Need advice about my financial situation

Question

Here is my living situation in a nutshell

• Live in California
• 2 kids (7 and 11)
• Ex-wife
• I am almost 40.
• I rent

Financial situation:

• Make about $170k (includes regular job + moonlighting) before taxes.
• Kids school = $1000 a month (by court order they go to a private school - long story)
• Alimony + Child support = $4000 a month. Per CA law it's auto-deducted from my paycheck (which is great - one less check to write).
• Credit card debt - ex-wife left me with a ton of it (like $60k), I consolidated it all and paying $1400 a month for the next 3.5 years
• Taxes - still paying off year 2008 through an installment agreement with IRS = $400 a month for the next 10 months. In addition, I have to file as single because I have the kids for 3 days out of 7, so my ex-wife gets to claim them and be head of household
• Rent = $1300 a month
• The custody battle of 2010 cost about $16k in lawyer's fees. Still owe the lawyer about 6k - not sure what the arrangement is going to be yet.
• I started a 401k this year and with matching funds it is currently worth about $10k
• Ex-wife does not work, never has (for any appreciable period of time) and probably never will.
• My credit rating is horrible = 570 or so. After the divorce the ex-wife got the house, which was subsequently foreclosed on. But my name was still on the loan paperwork. Add the credit card debt and there you go.

My monthly paycheck is about $5000 (after standard deductions + alimony + child support). Then I have to pay $1300 for rent, $1400 for credit cards, $1000 for children's school, about $300 for utilities (cell, internet, gas, electric, etc..). As you can see, I have about $1000 left a month in income - which typically goes to children's entertainment, food, car insurance, whatever else comes up.

Basically, after all the expenses above I am living paycheck to paycheck. It is doubtful, that I can make more money (including moonlighting, I am already dead tired), since I am already at the top of my profession and make more than my peers.

It seems that I should be better off, but I am not. I am not saving any money and unless something changes, the kids will be on their own for college. My ex-wife is no help, as she is a financial deadbeat.

So I am seeking advice. What can I do to improve my situation?

Answer 1

You sound like you're already doing a lot to improve your situation... paying off the credit cards, paying off the taxes, started your 401k... I'm in a similar situation, credit ruined & savings gone after the divorce. I know it feels like you're just spinning your wheels, but look at it this way: every monthly payment you make on a debt directly increases your net worth. Paying those bills regularly is one of the single best things you can do right now.

As for how you can improve your situation, only two things really jump out at me: 1) $1,300 in rent, plus $300 in utilities, seems quite high for a single man. I don't know the housing costs in your area, though. Depending on where you live, you could cut that in half while still living alone, or get a roommate and save even more. You might have to accept a "suboptimal" living arrangement (like a smaller apartment), but we all have to sacrifice at times.

2) That last $1,000... you really need to budget how it's being spent. Consider cooking at home more / eating out less, or trading in your car for one with lower insurance premiums. Or spending less money on the kids. You say it's for their entertainment, but don't say what that is... are we talking about going to the movies once a month, or rock concerts twice a week?

3) If the kids are on their own for college, it's not the end of the world. I know you want to provide the best future you can for them... help them get good grades, and it'll do more for them than any amount of money.

After all those & any other ways you find to save money, even if you can only put a hundred bucks in a savings account at the end of the month (and I'd be surprised if you couldn't put five), do it. Put it in, and leave it there, despite the temptation to take it out and spend it.

Answer 2

I feel for your situation. I'm in a similar boat with "high" income yet little left over at the end of the month. My wife and I are steadily making major adjustments to fix that.

While reading your story, one thing that jumped out at me is that 3.5 years is not really a long time. So, the moment those credit cards are paid off (and other debts for that matter), DO NOT let that $1,400 return into your finances! Tuck it away someplace else and forget about it, as if it doesn't exist. You're already in the habit of doing without.

Keep the habit. Save the money.

From the first day that my wife recently took a new job, we put 25% of her paycheck into a checking account that's hard to access. It goes right in, direct deposit, and we never even see it. To this day, we don't even know the exact dollar amount going in...

...the crazy part is, we don't miss it as much as I thought we would! In fact, I just got a raise and I'm going to start forwarding the pay difference into that account, as well. At the end of the day, we all make our spending choices based on how much money is available. It never fails: with more income comes more "worthwhile" expenses.

My advice in a nutshell:

Over the next few years, whenever your income increases, don't change your habits to match!

That's our plan. Slowly but surely, it's working...

(I Hope that helps in some way)

Answer 3

Keep paying down the bills. Attack them by balance (lowest first) or by interest rate (highest first). Talk to a local chapter of the National Foundation for Credit Counseling to see if they have any ideas. Perhaps you are a candidate for bankruptcy or some other drastic measure if you have a steady living situation and steady employment. (I wouldn't know, but honestly if your score can't get much worse so there isn't much to lose)

You are doing the best you can and because you care enough, you will do great and adjust going forward.

As a dad myself, don't worry about paying for your kids school or showering them with entertainment. Of course they need some, but time with you and knowing you are always there and stable will mean much more than buying their books. The best gift you can give your kid is a future where they don't have to support you, which is sadly more common than we sometimes think.