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Things Are Looking Up

Getting things done during the holidays is tough, but Natasha has been working on her "to-do" list even with all the distractions.

I understand that she has discontinued the $50 per paycheck that was going toward bonds for her boys. As noble as this practice is, right now she needs the money to put towards other obligations for a while.

She has obtained the forms necessary to change the federal and state withholding tax taken from her paycheck. I will help her fill those out this week. She will decrease her federal withholding by about $100 per paycheck and NYS/NYC by about $50 per paycheck. That will give her about $300 per month more to help pay off debts.

As great as this progress is, Natasha's long-term success will be tied to her ability to decrease her spending. I still have not received copies of her expense journal, which is a necessary first step in this phase, but I hope to have it this week. It is vital that we come up with a way to help her control how much she spends. With this in mind, I have recommended that she begin an "Envelope System" approach to budgeting for some of her living expenses.

My wife and I used this system when we first got married to help us save money for our first home. Actually we still use it sometimes when I find our spending getting a little out of whack.

Basically, we will discuss her cash flow needs and Natasha will agree to a certain amount of dollars each month for certain items (i.e. groceries, clothes, etc). She will then put a certain amount from each paycheck into an envelope for that item. (Common, everyday business size envelopes are just fine.) When she needs to buy that stuff, she takes the money from the relevant envelope and puts the receipt in there. If the money runs out then she can't buy that item until she put more money back in the envelope from her next paycheck. If she doesn't use all the money in the envelope by the end of the month then she leaves the extra in there for the following month in case she needs more.

It takes a while to get used to this, and of course, Natasha will need to keep the envelopes in a safe place, but if she can do that and gets used to this it is very effective.

This envelope system doesn't make sense for all expenses - mainly expenses that generally can't be paid for with cash like rent, car insurance, cable, utilities (maybe), but it may be perfect for expenses generally paid in cash and with a certain level of discretion. Like groceries, gas, clothing, and especially "entertainment". It is also very useful in saving up for non-regular expenses like vacation and gifts - birthday, Christmas, etc.

Natasha is doing really well - getting involved and starting to take control of her financial situation. My goal over the next couple of weeks will be to help her evaluate her living expenses and how her current expenses relate to what's truly important to her. Then to establish a budget that will allow her to begin paying off her debts. And before she knows it, things will start looking brighter, and that will hopefully give her the chance to get through the tough times that will undoubtedly come.

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