Reader Request: Help me figure out what to do!

This is a question that comes from a reader that would like a bit of direction of where to go in terms of her finances based on what she plans to do.

So I’m going to go over her facts, but first I want to warn this reader that I am not going to be much different from other financial people who tell you that you need to cut back expenses in your budget, and save more money.

There are NO miracles.

Even I, someone who kind of thinks depriving yourself while in debt and especially while out of it is stupid, will never say that getting out of debt is easy.

You need to do one of two things: cut back in your budget or make more money.

If you can’t do either, then you’re really hooped, but I think based on your budget you can make it happen.

Moving on!

A little about her

She’s a teacher, who is planning on a career change in a field she has no idea about yet (she is still deciding).

She makes $2474.60 a month, net.

Here is the budget as per what I was given:

I am assuming in that budget, she has been paying at least the minimums on the credit cards, which I assume take up the remainder of that $300 in there.

Some of the categories up there are approximations, and I feel like she is missing a couple of key categories like shopping, one-off birthday events, gifts that sort of thing.

This tells me that she isn’t tracking her expenses and she should.

She doesn’t know how much she is spending each month, and giving an approximation like $50 is good.

But more often than not, I find that people end up tallying the amounts and realizing that they spend $150 a month, and not $50 a month which is usually why they have credit card debt in the first place.

People (I did this too), underestimate what they spend each month and then get screwed and put it on a card to make ends meet.

How much debt does she have?

She has $7000 worth.

Which isn’t so bad in my opinion because I was expecting something like $50,000 which would have made my heart stop.

Here are the details:

My immediate thought is that she should be concentrating all of her excess money into paying off the first credit card at a whopping 24%.

I’d suggest calling them and asking them to lower the interest rate, but considering today’s economy it may be a hard sell.

Give it a try anyway.

My other more realistic suggestion would be to do a BALANCE TRANSFER to a lower interest credit card that offers something like a teaser rate of 3% for 6 months, and then after 6 months it jumps to 19% or something — which is still lower than what you were paying before at 24%.

How much is she paying in interest?

She is paying $1344.30 a year in interest.

And as I’ve said before, that amount is actually a slight bit higher because her credit cards probably compound monthly, so just for simplicity’s sake, let’s assume it’s $1500 a year just in interest alone.

Let’s assume out of the $360 she has left in her original budget, she puts at least $100 a month towards each card.

That means the first card at 23.99% will have $260 put towards it each month (taking away $100 for the second card’s minimum payments)

With that kind of minimum balance payment, she will have cleared that first credit card in 23.8 months, or 2 years, and the second card (if we snowball the payments) in 6 months.

How is she making more money?

She will be taking on summer school as a job, which will net her around $2000.

In her words:

However, I am usually burnt out because of the long hours that I already work. A part of me would like to use the time to solidify a job search for 2010.

Usually summer school hours are half the hours of regular school but still involve the stress of students who suffer from lack of motivation and attitude problems.

In addition to getting money from summer school, there is the possibility that I will get money from summer curriculum planning. I can get up to 2,500 dollars depending on the amount of hours that I log.

There is also a grant in the work that may give me 1,100 dollars just for being an effective teacher.

Let’s just say $2000 for simplicity’s sake, but if she can log the MAXIMUM hours and be an effective teacher as well, that means an extra $3600!!!!

It is clear that she cannot turn down the summer school job, even if it’s stressful.

She needs the money, and having an extra chunk of cash to put towards her credit cards is wonderful.

My only other option or alternative would be that she NOT do summer school and pick up another job cleaning houses, waiting on tables, whatever, and only if it will earn her more than $2500 for the summer.

That means, if she puts the entire $2000 into her first credit card, she will only take 16 months to clear it rather than 24 months, or 2 years.

Assuming of course, she sticks to her original budget, which I am going to modify later on to show that she can clear it even sooner.

So what about these life changes?

There are two major ones:

  1. Setting myself up on a satisfying career path (getting out of debt and controlling it as part of this step)
  2. I’ll be honest, I do want to begin to lose weight.

And to do #1, she plans on heading back to school and changing career paths, and in her words:

Since I have not narrowed down what career change I will make, I am not sure how much it will cost me. I am considering graduate school and that could either cost me or they would could pay me to go.

I know that I can get money from my parents to help me relocate and start up but that would be probably as much as they could afford to help me with.

Other concerns of hers include:

  • I believe that I need to start an emergency fund for things but have not started one.
  • I also treat myself a lot and would like to know how to start a reasonable allowance for things like haircuts and so on.

FB’S Answer

You need to start tracking your expenses

I do have a concern that you don’t know how much you’re spending each month and bottom line, you need to start tracking your expenses.

Even if you only do it for 6 months and then stop forever, it really opens your eyes to what you REALLY spend each month.

When I was in $60,000 of debt, it was a real eye-opener and until I saw the numbers, I had no idea I was spending $700 on clothing & shoes.

It also works for people NOT in debt.

When I got out of debt, it still became an eye-opener how much I spent each month, and it helps keep me on track, even if I DO go over budget sometimes.

It also helps me prioritize what is important to spend my money on (shelter, food, technology), and not only that, it helps me be realistic about what I will be spending.

A budget can be a help, not a hindrance

I love to budget. But I used to hate it with a passion before.

I saw it as a chain around my wallet if you will, that I wasn’t allowed to spend on certain things, but that was because I kept depriving myself.

I was making an UNrealistic budget and that is the first step towards disaster.

For example, I used to make unrealistic budgets for myself, like $500 for a vacation. Well, in the end I’d spend $1500 and feel extremely guilty that I didn’t stick to my $500 budget when in fact it was unrealistic to begin with!

So now, I make up mock budgets of my fixed expenses like transportation & hotels, then anything above that is “extra” spending.

If I understand that $500 will go towards transportation & hotels, then I give myself a budget of $500 to spend on food and/or clothing, then I don’t feel so bad when I decide to eat less and buy a nice bag, or vice versa.

You definitely need an Emergency Fund & Savings

I think it’s wonderful that you KNOW you need an Emergency Fund & Savings but I think your hurdle is just getting one started. I think you need to trust in yourself more to be able to allocate your money for yourself.

Here is where I’d put my money if I were you, but remember — I AM NOT YOU.

So if you want to spend LESS on Eating Out, and put more into your Fun/Personal Care fund, then by all means, go ahead.

But you have to stick within the parameters of a real budget, and make choices about what you want to spend your money on.


As you can see, I’ve kept everything pretty much the same.

Your goal was to lose weight

I know you want to lose weight, so going to the gym and Weight Watchers is a big thing for you, and I commend you on that.

I should mention however, that you may not need the gym as much as you think so consider the following advice with a grain of salt…

I lost a lot of weight just by following 3 steps:

  • eating half of my portions at dinner and choosing cold water as my drink of choice
  • eating out less (those dinners can be a whopping 1500 calories EACH dish!)
  • strapping on some shoes and walking all around the city

I dropped about 15 pounds in 3 months. And I didn’t even notice it. And it was free and/or saving me money!

I cut back on your eating out, but just by a little bit

Just because I wanted to fund your Emergency Fund and make it $100 instead of $50.

I know eating out is a BIG thing for you, you mentioned that you go over budget a lot in that area, so I don’t want to deprive you, but I also want you to be realistic considering the amount of debt you have and the fact that you want to do a 180 with your life.

You were missing a lot of categories

Clothing, Spas, and all the other little miscellaneous things that I am sure every woman does was not on your list.

Neither was Transportation, Gas, a Metro card. I have no idea how you get to work or if you need a car at all (do you walk? if so, that would be fabulous).

You need to start budgeting and tracking your expenses, because it will help you see that you DO have recurring expenses like toilet paper every 4 months or something, and you can be prepared to buy all of those necessities without having to go on plastic to get ‘er done.

So I basically kept your categories the same, and I even put a vacation category in there, but if you need that same Vacation $80/month for a public transportation pass, then I suggest you cut out vacations for a year or two just to get out of debt.

You didn’t have an Emergency Fund (EF) and were caught off guard

You told me that your taxes caught you off guard one year, and you were unprepared to pay almost $500 worth of taxes.

That scares me a bit because even though you say you are fairly healthy what if something happened to you? And you needed $1000 right off the bat?

You need an Emergency Fund, while paying down your debt, so I put it at a minimum of $100 a month which is $1200/year (stick it in a high interest savings account like ING), and I put the rest towards debt.

Fun and Personal Care is pretty generous…

… in my opinion.

$150/month is a lot of money to be spending on Spas, etc. But I can understand, you just need your nails done sometimes to lift your spirits.

In that case, you really can’t go over the $150 a month budget.

And if at all possible, you should consider trying to keep that category at $100, and using the extra $50 to put towards your Emergency Fund and/or credit card debt.

The reason I say that is because I came up with a little chart to show you how important your job is right now, sticking to my new budget and your summer job is to clearing your credit card debt.

It makes a world of a difference.

Clearing your debt:

As you can see, you can be COMPLETELY out of debt by next year or SOONER if you do the following:

  • Never use your credit card again
  • Follow my budget to the T or keep under
  • Track your expenses

You could clear your cards by early next year if you did the following:

  • Do a little cutting back of your own in other categories to get your cards cleared sooner
  • Take that summer job, because it’s $2000 at half hours, and you have a potential to earn $3600
  • Try and earn more money on the side by picking up a minimum wage job

It’s all about priorities. If clearing your credit card debt and getting started for your new career change is your #1 priority in life, then you need to prove it to yourself with action — by doing the above.

P.S., if you earned $3600 this summer, you can be out of debt 7 months sooner, by around May 2010!!!!!!

What about the career change?

As for your career change, I can’t really help you because you have too many unknowns.

You don’t know what you’re going into, how much it will cost, where you will need to apply and so on.

So I just concentrated on getting you out of credit card debt (especially that nasty 24% credit card), and starting you on the path to saving for Emergencies and “Whatever”.

Forget about the labels we PF’ers put on funds, like “Emergency Fund”, “Savings Fund”, “Short-Term Fund”…

Just stick it all into a high interest savings account at ING called “Savings“, and only until do you get to a significant amount of money like $5000 or $10,000 should you consider splitting that cash into a couple of different funds so that you can visually see where you are saving your money — for vacations, for school, whatever.

All of our labels are just so we know that we put $50 into emergencies, and $50 into savings, but in the end, we still saved $100. We’ve just earmarked it for certain areas.

You don’t need to worry about doing that now until you have some significant savings.

Without savings, you must feel quite anxious, stressed out and upset.

How do I know this? I’ve been there and done that.

When you start actually seeing $500 saved aside after a while, and seeing your credit card balances drop to something reasonable, it is an euphoric high that I cannot even begin to describe to you.

You will finally feel in control, I promise and you will sleep much, much better at night because you are in control of your money, and not the other way around.

Things to think about if you are going to go back to school or change careers

It will take time so don’t quit so quick yet

You can’t just quit your job because first, you need the income, and second, even if your quit your job, there is NO guarantee you will get another job right away in your chosen field and you may not even know what it is that you want for a couple of months.

So take your time, figure out what you want in the mean time, read all my posts on careers (FB Read: Careers under FB Shopaholic Tab), and once you THINK you’ve found the perfect job, find someone in that field and grill them about the pros and cons of working in that field before deciding.

It may seem glamorous at first, but every job has its pros and cons.


You just need to figure out what the cons of each job are so that you can see if you can handle it. You need to figure out your strengths, weaknesses and find people to give you different perspectives on other jobs available with your skillset out there.

In the mean time, use that high stress summer teaching job as a positive opportunity to find out what you are best at, what you hate about that job and as a motivator to find your new career.

Or you may end up realizing that you love your job, you just love it IF you work with certain kids, or in a certain subject.

Who knows? Don’t be so quick to rule out your current job.

You will go back into debt and have a larger debt amount if you go back to school

You may not have to go back to school. Some jobs depending on how similar they are to your job, may let you transition with minimal or no education. Who knows? Don’t assume you need to go back to school FOR SURE, find out what you need and what you don’t need, get the facts and then decide.

If you don’t clear your credit card debt, it will hang over you like a noose for the entire time you are studying. It is not a pleasant feeling knowing that you owe money before you even begin, and then on top of that you have to pay for school?

You’ll have to figure out how much everything costs to go back to school once you’ve chosen your career and once you NEED to go back to school.

How much money is it if she went back to school?

Consider the following you will have to pay for:

  • You probably won’t be working (much) while in school. Maybe part-time. I suggest part-time.
  • You will need to pay for all of your living expenses WHILE in school.
  • On top of that, you will pay tuition.
  • You will also pay for books.
  • You will also pay for going out with your new friends, and supplies (maybe a laptop?)
  • You may have to re-locate and pay for this (your parents could help here?)
  • You may have to buy things for your apartment/new location. (I suggest getting free things if possible)

That is a lot of money.

I am making things up here but….

Tuition is $10,000 a year
Living expenses are $30,000 a year (based on your current budget/salary now)
Supplies and books are another $5000
Relocating may cost you another $5000

…you are looking at $50,000 in debt in the first year alone and $45,000 for any subsequent years.

By the time you graduate, if you go to school for 2 years, it may be $95,000 of a debt load that you are carrying.

It may be less, it may be more. I am going off on random numbers because you and I, have no clue how much tuition or anything else will cost.

If you decide to go back to school I suggest you start the following things:

Track your expenses so they are more realistic when you make your budget (yeah yeah!)

See where you COULD cut back in your budget if you need to (personal care, eating out, etc)

Think about getting a part-time job while in school to help offset the costs if you can manage it scholastically

Make sure your credit cards, especially that 24% one is cleared

Make sure going back to school is what you want to do and when you graduate, you are realistically able to get a job in your field when you graduate

Finally, you have to know how much that salary will be.

Is your salary going to be at least $30k? Less? More? If it’s less, you gotta cut back a HECK of a lot more just to clear your $95k education debt. And if it’s more, you have some breathing room, but not much.


Similar reader/case studies of financial makeovers I’ve done

Other Resources

Hope that helps, and good luck!

Readers – any other tips or tidbits of advice you can give to this teacher?

About the Author

Just a girl trying to find a balance between being a Shopaholic and a Saver. I cleared $60,000 in 18 months earning $65,000 gross/year. Now I am self-employed, and you can read more about my story here, or visit my other blog: The Everyday Minimalist.