I told Penny that the first thing she has to do is get rid of the negative I can't attitude and decide that she CAN pay off the debt and save for a home. She and her family live in Massachusetts. She told me that she can buy a home in her area for around $250,000. - $ 300,000. At 20% down, she would need to save $ 50,000. to $60,000. for a down payment plus her closing costs. Since we don't know what they will be, I think $10,000. for those is reasonable. If she is lucky when she negotiates to buy her home, she can get the seller to pay part of those.
Let's address the debt first. I asked what interest rate was she paying on the credit card debt. She informed me that it is 15.9%. Next I asked her how much realistically she could pay off on the debt each month? She told me $1,100. So I went to a debt calculator and plugged in the numbers. That told me that she would be debt free in 1 year and 3 months.
After she pays off the debt, she will need to save $60,000. to $ 70,000. for her home including the closing costs. If she can continue to save that $ 1100. a month for the downpayment at a savings rate of 3%, it will take her about 53 months or 4 years and 4 months to save the $60,000 or 61 months or 5 years and 1 month to save the $70,000.
So she is looking at a total of either 5 years and 7 months or 6 years and 4 months to pay off the debt and buy her dream home based on those debt payoff and savings rates.
However if she were to be really frugal and watch every penny that is being spent and cut back, she could do this a lot sooner. By doing that, she can pay off the debt sooner and accelerate her savings rate. So that is what I am going to try to help her with. The only way that I can show her how to do that is to try to teach her how to get her expenses down. She has to make up her mind that paying the debt off and saving for the downpayment is the most important goal she has. It won't be easy, so she has to be patient and stick to her plan. If she stays negative and doesn't start for a few months, she will be sabotaging herself. So she has to start now and she has to have a positive attitude. She has assured me that she is 100% vested in this, so here we go.
Penny has a grocery budget of $100. a week. With only three people to feed, I believe that she could cut this amount in half. She says they spend $ 10.50 of that budget every week on soda for just her and her DH. That is over 10% of her budget on colored water that has no nutritional value. Matter of fact studies have shown that diet soda isn't good for your bones and sugared soda causes cavities.
We had this same issue in our home not too long ago and I no longer buy it unless we are having company and only if I can find a deal. We drink a lot of cold water. It is cheap and serves the purpose of quenching our thirst.
When we do want something besides water, I make sun iced tea with 6 store brand teabags and a gallon of water. I add a little lemon and a little sucralose to sweeten it. This costs just pennies. DH loves Snapple and I have been known to buy it when it is on sale with a coupon. However, then I realized that I could make my own. If we want peach "Snapple", I add some of the juice from canned peaches( light syrup) or I puree some fresh peach pieces and add that. I also make raspberry with a few pureed raspberries. Just use your imagination and you can make all kinds of flavors.
I only use lemon Kool Aid for cleaning my dishwasher. But if Penny's family likes Kool Aid, she could buy that cheaply with coupons and add sucralose in place of the sugar which would be healthier.
If Penny would switch to one of these cheaper alternatives, she could cut that $ 10.50 a week down to just a couple of dollars a week or to nothing if she switches to water. Then that extra money could be added to her monthly debt pay off and then to her savings.
Until tomorrow...........
Please feel free to share your ideas in the comments so that we can all help Penny reach her goal.
12 comments:
Good for you Penny! You could also try adding a little juice to club soda if you like bubbles.
If you're trying to lower your grocery budget, I'd suggest lowering it just $5-$10 a week. I think if you try to cut it in half right away you'd get easily discouraged.
PS I'm from Mass. and I just wanted to add GO SOX!
Hi Lucky,
I agree that she can cut it in 1/2 but she has to take it one step at a time. That is why we started with the beverages. That is costing her $ 10.50 a week.
You and my DIL love the Sox!
Red Sox Nation is everywhere!
I get it now with the beverages. They're doing roof work in my office and it's so loud that I'm not comprehending much.
One other thing I would suggest, is to look at the money being set aside for debt, etc. and compare it to what a mortgage payment plus 10 percent would be. I think an important habit prior to buying a home, car or other borrowing type of expenditure is to get used to the payments ahead of time.
Buying a home will require moving expenses, cushion for unexpected repairs, etc.
I think soda (or Pop as you are hearing around WNY) is a waste and like you, I try not to buy it often. Usually it is for guests or if hubby feels he must have it. Then I try for supermarket brand (as I blogged today!).
Hi Alex M,
Thanks so much for sharing.
Closing costs are usually 2-3% of the amount of the house (spoken as the owner of a real estate company).
I agree about cutting the beverages out. In addition, I would cut out all eating out. I would look to lower the amount that you spend on groceries, starting by eating your less expensive meals more often (more beans, rice, and soup).
When you need things for your new baby, buy used when possible. Garage sales are cheapest, then thrift stores, followed by children's resale shops.
Here's another thought about getting the debt paid off faster.
Check around, to a credit union in her area to see if she can get a credit card through them. Usually credit unions will give you a much better rate than a bank cc will. She may have to open an account there but if they will give her a lower interest rate card, she can then transfer her debt onto that card and off the 15% card. Lower interest rate, that $1100 per month will go farther to pay off her principal and the debt could be gone in less time, letting her start accumulating a down payment sooner.
It's worth checking into....
Congrats to Penny for making the decision to change her circumstances!
I agree on the soda aspect as well. I get it when it's free after a deal or when I somehow come to get it for free after coupons. We have a stockpile of it right now which is being saved the the 2 kiddos upcoming bday parties.
I agree water is cheapest, but I have to admit that I HATE drinking water, so if Penny and her DH are in that situation, Precious's sun tea idea is great. Also, I have a recipe for cheap lemonade on my blog. It's just 1 part lemon juice from the bottle, 1 part sugar adn 6 parts water. If you buy the store brand lemonade juice bottle for around a dollar, you can get about 3 to 4 gallons of lemonade out of it. Make your first glass of drink during meals a glass of lemonade and then just water the rest of the day. We did that the first 6 months I took DH off soda and we saved a bundle.
You can also buy store brand juice when it's on sale. Our store puts it's apple juice on sale for .99 every 2 months or so. Stock up when it's at that sale and do this: place the half gallon juice in a gallon jug. Brew 4 cups of tea(black, green, whatever you have). Place the brewed tea in the gallon jug with the juice and let cool in the fridge for a few hours. This stretches the juice and because the tea is hot when you add it, it brings out the flavor of the juice. And no, this does NOT effect the nutritional value of the juice.
I think you have to allow for a few treats or meals out. I say this from experience. We rarely eat out but once in a while you need to have something special to do. It can be very cheap and using a coupon can make if affordable. We save all our cans and plastic here as we have to pay a deposit and often when we cash it in we use that is fun money. Of course if they aren't buying anything in them that won't work. I am just saying that 5 years of never going out my turn some people off and they may give up. The iced tea is great alternative especially if you get the ingredients on sale. It goes such a long way.
Hi Prudent Homemaker,
Thanks for sharing.
Hi slugmama,
That is a great idea and Penny is going to look into it.
Hi Amiyrah,
I love your receips and have put them in a blog post. Thanks for sharing.
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