How Are They Do­ing?

Pledged to Get Out Of Debt, Four Fight The Spend­ing Habit

The Washington Post Sunday - - Business - Michelle Sin­gle­tary

It’s been three months since I be­gan

work­ing with four peo­ple — two sin­gle

women and one cou­ple — to help them

bal­ance of about $4,800.

nec­es­sary?”

a month to­ward the $4,500 bal­ance.

said.

achieve their fi­nan­cial New Year’s res­o­lu­tions

of cut­ting debt and boost­ing sav­ings.

So far, the par­tic­i­pants in the Color of

Money Chal­lenge have pro­gressed nicely.

Carl and Ta­nia Chan­dler, a mar­ried cou­ple

from Mary­land who had $14,400 in credit

card debt and no sav­ings, have paid off two of

their ac­counts and re­duced their debt to

about $12,000. The Chan­dlers have saved

$3,200 by putting aside some of their tax

re­fund and au­to­mat­i­cally de­posit­ing $50 into

a sav­ings ac­count ev­ery time they get paid.

Car­lesa A. Wash­ing­ton, a re­cent col­lege

grad­u­ate liv­ing in the Dis­trict, paid off two

delin­quent ac­counts to­tal­ing $1,565. She’s

well on her way to pay­ing off a credit card

“At times, I catch my­self want­ing to buy

things, but I’ve got­ten into the habit of re­ally

an­a­lyz­ing my pur­chases,” Wash­ing­ton said.

“I ask my­self, is this pur­chase ab­so­lutely

An­nie Sch­le­icher, a sin­gle, 35-year-old

as­so­ci­ate ed­i­tor for a news Web site, stopped

us­ing her one credit card and is pay­ing $200

“It’s nice to see my state­ment, which says

no ac­tiv­ity this cy­cle,” the Dis­trict res­i­dent

How­ever, the chal­lengers have strug­gled

with one ma­jor thing: bud­get­ing. The

hard­est part of this chal­lenge is get­ting them

all to re­al­ize that they have to de­lay the ex­tras — their wants — un­til they’re out of debt. To do that, they have to es­tab­lish a bud­get — and stick to it.

All the chal­lengers are watch­ing what they spend. But it’s not enough to track your spend­ing. You have to fol­low your bud­get so you know when to stop spend­ing.

“The im­por­tance of cre­at­ing a bud­get and then keep­ing track of what you are spend­ing comes down to a whole at­ti­tude change,” says Susan C. Keat­ing, pres­i­dent and chief ex­ec­u­tive of the Na­tional Foun­da­tion for Credit Coun­sel­ing, which rep­re­sents non­profit credit-coun­sel­ing or­ga­ni­za­tions.

Be­cause they haven’t re­ally kept to a bud­get, they’ve made a few mis­steps. De­spite my pleas that Carl Chan­dler not buy a $600 Sony PlayS­ta­tion 3, he pur­chased it any­way. The Chan­dlers also used part of their tax re­fund to buy fam­ily-room furniture they said they needed.

“But we paid cash for ev­ery­thing,” Carl Chan­dler said. “I took on ex­tra work to pay for it, and it’s the only thing I wanted.”

With­out ques­tion, the Chan­dlers have made some sac­ri­fices. They’ve cut their spend­ing. They’re sav­ing. They meant well in mak­ing those pur­chases. But they need to dis­cern be­tween a need and a want. The cou­ple had furniture in the fam­ily room— they just didn’t like it. All to­taled, they spent about $3,000. It was money that could have been used to pay down their debt.

Peo­ple across all in­come lev­els strug­gle with bud­get­ing, ac­cord­ing to a re­cent sur­vey by Ca­reerBuilder.com. Al­though 58 per­cent of work­ers polled said they have a bud­get, 21 per­cent say they typ­i­cally spend over their al­lot­ted amount. When asked what puts them over bud­get most of­ten, most peo­ple said din­ing out.

That would cer­tainly de­scribe Sch­le­icher. With lit­tle room in her bud­get for any­thing more than ne­ces­si­ties, she spent al­most $300 one month on drinks and din­ing out with friends. “It’s just so hard,” Sch­le­icher said. But to achieve your fi­nan­cial goals, you can’t keep liv­ing above your means. You have to bud­get whether you get a reg­u­lar pay­check or your in­come fluc­tu­ates ev­ery month. It’s harder if your in­come varies ev­ery month. If that’s the case, take what you earn in a year and di­vide it by 12. Your ex­penses each month should not ex­ceed that av­er­age monthly net pay.

For ex­am­ple, let’s say that one month your in­come is $10,000, the next it’s $2,000 and the next it’s $1,500. That’s a to­tal of $13,500 over a three-month pe­riod, or an av­er­age of $4,500 per month. When peo­ple get that plump $10,000 pay­check, they of­ten spend it all rather than putting some aside for months when their pay is less.

On the ex­pense side, you have to bud­get for fixed, vari­able and “un­ex­pected” ex­penses. The fixed ex­penses are eas­ier to ac­count for be­cause they don’t change from month to month. Peo­ple think the hard part is bud­get­ing for vari­able ex­penses. It’s not. For in­stance, let’s say you have an an­nual car in­sur­ance pay­ment of $1,000. Rather than wait un­til that pay­ment is due and scram­ble to pay it (or charge it on a credit card), bud­get $83.34 ev­ery month to­ward the $1,000 an­nual pay­ment.

I ad­vised all the chal­lengers to ask their util­ity com­pa­nies for a bud­get-billing plan, which av­er­ages util­ity pay­ments over an en­tire year. This way, a per­son can know ev­ery month what the util­ity bill will be. With many of your bills fixed ev­ery month, you can bud­get bet­ter.

As for “un­ex­pected” ex­penses, I be­lieve there are few — if any. If you own a car or a home, some­thing is even­tu­ally go­ing to break or need re­pair. If you have a pet, as Sch­le­icher does, it’s likely to need vet­eri­nary care at some point. Sch­le­icher’s cat be­came sick af­ter eat­ing tainted pet food. You can’t con­trol when things break down or when your pet gets sick, but it’s go­ing to hap­pen. So set aside some money for those ex­penses when they do arise.

If you’re tired of liv­ing pay­check to pay­check, then it’s time to set a bud­get. If you want to get that debt al­ba­tross off your neck, then bud­get it away. And don’t view your bud­get as a fun-buster but rather as a way to bring fi­nan­cial peace and or­der to your house­hold.

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BY NIKKI KAHN — THE WASH­ING­TON POST

The Chan­dler Fam­ily Progress so far: Ta­nia and Carl Chan­dler pre­pare their chil­dren’s lunch­boxes in an ef­fort to cut back on spend­ing and save money for col­lege. They have saved $3,200 since the year be­gan.

BY NIKKI KAHN — THE WASH­ING­TON POST

Car­lesa A. Wash­ing­ton Progress so far: The re­cent col­lege grad is chip­ping away at debt. She’s al­ready paid off two delin­quent ac­counts.

BY AN­DREA BRUCE — THE WASH­ING­TON POST

An­nie Sch­le­icher Progress so far: The Dis­trict res­i­dent re­cently dropped her gym mem­ber­ship to save money. Now she walks in the park across from her condo.

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