In January, reporter Louis R. Carlozo consulted with personal finance experts and constructed a 10-step guide to creating a family budget. You can find it at chicagotribune.com/survival. Now, Lou has decided to put his plan to the test. With his wife, Amy, he’ll spend the coming months chronicling the anxiety-filled path toward getting the Carlozo family finances in order. We suspect many of you are on a similar path, and so by sharing Lou and Amy’s highs and lows, we hope you’ll find some measure of encouragement and inspiration to make smarter sense of your own money matters.
– – –
When it comes to battening down the budget in 2009, I have discovered that quite the gulf exists between giving readers the best advice I could find and following that advice myself.
Like many of you, I face some tough fiscal potholes and impediments. Between old student loans and bloated credit card debt, I have a lot of bills. Saving, once automatic, has become an almost non-existent habit. And in the day-to-day struggle just to keep up with needs of our two elementary school kids, my wife, Amy, and I somehow lost track of our short- and long-term financial goals. (College savings? What’s that?)
So now comes the hard part: Just as I advised you to start by taking stock of your financial health, we need to do the same. And that won’t be easy, because Amy and I have markedly different attitudes about money. When the appointed day arrived to talk over our finances for 2009, my wife and I headed to a local coffee shop for the big talk.
Grasping a legal pad and a green pen (better that than a red one, I thought), I hoped for the best and prepared for the worst. Step 1 of the Smart section’s budget guide called on readers to “Know your situation … take stock of your financial health.”
Hmmm. Was this series budgeting made easy? Or fidgeting made easy?
You know that feeling you get when you have to sit down and do something important and dire with your money — your taxes, for example? You gather all your receipts, fire up the laptop, then … you get up and look in the fridge for something to eat. Then you head back to your laptop … and decide to check your e-mail. Wow! Someone has added you as a friend on Facebook. You don’t even know this person — but you’ve got to check them out.
No such distractions existed for Amy and me on this day. We sat at a Panera Bread, and as I finished my orange juice on ice, the discussion began.
“OK, let’s talk.” Amy said. “Where are we?”
Not in the poorhouse, and definitely not in the penthouse. We sit in a sort of financial purgatory — a place where our debt has leveled off, yet threatens to swallow us if we don’t do something about it. Blame a combination of factors: leftover student-loan debt at least 15 years old (dating to before our marriage); credit card spending that outpaced our payments; a 2008 renovation of my recording studio that cost at least $20,000. (I’ll take the fall for that one.)
Here are the questions I asked of readers, and how Amy and I answered them:
What major financial hurdles do you face? … How do you think you got to this point, and what would you like to see change?
We’re more than $50,000 in debt. It was a relief when we recently rolled this into a low-interest home equity loan that has allowed up to stop wasting money on credit card interest. But we’re not exactly comfortable using our home to leverage debt. And what if the credit card balances start piling up again?
Private school for both of our kids now runs more than $1,300 a month. While that’s a bargain, recent improvements at our neighborhood Chicago public school have us wondering if we can at least send our daughter there. Our son, who has some developmental challenges, needs the extra nurturance he gets at the private school.
Medical bills for our son, Christopher. He requires occupational and speech therapy. Sometimes Amy’s insurance covers this, but we’ve been hit with some unwelcome surprises. Without warning last year, Christopher’s speech therapy coverage was cut off. As a result, we owe about $2,000 we thought insurance would handle.
Wasteful spending. I could’ve renovated my studio for far less. We eat out a lot. I tend to make impulse buys at clothing and music stores.
When we had kids, we stopped most of our liquid savings and giving to charity.
Home renovations. We’ll need to renovate our 20-year-old kitchen at some point. Finishing our basement would provide sorely needed space for our growing family.
Amy and I agreed that going from young marrieds to parents caused us to break many of our best habits. Buying a home proved a great investment, but also a huge cash drain. What’s more, there seems to be less time to do everything, including manage our assets and finances. That has to change.
More Top Picks Ecobee Smart Thermostat Enhanced
State your financial positives in terms of income, debt management, savings.
We have a combined income of more than $100,000. This should prove a big plus in accelerating our climb out of debt, if we manage our resources well in 2009.
Our home has almost doubled in value since we purchased it in 2001. The North Side neighborhood where we live continues to be very desirable, despite the recent housing meltdown.
We have at least four active retirement accounts that we contribute to. We have two money market accounts for savings. They’re almost drained, though. Our only car is paid for and in good shape.
How well are you prepared for a financial emergency?
Not so well. Like many Americans, we live from paycheck to paycheck.
Write it down now: The amount we have tucked in a rainy day fund is: (underscore)(underscore)(underscore)(underscore)(underscore)(underscore).
Maybe $2,000? I’m ashamed to write that low a number down, but that’s all we have. It might be less.
How is the topic of money addressed in your family: Emotionally or rationally?
The subject of money comes loaded like dynamite for both of us. Amy’s family were scrimpers, savers and thrifty folk. My mom behaved like many people scarred by the Great Depression, unable to spend a dime on herself. My dad, by contrast, loved to gamble at casinos and racetracks — big. We never knew exactly how much Dad made or owed, and he was the King of Conspicuous Consumption.
Who makes the financial decisions?
In many cases I do because I love numbers. But based on my track record, that must change. Amy is a very deliberate, thoughtful person who tends to take her time with decisions. When she makes one, she’s sure of what she’s doing and doesn’t look back. I leap into things, with mixed results.
I expected the discussion to go rough, with public shouting, accusations, rolled eyes. None of this happened. Amy welcomed the chance to clear the decks and make a fresh start with the money. We’re not in that bad shape: We have our jobs, our health and plenty of ideas about what to do should any of that change. We also have some big dreams that we want to keep on the table: a Florida vacation in January 2010; that basement or kitchen renovation; a vacation home in Saugatuck, Mich. We wrote all this down. Where I thought I would feel overwhelmed, I felt relief instead.
———–
Next: Lou and Amy meet with a financial counselor to turn their raw information into a plan of attack.
Follow Lou’s daily budget challenges, and share your own experiences and tips, at his new blog, chicagotribune.com/lou