I’ve heard it said of some people that “They are one broken leg away from bankruptcy.” and until recently I had no idea just how true that is of a lot of people.
I was watching TV the other afternoon. I saw this young couple and it was talking about their debts. Pretty typical types: College graduates still paying off their loans. With 2.5 kids properly spaced 2 years apart. Big house with 2 brand new cars.
Thousands of dollars in the red every month! I mean they were spending TWICE as much as they brought in per month! Just a hair’s breath away from a divorce and losing it all.
Seems crazy. How does something like that happen? Pretty easily and every day actually.
College Education: $20,000-100,000 x two people = $40,000-200,000.
Car(s): $12,000-30,000 each x two = $24,000-$60,000.
Housing: $60,000-500,000. (We are approved for X must mean we can afford it.)
First child: $5,000-10,000 in the first year alone.
Add in various living expenses/needs like: Bills, food, clothing and “frills” $500-1,000 a month x a year = $6,000-12,000.
Total $135,000-$782,000 – and that doesn’t include interest on loans – or the things like vacations, big screen tvs, ATVs, boats, brand name clothing, and what-have-you items that people need to keep up with the Joneses.
All this on a starting income of what? $30,000-50,000 a year. Plan on one income because even if both parents are working most of one income will go towards daycare and taxes or one parent might stay home with the children. It is no wonder that young couples are finding themselves owing more in a month than they earn.
What is the moral of all this? Don’t buy what you can’t afford. If you don’t have the cash for it… Guess what: You can’t afford it.
A College Education: can be had owing little to nothing. Get a job and work. Spend student loans only on college expenses. Think about it this is a loan you’re going to be paying off for the next 10-20 years of your life. Do you really want to pay interest for 20 years on those little things to make life easier at that moment?
Cars: Buy used/drive it till upkeep becomes more than it is worth to buy another used car. The minute you drive your new car off the lot the value drops. (See Buying a New Car vs Keeping an Old Car)
House: If you can’t afford to save some sort of down payment you can’t afford it. Sure you’re okay month to month, but what about when something big and expensive breaks? If you can’t put aside enough money for a down payment while renting you won’t have the money for the “home owner” projects that WILL come up and need fixing. (See How Much House Can You Afford)
Crown Financial has a pretty good Spending Plan Calculator Online.
Already in debt? Dave Ramsey’s “Baby Steps” to get out of it.
