In need of financial advice?

Question

We have a family of 5, two adults and 3 kids (ages 4, 2, and 7 months). Right now we have more outgoing bills then we are making, so there's nothing we can do but sell our house and our cars and get cheaper stuff. So I need to know what we need to be shooting for. My husband makes about $16.30 an hour at 40 hours a week and I don't work. So what should be the highest mortgage payment we should get? And how much should we be budgeting for food? Right now our mortgage is at $750, plus we have two car loans equaling just under $500, and we've been spending around $600 on food. But when we sell our house we'll be able to pay off both car loans, then sell those cars and get cheaper ones. That way we'll have a house down payment. I think we could limit our food spending down to $300. What should be our budget goals so we don't get into another bind like we are in now? Plus his work has a 401K that saves 6% of his income, should we do it? Please advise!

We have two bank issued credit cards, but they both have a 0 balance. We use them for overdraft protection and emergencies only. I know we don't need two car loans, that's why we were are planning on selling them, it was just a mistake we made. We don't pay for cable tv. The only extras we have are internet, cell phones, and Netflix. If I got a job all three kids would go into daycare, and what I could make would barely be over what we would being paying for that. And my 6 month old won't take a bottle, so how would the day care provider feed her? Me working is not an option right now. I realize our mortgage is too high for our income, that's why I'm asking what it should be. What percentage of our income should the mortgage be?

The problem we are having with our car loans, is that we owe more on them then what we can sell them for. So we would have to come up with $10,000 just to be able to pay them off above what we could get off of selling them. That's where selling the house would help us accomplish this. And why we haven't sold them yet.

Why does everyone think it would be bad to sell our house? We owe around $100,000 on it and could sell it for around $140,000 from our own sweat equity. We actually think this is our best option. And we are going to do it by owner. So why would we owe any fees?

The only reason we owe so much more on my van then it's worth, is because a car dealership screwed us over and sold us a van before this one that had been in a car wreck and had been redone. The title had been salvaged or something and they didn't disclose that info to us. We continued to have problem after problem with it. Finally we found a dealership that would take part of it as a trade in, the rest the had to be tacked on top of what we owed on our new van. It really wasn't our fault that we got screwed over, and we tried selling it by owner for many months and finally gave up. In life people will intentionally screw you over and all you can do is take it and move on. None of this is our fault, we just have to learn from it.

About our house. We bought it a year and a half ago because it was cheap and we liked it. It was a bank repo. By the time the bank got all the crap cleaned out of it, we realized it had more work then we thought. It had mold problems, foundation problems. We ended up completely gutting it, and putting in new wiring, plumbing, sheetrock, light fixtures, flooring, kitchen cabinets, furnace, etc etc etc. After it started costing so much we decided we would be better off selling it then keeping it. But once it neared completion, our family kicked us out of the house we were renting from them and we were forced to move into it. We've only been living in it for a month, and now we've decided we would be better off selling it still. So that we can take care of the car loans and get back on our feet.

So now that I've explained all of this. I just wanted someone's advice on what our budget should look like so we don't get into another bind and have to sell and move again.

Answer 1

I don't know how much equity you have in the house or what interest rate you are at, but you might consider refinancing it at a lower interest rate. Don't take any equity out but see if you can get a lower interest rate. That could lower your monthly house payment.

I would really hate to see you sell it. You'd likely wind up losing money on the deal by the time you paid closing costs and all the other fees associated with buying/selling real estate.

Additional info based on your additional info:

We all think it's a bad idea to sell the house because that is your home and you will lose on it selling it. I just went to "lowermybills.com" to do a mortgage calculation on 100,000 and the first thing that popped up was "get a $145,000 mortgage for under $484 a month". Your mortgage payment seems awfully high to me for the amount you owe on it.

Refinance $115,00 on the mortgage at a lower interest rate than you appear to have now. Your payment on the house should go down to somewhere around $500. Take that extra $15,000 and pay off whatever you owe on the cars and don't buy cars in the future that are going to get you upsidedown on car payments (owing more than the cars are worth).

Answer 2

Are you sure you have to sell your house, that is expensive, real estate fees, lawyers fees, moving expenses, and $750 a month mortgage doesn't seem that bad....Is you mortgage due to increase a great deal with the house you have???

If Not, Keep your house, Sell one car, why do you need 2, I know it is convenient, but it sure isn't necessary and it costs a lot to run an extra car, Gas, Maintenance repairs, Insurance, Payments if you don't own it.

Write all your expenditures down in a book for 3 months, then go through the book and decide what was unnecessary spending, and don't do those things any more.

Pretty soon you will find your savings increasing as you won't be spending more than you make.

Answer 3

You are not doing badly, considering that you have no credit card debt and are raising 3 kids on $34000 a year. You should pat yourself on the back for managing to budget so well so far! Most families in your situation are far worse off and have a bigger debt hill to climb.

Only you can decide where to cut costs. List all your fixed expenses and see how much money you have leftover for discretionary things (food, gas, clothes, etc.) each month. You said it was 0 or less than 0. That's OK; it's the same for a lot of people. But that doesn't necessarily mean you have to sell your home, especially since it sounds like you'll be in the exact same situation--just with no home--if you do so.

1. Priority 1 is to pay off the car loans. You can scrimp and cut expenses (like the grocery bill) in order to do this. All extra money should go to that. Definitly cut your bills if you can, especially your grocery bill--don't pay for packaged/processed foods like chips, crackers, cookies, pudding, juices, sports drinks, soda, popcicles, snacks--they don't fill you up and they are expensive. Buy things like bags of rice, pasta, beans, potatoes, that will make many filling, nutritious, meals. Be creative; you're kids are young enough to not notice the scrimping.

2. You might not even need to sell them after you pay the loans off, unless you really can get enough to buy new car(s) and still have a good chunk of money leftover. Even if you can sell them for a profit (after buying new cars) I'd put that money into emergency savings.

3. You probably should not sell your house. It will be a huge stressor and burden, and you may not end up with much money leftover after its all said and done (after commissions, etc.), especially if you don't have much equity in it. Even if you think you do have a lot of equity, it will first be eaten up by moving costs, relocating fees, closing costs, and then the rest will be needed for a downpayment on a new house. And you still probably couldn't afford much of a new house. So you'll be out a lot of time and money but likely be the same financially--UNLESS you are planning to sell your home and buy a much cheaper property. If that's possible, it might be a great way to cut expenses.

4. It sounds to me like you should read the article on Yahoo! Experts page (from Yahoo! finance page) posted today by David Bach. He talks about how sometimes the only thing to do is raise your income when you can't cut any more costs, and he gives some general advice/ideas about how to do so.

I recommend your husband get another job, even if it's only for a little while--or you could work part time or from home, etc. (even though i know you have your hands full at home). You have to figure out how to raise your income though. No matter how well you budget, $34,000 is not really enough to live comfortably and raise 3 kids.

Good luck! Read a few books on financial planning; you guys will be fine.

Answer 4

Sell by owner might not work as well as you think and in this time of soft housing market it might not sell at all.

And if you do sell it, you might have to pay capital gains taxes depending on how long you've been in it.

With a family of 5 I don't think you'll get your grocery bill much lower than it is. You can cut out everything extra - no soda, cookies, brand cereals, etc - and just go for the basics.

You could get a job, but it would entail you working the night shift while your husband took care of the kids and then you getting what sleep you could as you could. My girlfriend does that with her husband and kids. Makes it hard but would bring in more money. Or you could get a part-time job in the evenings.

As to the baby not being willing to bottle feed you may just have to force the issue.

As nice as it would be to invest in the 401 at his work, you can't put yourself into deeper debt.

Answer 5

Sounds like your husband makes about $34M/year. Your current mortgage payment of $750 represents only about 28% of $2,800/month in gross income. I don't know if taxes and insurance are included in the $750, but with the auto loan payments, you've got at least 44% of your income going to debt payments - so it sounds like the car payments are your real problem. You really otherwise should be able to afford the mortgage you have now.

If you can get rid of your car payments, I figure you should be able to afford a mortgage of about $120,000. This is based on a 30-year fixed rate loan with rate of 6.25%. Principal & interest payment would be $739/month, property taxes $1,650/yr (this is a guess - could vary a lot depending on where you are), and homeowners insurance of $375/yr (again a guess - check on this). Using these assumptions, you'd be paying a total of 32% of your gross income toward house paymens (P&I, taxes, and insurance). As long as you don't have more than about another $175/month in other debt payments, you should be fine.

Good luck

Answer 6

chances are you may have a difficult time selling a house., plus house is good to have. try moving car loan balances to credit cards with better APR or to home equity (at least you'll get a tax deduction as well). Cut down on other bills & do not use cash if you can use a credit card. for 30 days that you don't have to pay off your credit card bills, money should be in a savings account earning interest!

www.letsgobble.com

Answer 7

Tear up your credit cards ( I assume you have a few), pay those off ASAP. Why 2 car loans if you don't work? And your mortgage is way too high....that's 26.5% of your gross income.
You need to budget what you have to. $600 for a month for 5 people doesn't seem to extreme.
My advice is to see were you absolutely have to cut from - cable TV (fewer channels), credit cards, etc. I think you need to get a job to help out.
Regarding the 401k - can you afford it? If they are matching his contribution, then consiser it. Otherwise, get on your feet first.
Do you get a refund from the IRS? If so, why let them hold your money all year? Readjust your holdings so they get very little overage.