Julia and John, both in their early 30s and living in Queens, are expecting their first child next spring and desperate for a financial audit to help them find ways to reduce debt and save up before embarking on parenthood.
The good news: Julia loves her job as a special education teacher, earning $70,000 a year. She is currently halfway through a certification program that will give her the credentials to advance and earn closer to $100,000. Their monthly expenses are also not crazy high. Altogether they spend about $3,000 a month on items including rent, utilities, cable and car payments. They would like to curb their eating out and entertainment expenses, currently averaging $100 per week.
The challenges: They have no savings and $30,000 in credit card debt across three cards, which they’re paying down minimally. The couple also owes $5,000 in a personal loan to a friend. After all their expenses and debt repayments, they’re left with little to nothing to save.
Regarding John’s career, he recently left his commission-only job in insurance sales because it paid very little. Now, he’s stringing together some side gigs, earning about $500 per week, until he can land a full-time job elsewhere with a steady, more robust paycheck. With only an associate’s degree, he’s also contemplating going back to school and getting the full bachelor’s degree. He’s not sure what he would want to study just yet. Plus, completing school would be a huge time and financial commitment. Is now the best time to enroll? Will it be worth it in the long run? The couple wants advice.
Prioritize Work Over School
For John, I suggest he prioritize locking in a steady job over enrolling in school at the moment. With only six months to go until their baby arrives, it’s my opinion that the couple is better off focusing on their present-day financial security, rather than spending more money to afford John’s college enrollment. Yes, college can be an investment and yes, time will only be more limited with a baby in the picture, so now may seem like a smart time to tackle this goal, but not with $30,000 in debt and zero savings.
Remember, Julia is positioned to earn roughly $30,000 more per year in the next 12 months. At that point, assuming the couple has paid off most or all of their credit card debt thanks to John’s income, I’d say it’s a more ideal time to enroll in school. Remember to apply for scholarships and grants. Consider an online program for more flexibility.
Even with the extra $500 per week John earns on the side (he helps a friend who runs a restaurant in the evenings), that’s money that can be accumulating in a savings account. I’d rather they save every spare penny between now and next spring than put more towards debt, or at least until John starts to earn a higher and more consistent paycheck.
Ideally they will have a 3 or 4-month emergency savings account (roughly $9,000 to $12,000) by the time the baby arrives.
Relax About Eating Out
Julia said she feels guilty spending so much on restaurants. I could suggest cooking more often at home, which would save them a hundred dollars or so per month. However, that’s not a terribly realistic plan unless they enjoy cooking. (My guess is they prefer the convenience of ordering in or dining out, and living in New York, as they do, it’s a big part of the culture here to experience restaurants.) Otherwise, cooking and preparing your own meals becomes another stress point. And nobody wants to be stressed when they’re pregnant!
Instead, consider opting for buying prepared meals several nights per week, which just means you grab something freshly prepared from the grocer (or online at FreshDirect for New Yorkers) and then warm it up at home. It’s still more costly than, say, making your own pasta from a box, but it doesn’t require laboring in the kitchen or paying 20% gratuity. And you can still eat healthily.
In all honesty, though, their eating out habit is not the problem. They need more income. That is what will more dramatically pay down the debt and fuel savings.
Don’t Forget to Register
Finally, register for baby gear, clothes and other necessities! Friends and loved ones will want to shower you with baby gifts, so make it easy for them and point them to an online registry. And be open to receiving hand me downs and gently used gear. Tap into a neighborhood parent network where you can ask for items and score freebies.
Farnoosh Torabi is America’s leading personal finance authority hooked on helping Americans live their richest, happiest lives. From her early days reporting for Money Magazine to now hosting a primetime series on CNBC and writing monthly for O, The Oprah Magazine, she’s become our favorite go-to money expert and friend.