Fixing True Life Finances

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we ran out of moneyI accidentally overheard my coworker’s decision to sell her house as she doesn’t think that she could afford living there anymore.  With the recent financial crisis and certain stocks basically going to zero, there are many people who lost a fortune (like this guy who lost $6 million because of Lehman Brothers).  Luckily, she still has a job or else the situation will be even worst.

When I found out about the situation, I didn’t know how to react as I feel like we weren’t close enough for me to give her any advice without her feeling offended.  However, I feel bad that something like this is happening to someone I know and I really want to help.

This post is intended to bring light to what I observed about her and her lifestyle.  Along with the discussion that take place, we can all learn from one another in a real life situation and hopefully she (or someone close to her) will read this and find a way to solve her financial situation.

Money Leaks

Coffee and Sodas – $150 a month
The first thing she needs to do is get rid of all her money leaks.  Up until recently, she buys a cup of Starbucks coffee as well as a bottle of diet coke everyday.  As we all know, $5 a day really adds up. At that rate, it’s $150 a month and we aren’t even talking about interest through the years yet.

Car Selection – $420 a month
Unfortunately, she picked a pretty high end vehicle that takes $100 to fill up a tank. As she works 30 miles away from the office, she is spending $600 on gas alone every month. As a comparison, I spend $180 a month. What a big difference.

Many articles that illustrates buying a new car just to save gas is not worth it. In her case though, she should sell her car and buy another least expensive car with that money and save the difference. Once she does that, she can save money on gas, on maintenance and she will also have some leftover money to earn interest.

Utilities – $550 a month
Most people seem to think they won’t survive without air conditioning, but it is simply not true. Turn off that air conditioning and open the windows. My electric bill was $13.01 last month while my mom told me theirs were $600. How much was yours?

Eating Out – $200 a month
She brings lunches once in a while but if I were her, I would eat lunch and dinner with homemade food only. I regularly hear about her gatherings with friends in what sounds like a pretty high end restaurant. Say it costs $50 per meal and she goes once a week, that’s $200 a month.

Total Savings – $1320 every month.
I’m sure there are many more things that she could cut back but without even trying, I just saved her $1320 per month.

Disaster Prevention is More Important than Disaster Recovery

With a little help, she can hopefully get out of her situation and start making the best financial decision moving forward. The true takeaway though is not what you can do when things go wrong but what you can do to prevent a personal financial crisis from happening.

Bad Habits
Many money leaks we have are a result of our bad habits. Whether it’s smoking, buying coffee or splurging, we all do one or more of these activities. In order to prevent a financial disaster later in life, we should cut these down as much as possible.

Anything Can Happen
In life, you just never know what will happen. Plan for the future and be conservative about how much money you need to retire. Don’t feel like you have to use up every penny of your nest egg before you die because no mathematical formula can ever account for the unknown. What if you live 10 years more than the expected age? Don’t turn a good thing into a bad one.

Develop Your Frugal Mindset As Soon As Possible
Once you get used to living a frugal life, it really isn’t that bad. In fact, I just came back from a nice walk which is not only healthy but free. As you start spending less money, there will be more to save. It’s as straight forward as that.

Anything Else?

If you know someone in a similar situation, please share with us so my coworker doesn’t feel like she’s the only one in the world with this problem. Do you have any advices for her that you’d like to add? Share with us so we can all learn.

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{ read the comments below or add one }

  • Used Cars For Sale Ottawa says:

    There are some great money savings ideas here.

    But I still can’t believe that someone in such financial trouble is still pumping $100 a shot into a car.

    Even people that are comfortable with their expenses should be in a realiable second hand car that gets decent gas mileage. Just on principle alone.


  • MoneyNing says:

    Joe: I rent currently and only live in an one bedroom apartment (that’s all we need). I also had a little frugal experiment for a week so that probably helped lower the bills too. For more details, check out Living on $34.01 a week

  • marci says:

    @Joe – I OWN a small older rural home – 1010 sq ft +/-. It’s just me, and I go to work 4 days a week. Summers here are usually cool enough that I just run fans (constantly cuz I like the breeze). :)Winters I run fans to circulate the heat from the woodstove. The house (woodstove room) is usually 65-68 degrees in winter. The bedrooms are cooler as I don’t usually turn on the cadet wall heaters more than 10 minutes to get the chill out of the air.

    My excess energy users are the motion detector lights on the front and back porches, the fans constantly, the freezer, nightlights as I can’t see in the dark and that’s not safe for my old bones, I forget to turn the powerbar switch for the computer, and I use the clothes dryer when it’s rainy. The usuage has been as low as $28 in summer, but $45 in winter has been pretty constant – more lights on I suppose, and the occassional use of the cadet wall heaters in the bedrooms.

    It’s $18 basic charge here without any usage. We pay 6.5 cents per KW. I don’t know how that compares to other areas.

  • Joe @ Simple Debt-Free Finance says:

    @Marci and @MoneyNing,

    I have to ask, do you guys rent or own?

    I live in New York (maybe that’s my problem?) and have never had an electric bill lower than $65 at any point in the year.

    $13 Wow. What’s your secret?

  • No Debt Plan says:

    Random thought not related to your points: the guy who lost $6 million lost it not because of Lehman Brothers, but because of his own stupidity and lack of asset allocation. Good grief — and he’s a financial advisor.

  • CD Rates says:

    All great ideas. As important as saving is, you can’t forget the other side of the balance sheet.

    Blogging can certainly become a good source of extra income, right David. Of course it takes time to build that so before things get bad, start.

    As far as other cost savings, if you don’t work too far from the house, you could ride your bike or walk.

    Network with others for grocery shopping. If people rotate doing shopping for each other that will cut down on gas.

  • Toni says:

    I can’t say enough about using your local library as a source of entertainment. I can’t remember the last time I had a video membership. There are so many dvds at libraries and they’re all free for a week. One library near me lets you keep a dvd for 2 weeks free. And of course getting a book there is much better than going to Border’s.

    I’ve been laid off for two months now. One of the perks I enjoyed at work was getting free magazines. 7 years of that and you get pretty spoiled. Browsing in the grocery store the other day, I had forgotten how expensive magazines are. Another great way that I’m using my library is by reading my magazines there…for free.

  • marci says:

    You saved her more than I make a month 🙂

    Our basic electric is $18 here before you even flip a switch…. mine runs about $35 in summer and $45 in winter. In Fall, winter, spring, the lights are on more here, and the bathroom heater. I run a freezer,frig, stove, microwave, washer/dryer, and dishwasher, and hotwater heater, and I usually forget to turn the powerswitch off on the computer… 🙁 Wood heat.

    She probably also has money leaks in the clothes, makeup/hair styling/fingernail stuff, as well as froo-froos or hobby items. All of which are personal choices, if you can afford them.

    Better to sell the house now before she loses it, if that’s the case. Then buy something small and reasonable with low maintenance and low utility needs.

    I can’t stress enough how peaceful and stressfree it is to live in a small comfy paid for house. Sure beats a large house with a huge mortgage. (been there, done that.)

  • Uncommonadvice says:

    Good advice – but I’d get your mate to do all the above AND downsize. It really is “baton down the hatches” time.

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