can see just where all your money is going. You should do this before you decide what your husband needs to eliminate in payroll deductions. It’s possible there are some things you can cut back on, such as premium cable or reducing your cell phone plan.
Once you’ve gone through your budget and can’t cut any more, examine each payroll deduction to see what is absolutely necessary.
For example, right now your husband may need to cut back on buying bonds so the two of you can get rid of that $7,800 in credit card debt. I question whether he needs to be buying bonds right now when you are barely meeting your monthly expenses.
Unfortunately, there is no unique or clever way to get rid of that debt other than to aggressively make more than the minimum payments.
If things are still tight, he might consider—just for a little while—cutting back on how much he’s putting into retirement savings.
And speaking of retirement savings, once you get clear of your debt and you have control over your monthly budget, make sure you are putting something away for your retirement as well. Stay-at-home spouses can have IRAs too.
Even though you do not have any income, you can still contribute to a deductible IRA up to $5,000 for 2008. If you are 50 or older, you can contribute $6,000.
But you and your husband have to file a joint tax return. There are some other caveats. If your husband has an employer-sponsored retirement plan, which he does, your contributions may not be entirely deductible. But unless your husband earns a substantial salary, you probably qualify. If his adjusted gross income is below $159,000, you may still be able to deduct the entire contributions.
IRS Publication 590 has more information on a spousal IRA.
But again, first get your spending in line with your income before contributing to the IRA.
As for the college fund, while that is important, this too should wait until you are confident you can handle your monthly expenses. You still have time since your children are so young. But don’t wait too long. For information about college savings, go to the College Savings Bank Web site.
Finally, when deciding about going back to work, please consider the cost of daycare and workplace related expenses, such as commuting costs. You may find you’re working just to pay for daycare. That’s not a good way to handle your financial situation.
But I bet with some belt tightening and examining certain payroll deductions, you can stop living paycheck to paycheck and stay home with your children.