What are we doing wrong?

[littlebird]

I'm putting this in the mortgage thread because ultimately, that is our goal--to be able to buy a house. But really, my question is what are we doing wrong?

We have two kids (3 & 1 years old). After taxes and deductions, I make $38k. My husband makes $40k. Daycare costs us about $1700 a month for both kids.We lease a car that costs $425/month (honda cr-v). Right now we are living with my husband's mother in Miami and trying to find a place to buy. We got pre-approved for $250k but we aren't really confident we can afford that. 

We know so many couples though that have a single income and kids and a house, two cars and they don't seem nearly as stressed as we are. So I'm trying to figure out if we are doing something wrong and hoping to get some insight here. I should also say before we moved to Miami, we lived in Western MA for 5 years in a tiny studio apartment and had the same problem there. I can't tell you how many part time yoga-teachers or school teachers we know there that own a house and shop at whole foods and go on nice vacations. And we're dying to ask them how they do it. 

To break it down a bit more, right now here are our monthly expenses:

$1,000 on food (this is the only area where we really "splurge" because my husband is a cook and we are very health-conscious but we cook every meal at home and rarely go out)

$220 on Phones

$250 on utilities

$180 on car insurance

$420 on car lease

$230 on gas

$100 on student loans

$150 on diapers and kids

$90 on internet

$100 on health (I have health issues so typically see the doctor a few times a month so this is variable)

$300 on miscellanous (this is obviously variable but this includes household items or clothes for kids or office supplies, dog food etc)

$700 on 1 year old daycare

$975 on 3 year old school

$100 on credit card payments (we have about $2,000 in credit card debt)

So this comes in around $4815 out of around $6,200 of our monthly nut. This leaves $1,415.38 which we've tried to put into savings the past few months--however, even so, we often have unforeseen expenses (this month I racked up about $700 in medical bills because I got pneumonia for example). 

We have no family that is able to help us with a downpayment so we only have about $10k to put down (maybe $18k at most we could scrape together). Rents here are higher than mortgages (same in Western MA where we moved from). I'm just wondering how most families seem to live comfortably on the same income and have their own house and don't seem nearly as stressed as we constantly feel. Right now we're both trying to take on extra work but are so tired that I'm not sure how we'll be able to. 

Anyway, look forward to any thoughts. Thanks!

[littlebird]

I forgot to add that we'd also like to live comfortably, without stress. I don't want to live in fear that if I buy myself clothes or my kids a new toy, that I'm putting my mortgage payment at risk. We basically don't want to feel like it's a constant struggle--which it feels like right now. 

[beanie7132]

sorry this is so long-----

I do not know if this makes you feel any better but my husband and I gross about 74K a year and we struggle with saving too. We also dont have kids, nor the amount of expenses you have. (ie: daycare). we often wonder why we have little savings considering we net twice as much now then we did 3 years ago. Youd think we would have that in savings. Seems the more money you make, the more bills you end up with. I also want to point out that others struggle too. You may not see it, they may not show it, but even the most flashy of people could be truely struggling with thier finances. I have a friend no one would guess has her checking in the red every. single. month. She actually just came back from a week vacation and turned around and asked me for 100.00 to help pay her rent. 

The only things I can tell you that helps us are:

shave off any and every un-neccesary spending. For example I contacted our internet provider (ATT) and our cable provider (directtv). Because I threatened to "explore other options available to me", in a nice way, ATT reduced our rates. By half, without compromising my service or uverse speed. (I work from home, so I have to have internet.) Direct tv made us no offers so we cancelled. I called ATT back and asked what they could offer us. I took the promotional offer of 12 months. 24 bucks a month and $300 in visa gift cards. Turned around and put all 300 back on the ATT bill. the TV service basically paid for itself for 12 months. Doing this saves us more than 100 a month. I wouldnt have had such luck if I never called either of them. I told my mother, and she did the same thing. She is also now paying less for the same service. 

we cancelled netflix. its only 8 bucks a month - but thats almost 100/year.

we also opened a seperate checking/savings with DCU. Direct deposits from our checks in small amounts (50 and 100) go into these accounts. We do not have debit cards or checks for these accounts. So essentially its money we have no access to for splurging, but an overnighted debit card would allow us access within 24 hours for emergencies if needed. This is essentially money we never see, so it is forgotten about. 

we cook less. I dont mean this in a sense of eating out more. I understand your husband is a cook so what I mean is just cooking less food. This way we dont have waste. Before we would cook 6 chicken breasts for example and always seemed to toss two of them a few days later. Now we cook only 4. 

we use the envelope system. I think this was dave ramseys idea - but i noticed we spend more if we dont use cash. we spend because we dont physchologically connect the money to the purchase and dwindling account balance in checking in our mind when we use plastic. My paycheck goes towards the bills: rent, utilities, car, insurance, credit cards, ect. My husband check is withdrawn in cash and split up in envelopes for gas, groceries, household items, entertainment (this almost always makes its way into the grocery envelope), etc. Once that envelope is empty, there is no more until the next pay day. 

We put my husband on a straight talk phone. The wireless service walmart offers. 45/month and he gets unlimited calls and texts and internet. No complaints from him so far. (my cell is employer paid).

Ironically, doing these things also allowed me to increase my 401K contributions so I could take advantage of employer contributions. 

Once we did this for a few months, it was crazy to sit back and finally understand where our money had been going and how we had been living. Now that we are entering the home-buying game, we know we can comfortably afford the upcoming mortgage payment. Yes, it was tough. very tough. and my husband is still not 100% used to the envelope system. but its working and he is learning. 

good luck!

[beanie7132]

ps. your car insurance is kind of high....  I pay less than that for full coverage and then some on 2 cars. And one of them is a brand new car being driven by my husband whose only been a licensed driver for 10 months. If you are up for the inquiries on your credit reports, Id surely check out quotes from other companies. Unless its a florida thing or a lease thing. Ive never leased so I dont know if insurance rates are higher on a lease.

youre health costs - I know there isnt much that can done about this. just wanted to mention that my employer switched to a high deductible health plan, so now I have an HSA account. Because of this, I pay less in healthcare costs all around and its all tax free. High deductible is not for everyone. A plan like this is only beneficial to those who have steady and high healthcare costs. ie: will hit deductible each year. I pay for doctor visits, meds and labs/tests with untaxed money. The tax savings are great for those who benefit from a plan like that. Those with a normal group plan pay for copays on visits and meds with taxed money.

[SheMis]

I had to reply b/c I noticed your subject and once felt like this myself. I do not think you are doing anything wrong, everything is just so expensive! In addition, even good incomes are not balanced with the cost of living. 

I would also recommend the envelope system. In my case my check goes into the bank and is split between savings which is to be kept and checking which is used for bills. The money is not removed and we do not have a debit card to it so taking out the card is simply not an option. We keep a portion of my husbands check in cash which we use for gas, groceries, ect and realize that when its gone that's it until next pay day. We do not put anything on a credit card that can't be paid in full when the bill comes in. 

We also eliminated car payments by paying one off and buying another one used in cash. In turn this gave us the option to keep only liability for car insurance, which lowered that payment a lot. I do realize that a used car may not be an option for everyone, but my husband is a jack of all trades so he handles vehicle repairs and we never pay anyone to do anything for us with the exception of hair cuts, ect. In addition we blocked text messaging on cell phones which saved us $30 a month by eliminating the unlimited texting portion of the plan and we carry only a basic TV service. Some of what we did was small and some may think it is extreme, but it really added up and it is a nice feeling knowing that we are not wasting our money. 

I would suggest only taking out a mortgage that you are comfortable with and do not go for the max amount of what you are pre-approved for. When the banks issue a pre-approval they only consider mandatory debts and do not factor in anything that is not on your credit report or evident on your taxes. You should do a budget  based on your own life with the realization that you will still have utilities and other such expenses plus the added responsibility of housing repairs that they don't consider. Anyway, I hope this somehow helped and wish you luck. 

P.S.

Just wanted to add that you should look into an FHA loan. They only require 3.5% down and you could cover the majority of closing cost by requesting seller concessions of up to 6% in your purchase offer. This 6% ends up financed but if you are able to get a good deal on a home it should be no big deal. Considering that your credit is adequate enough to be pre-approved this is exactly what I would be doing.  

[ohvrolla]

I like the envelope suggestion. It's very easy when using plastic to lose track of the spending, and paying in cash curtails that. One thing I do is do my shopping for the coming week on Saturday. I already have a good grasp on how much monthly expenditures are, so I can set a weekly budget for food and extras if my goal is to save "X" amount of money per month.

Another thing I do is transfer $500 over to my savings account at the first of every month and forget about it, and set my budget so that my checking account still grows even though I'm transferring money to savings. $500 doesn't sound like much, but looked at yearly such as $6000, $12000, $18000 and so on then it adds up. It's also a good way to see how you handle an extra payment, especially as your looking to buy a home. The $500 a month I'm saving now will go towards an auto purchase next year, so a bare minimun of $6000 saved up. Now if I couldn't comfortably save $500 a month over an extended period of time, that would me I have no business getting an auto loan + extra expense of full coverage insurance. FWIW when I decided it was time to buy a house last year I tightened the budget and was banking over a $1000 a month easily on a single $65k income with a wife and daughter.

[n0smirc]

I have a 9 month old and trust me, I hear you on the daycare costs. We have her in 4 days a week and it's 1K a month, this is to help my husband finally finish his engineering degree. So I'm sure you guessed, but obviously that's a big chunk of expenses that a lot of people don't have on a monthly basis. This is usually by having a family caregiver, friend, or school aged children. For my own family, I also love to cook and I'm the sole wage-earner. The things we don't have are car payments (both are paid off - 2010 & 2003 Hondas) and high insurance payments (we have full coverage), plus I try to really save money on the grocery shopping bill. Since I have to buy formula right now, this really helps. We still have healthy tasty meals, but I'll look for specials when I can get them and will use whatever coupons I can on the necessities. Our older daughter is in 2nd grade so that helps since it's just after school care for her. 

I'm in the 80K range on my salary alone. Also, when I use my credit cards, I just use them to take advantage of points/cash back. I don't spend the money if I can't pay it back right away. Emergencies will happen of course, but we've stashed away bonuses and such in our savings account to plan for it.

I would look at what you are spending on things, why your grocery bill is where it is, and what you could cut back on. As far as daycare, Consider family or in-home options if possible. Look at your insurance and make sure everything is up to date and reflects your actual transit costs. Another way we save is I take advantage of work benefits and ride the train to work a lot, I get a subsidized pass that doesn't cost a ton so I lower my mileage on my car plus gas needed for the car. 

For the medical costs, are you using a tax-free account to pay those with? Same for the child-care? You really should set up those accounts if you can, it reduces your taxes and gives you an account you can pay out of as vs your bank account or savings. It's still your money, only tax free. My HSA account rolls over if I don't use the entire funds, if you can get that option, take it. Thankfully it's not the use it or lose it type, it really helped in paying bills for the birth of our little one last year. 

[agekeith22]

I am a SAHM to 3 kids under 3 years of age and I have experience 'finding' money. We pay $3.75 for our home phone each month, my husband's cell is paid for by his work, and I do not have a cell, the cost is outrageous!

Your car insurance is really high, we pay $575 every 6 months.  It is cheaper to pay car insurance every 6 months as opposed to monthly.

Leasing vehicles is a money waster...the goal is to get a car, pay it off, and keep it.

Your internet seems high, does it include cable?  We only have internet, no cable, and pay $55 per month.

I buy generic when I can, but we also eat wholesome healthy and mostly organic foods so I can relate with your high grocery bill.  

We save $1500 each month.  I am always looking at my budget and I have created pivot tables to further analyze my monthly expenses, my data sources include both my bank activity and credit card charges, it all gets dumped into excel and I go from there.

Every family is different as to how far they are willing to go to cut expenses, find what works for you, and good luck!

[StartingOver10]

---

@littlebird wrote:

......

To break it down a bit more, right now here are our monthly expenses:

$1,000 on food (this is the only area where we really "splurge" because my husband is a cook and we are very health-conscious but we cook every meal at home and rarely go out)

$220 on Phones

$250 on utilities

$180 on car insurance

$420 on car lease

$230 on gas

$100 on student loans

$150 on diapers and kids

$90 on internet

$100 on health (I have health issues so typically see the doctor a few times a month so this is variable)

$300 on miscellanous (this is obviously variable but this includes household items or clothes for kids or office supplies, dog food etc)

$700 on 1 year old daycare

$975 on 3 year old school

$100 on credit card payments (we have about $2,000 in credit card debt)

.....

Anyway, look forward to any thoughts. Thanks!

---

I think you made the right decision to ask the question in your subject!  It is hard to budget, especially when all you see around you is rampant consumerism.  At least you recognize that the finances in your household aren't working and you are here to do something about it. Kudos to you!

There are many people in your situation only they don't even realize that they have a budget issue, so you are actually a step ahead of the crowd. If you want to see how to make a budget work for you, go over to the Dave Ramsey website and you will get lots of great budget ideas.

In the meantime, when I look at your line item list, I see a lot of wasted funds. Don't take it the wrong way because it is pretty easy to lose track in the everyday business of life. But one of our jobs as consumers is to make sure the money stays in your pocket and doesn't transfer over to all those companies with their hand out for your funds. 

All the items I highlighted in red are not only discretionary items, but items completely in your control. Each line item appears high to me and I live very close to your area (I'm in Palm Beach area, right up the road from Miami).

Some of the other posters above me gave you great insight. Dave Ramsey will too. I just want to mention that even though food is very important to you - you can reduce what you spend on the food and still enjoy your home cooking. Think coupons for example. Yes, its work (like a second job). But then you get the rewards of still having your great gourmet meals but not spending $1000/month. If you do manage to pull it off, you might be able to reduce your food budget to $200/month with planning. That leaves $800 in your bank account.

Same with the vehicle. Insurance in Florida is high. But it depends upon the vehicle you have and other insurance factors. Shop your rate. Change your vehicle. There is no way you should be leasing any car at all - not at $420/mth. When the lease is up or you can pay out the penalties for early termination, consider getting a much less expensive car. You can get a beater for cash or something in the sub $15k range financed for a lot less and then keep it until the wheels fall off.

I am only suggesting that because when you buy a home in Florida you have homeowners insurance to pay and here it is very expensive which will affect how much home you can buy and still have a comfortable mortgage payment. In my county if you spend $250k for a home you are looking at $2000 to $5000 plus per year for HOI depending upon the home's age, location and construction etc.

Take a look at your internet plan. It is very high for the area. Same with your phone bill. Do that with every expense. Including those misc expenses such as $4 coffee's and $9 lunches.

As one of the others said, this can actually turn out to be a fun challenge with a great sense of accomplishment when you get to your goal.

[J_G]

These are all great ideas I have found that by having 3 or 4 bank accounts really works. I have $ directdeposited into each every paycheck and then some into each savings account. then I look at each statement I feel broke and don't spend. Instead of looking at one account and seeing 1,000 and thinking I'm rich I only see 100 here and 150 there. It also keeps me from making those big what was I thinking purchases! But, it is sooo true that it is hard to save $. My big turning point was recently when I got my w2's I made 104,000 last year and I have nothing to show for it literally nothing! I wanted to cry and I don't blow $ I don't go out to expensive restaurants buy expensive cloths. I took a good look at my finances and found that I was spending a lot of $ on internet, phone, insurance,etc stupid stuff that I didn't need to be. It is crazy how much it is to just live theses days!