How Are They Doing?
Pledged to Get Out Of Debt, Four Fight The Spending Habit
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.
a month toward the $4,500 balance.
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.
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.
Carlesa A. Washington Progress so far: The recent college grad is chipping away at debt. She’s already paid off two delinquent accounts.
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.