Oran Hall | Financial Adviser | Personal financial makeover
Q: I am a 24-year-old mother, university student, and trainer. I thought I was doing okay in my finances in terms of being able to pay for major expenses such as my school fees, my child's school fees, monthly bills, and helping to take care of groceries for my household with my adoptive parents as well as extending help to my biological mom. I'm now in debt as I have a high credit card bill and my income is less as I switched jobs to be able to spend more time with my son.
I was also looking towards a training manager promotion in six months to help facilitate some of my expenses. Based on the fact that I never had a real understanding of budgeting, I would love some advice as to how to get out of debt and make smarter spending decisions. I also lend a lot or give a lot of money to others, and usually it is returned.
I now earn $90,000 per month. My husband sends at least $300 monthly to help with the expenses for my son. He lives abroad. Thanks for taking the time to provide me with advice. I greatly appreciate it.
A: You are a young, generous person trying to do many things with a limited income. Your income has also declined due to the conscious decision that you have taken and you seem to have taken, decisions expecting your income to increase.
Much will have to change to bring you back to financial health, but I do not think that your case is beyond repair.
Bringing your debt under control should be your first priority. Credit card debt can be very destructive. You could conceivably be paying every month yet see no decline in your indebtedness due to the high rate of interest and how it is calculated.
I suggest you discontinue the use of the credit card so that you won't be fooled into believing that you have spending capacity. When you spend, use cash to settle the transaction unless it is unsafe to have the required sum on your person.
Continue to be kind but especially to yourself. Learn to tell others that you are not able to give or lend your money to them. People tend to borrow because they have financial challenges. Some of these are temporary, so you may get back your money, but some people are steeped in debt, so your chances of recovering your money from them are nil. And do you know that there are persons who just love to use other people's money even though they have money?
When making decisions, even good ones, consider the implications - financial and otherwise - that they can have for you. Avoid making decisions on the basis of income you expect to earn. Sometimes things do not go the way you expect them to go.
You need to establish how much you need to cover your basic lifestyle expenses, including the cost of educating yourself and your child, and also factor in assistance to your biological mother. You seem to have a living arrangement in which your expenses are not as high as they could have been. If that is the case, try to convert any expenses not incurred to savings.
To make your budget, take into account all of your income, including your husband's contribution. that is the income side. The expenditure side will have many more items: a sum for the repayment of your credit card debt; savings, even a small amount; school fees; contribution to the expenses of the home where you live; contribution to your mother.
The other items should just be critically important ones. I cannot see any room for monetary gifts or loans in this budget, but if you have to be charitable, set a limit and do not exceed it.
Track your spending
To arrive at how much to allocate for each item, note how much you spend now, but make adjustments if your income cannot support the expenditure. After making your budget, you must record and track your spending. Do so regularly - weekly or monthly. Add all the figures and compare the total with your total income to be satisfied that you have kept your spending in line with your income.
Should your income increase, or should good fortune come your way in the form of a gift of money, put it towards the reduction of your credit card debt. It has to come down fast if you are to avoid deeper financial distress.
It is going to be hard, but you have to resolve to make the effort to ease your current difficult situation. This is not the end of the road.
- Oran A. Hall, principal author of 'The Handbook of Personal Financial Planning', offers personal financial planning advice and counsel. firstname.lastname@example.org