Helping Friends budget

brij2006 · September 2013

A set of our friends have not been very good with money since they moved in together (5 years ago), and they have asked us for budgeting advise. A year ago they began TTC, and got pregnant immediately. At that time they refinanced his car into a 6 year loan instead of 4 year (brand new car), and traded her car in on a cheaper one and extended the loan out to 5 years instead of 3. This was their logic on being able to afford to have a child, and that the hospital takes payments.

So they've been "payment people" since day 1, and have never tried to get out of debt or put money into savings. Now with the baby and the fact that their house has been torn apart for 4 years (they bought a fixer upper and were planning to remodel), they are realizing that their payment mentality has gotten them in way over their head. So last night they called and asked us to help them figure out what to do, because we have similar loans and house as theirs but we seem to be able to afford to fix it up.

How do we go about giving them advise without flat out telling them they need to sell his newer car and get something cheap, she needs to go back to work (she SAH since the baby was born 3 months ago, but his income doesn't cover their monthly payments), and they need to stop taking out those 0% interest loans from Best Buy for that new Ipad and TV?

I've already directed them toward Dave Ramsay, but this happened a couple of years ago and their excuse was that they "didn't want to take the time to figure out what they spent on what the month before." So they never put together a budget.

We don't want to see them in financial hardship. They've been our close friends for a long time, but they don't seem to understand that we have what we have by making sacrifices, having a budget, and doing things we don't necessarily want to do (like cooking at home instead of going out). But in the same sense, we don't want to sit down and show them our budget and exactly how we do things and where we put any "extra" money.

Any advise on how to "tread lightly" with giving advise?

Sisugal · September 2013

Advice for them:

The best way to get what you want is to have a plan. (this is how WE came up with our plan - then share that)

The plan must be implemented and often that is not easy. (share a struggle you had about a financial decision or postponing a purchase)

If what is going out is more than what is coming in you are going downhill fast (share how YOU track your income and spending)

You get out of debt by increasing income and decreasing spending. You have to be willing to do what it takes. (share what you did or ideas here on the nest.)

Direct her to the MM boards.

---

Give them copies of Total Money Makeover by Dave Ramsey and Smart Couples Finish RIch by David Bach. Then it is up to them. Some people would rather keep their head in the sand.

If they get on board, I would definitely share more of how to budget, what you have done.

Why the secrecy on not having them see your budget?

Ducktale · September 2013

Wow that's tough, but sounds like so many people I know. My friends who spend money this way don't ask for advice so I don't give it. It sounds like they want to get in a better place in theory but not enough to put the effort into it that actual change takes. I guess you could help them set up an Excel sheet orMint.com and emphasize that there is no magic easy way out, it will take sacrifice, changing priorities, and making difficult choices. The debt snowball would be a good place to start for them to get small victories/rewards early on.

HoneyBee973 · September 2013

I agree with what Ducktale said.

Also, I understand not wanting to show them your budget. Print out your excel sheet, without your actual numbers. That way don't have to know how much you and your DH make, etc. But they will get an idea of what they have to do with their numbers.

Hope they are able to take your advice and work hard towards their goal. See if maybe you guys can go over everything every couple months to make sure the plan is working?

brij2006 · September 2013

I completely forgot about Mint. I will definitely tell them about using that to track their spending.

We do not want to share our personal budget with them, because they've always been pretty comptetive with us. Especially with money and items, and we do not want to disclose that information.

We also gave them a copy of TMM a couple of years ago when they were in the same situation. They're the type to be good for a few months (get rid of data on phones, get rid of satellite, not eat out). Then they get caught back up, and say they can now afford to have those items again and will sign back up for them.

I don't want to see them in this harship. You can tell that it eats at her that they financially can not afford for her to stay home, but that's what they really want for their family. I've tried telling them that if it's that important to them, they will make it happen. But they don't realize we have the things we do because we've made many sacrifices and both work overtime or 2nd jobs.

HoneyBee973 · September 2013

brij2006 said:

But they don't realize we have the things we do because we've made many sacrifices and both work overtime or 2nd jobs.

Our friend and his gf, especially his gf is ALWAYS making comments to us, 'I don't understand how you guys do it.' I try to ignore it. But it makes me laugh! I finally said it to her one day, we budget. We work any and every OT we can. But I don't think it registers. People only see what you have, not what you needed to do to get there.

Erikan73 · September 2013

Depending on what they owe on the cars & what they are worth, trading his new car in for something less expensive may not actually work in their favor. I agree with you that that they need to stop buying "toys" Have them keep track of their expenses for 2-4 weeks and then review it, make recommendations. Consider giving them tips/examples of what you do to be able to enjoy life yet save money. What they do with all that information, you have no control over, and will need to let it be then.

Erikan73 · September 2013

Oh yeah, one thing they also need to look at, if she goes back to work, depending on her what type of income she would get, would they still end up ahead with her working once you take child care into consdieration. I'm not saying it's an excuse for her not to work, but depending on her job, if she is bringining in say $2000.00 a month yet they are spending $1800-1900 a month (I know newborn child care can be expensive in some areas) on childcare then is it really worth it to go back to work & put your child into day care?

Even if that is the case, a part job in the evenings or weekends isn't out of the possibility either.

brij2006 · September 2013

Her mom is retired and doesn't live very far away. So she's offered to watch their child while she works, but she's adimant that her staying home is what they want for their family. Even though they can't pay their bills with just his income, and that was before they had the baby and added the monthly expense of his medical bills and other items.

Erikan73 · September 2013

That does help, maybe she could compromise and get a part time job while grandma babsits. This way she isn't gone as much but still bringing in some extra income to help out

Ducktale · September 2013

I think also making specific (realistic) and somewhat smaller/short term goals helps as well. Like, I want to pay off x debt by x date. Then look at how much money they would have to save each month in order to accomplish that goal. So something like "I want to pay off $75,000 within 10 years" may be too much to bite off, and seem unrealistic or distant, but if you break up that amount into smaller goals and smaller chunks of time, it could be easier.

brij2006 · September 2013

That's what we've tried explaining to them. Yes, it's important to you to not bring your child to daycare. I understand that. But utilize grandma 2-3 days a week, and bring in some income to be able to pay your bills and pay down some debt. Your child won't remember whether you were at work or not those first 5 years of his life. He will remember that mom and dad lived paycheck to paycheck all their lives, and could never afford anything above the necessities.

Ducktale · September 2013

Sounds like you've given them some great advice. Sometimes, there's not much more you can do other than answer questions they ask and be available for them. I know it's hard to see them struggle, but you can only do so much, and their situation is the result of choices they make.

vlagrl29 · September 2013

sounds very immature and irresponsible for your friend to stay at home while they can't pay their bills. I honestly don't know how they do it. The stress alone would kill me.

Hudson_Hawk · September 2013

I'm not a fan of advising personal friends about their finances, so I'd actually refer them to a financial adviser first.

If you're OK with helping them, then another thing you could do is refer them to the MM boards here (and on the other site) or the Dave Ramsey forums. They're a quick and easy read and they might be inspired to read the actual book(s).

Re: your budget:if you're not comfortable sharing actual numbers is convert the numbers on your spreadsheet into percentages. So you can show them that your mortgage payment is X% of your monthly take home, and do that for each line item. You can assume they're going to have the same bill categories as you with exception of the number of credit cards and personal loans, so you can be vague and just put down credit card payment(s) are X% of monthly take home. Does this make sense? Just make sure everything adds up to 100%. And ditto the PP who suggested you give them copies of the DR books. Great first step

sparklerose · September 2013

I really like the idea of giving an example of where you really struggled with not being able to make a purchase in order to stick with the budget. That is a great way to say "stop buying stuff you cant afford" without sounding harsh!

Mama-Bear · September 2013

They need to live bare bones. Until I was more than 1/2 through my twin pg (so just DS1) we were a 1 car family. It wasn't too bad but I prefer to stay home anyway, I'm not the type that has to get out of the house. They can get rid of a car, decrease cell phones, shop around for different car insurance, move (yes, we would've moved for me to be able to SAH if that's what it took), get rid of things to get some of the debt paid off. Maybe she could watch another child or two so she can make some money but still stay home. He can get a different, higher paying job. Change their withholdings if they've having too much taken out for taxes. DH makes $58k/year right now and we're a family of 5 and I SAH, things are tight but we make sacrifices, the only debt we have is our home and SL (which we have a certain account set up that we deposit a lump sum into every year around tax time and that bill is paid automatically so it's not part of our monthly budget). We don't go out to eat, we don't have a home phone, we don't have cable, we don't go to the movies, we don't go shopping, and we haven't been on a "real" vacation (not a road trip with both sets of parents or fishing with IL's) since I was newly pg with DS1. We live in the STL area and there are a ton of great family attractions that are free (or we buy memberships when there are specials). I don't feel like we're really missing out on much, but we've decided what's a priority and what isn't. It sounds like they're treating everything like it's a priority.

MommyLiberty5013 · September 2013

I would avoid the topic as much as possible. Invite them here...we can kick their butts into gear! Or at least try.

brij2006 · September 2013

Oh how I would love to invite them here.

I love the idea of putting things as % in our spreadsheet and sending them that. That way they can have an idea as to how much we spend each month on certain things, but won't know exactly what our payments or income is.

sparklerose · September 2013

Mama-Bear said:
They need to live bare bones. Until I was more than 1/2 through my twin pg (so just DS1) we were a 1 car family. It wasn't too bad but I prefer to stay home anyway, I'm not the type that has to get out of the house. They can get rid of a car, decrease cell phones, shop around for different car insurance, move (yes, we would've moved for me to be able to SAH if that's what it took), get rid of things to get some of the debt paid off. Maybe she could watch another child or two so she can make some money but still stay home. He can get a different, higher paying job. Change their withholdings if they've having too much taken out for taxes. DH makes $58k/year right now and we're a family of 5 and I SAH, things are tight but we make sacrifices, the only debt we have is our home and SL (which we have a certain account set up that we deposit a lump sum into every year around tax time and that bill is paid automatically so it's not part of our monthly budget). We don't go out to eat, we don't have a home phone, we don't have cable, we don't go to the movies, we don't go shopping, and we haven't been on a "real" vacation (not a road trip with both sets of parents or fishing with IL's) since I was newly pg with DS1. We live in the STL area and there are a ton of great family attractions that are free (or we buy memberships when there are specials). I don't feel like we're really missing out on much, but we've decided what's a priority and what isn't. It sounds like they're treating everything like it's a priority.

Or maybe he cant get a different higher paying job. It's not quite that simple.

short+sassy · September 2013

Or, if they are willing to disclose their net income and the amount of their "fixed" bills, you all can sit down with them to show exactly how much is left to pay down their debt and/or for "extras". Maybe seeing in black and white when Income X-Fixed Bills Y= (negative money every month or close to it) what will finally wake them up to SAHM needing to be not quite so SAH. The definition of insanity is doing the same thing and expecting different results.

With that said, I have a good friend where her and her husband decided she would stay a SAHM even when they were facing foreclosure! Some people are just that adamant. I try not to judgy, but it's so hard sometimes, lol!

Mom987 · September 2013

If they are too lazy to "look" at finances a month in advance, I wouldn't help them much. Seriously. I look at our finances and spreadsheets every day at work because I'm committed to our success with it. If they can't do it, it won't happen IMO.

Mom987 · September 2013

I would maybe give the template or copy/paste the wording of your spreadsheet, but definitely not dollar amounts (obviously) and I wouldn't even want to show percentages.

brij2006 · September 2013

We've decided to just give them a copy of the budget template we use, without any numbers in it.
Then we gave them the number for our financial advisor and told them to give him a call. We pretty much know they won't call him and they probably won't do the budget. But that's their problem. We can't force them, and they're only hurting themselves.

Mama-Bear · September 2013

sparklerose said:

They need to live bare bones. Until I was more than 1/2 through my twin pg (so just DS1) we were a 1 car family. It wasn't too bad but I prefer to stay home anyway, I'm not the type that has to get out of the house. They can get rid of a car, decrease cell phones, shop around for different car insurance, move (yes, we would've moved for me to be able to SAH if that's what it took), get rid of things to get some of the debt paid off. Maybe she could watch another child or two so she can make some money but still stay home. He can get a different, higher paying job. Change their withholdings if they've having too much taken out for taxes. DH makes $58k/year right now and we're a family of 5 and I SAH, things are tight but we make sacrifices, the only debt we have is our home and SL (which we have a certain account set up that we deposit a lump sum into every year around tax time and that bill is paid automatically so it's not part of our monthly budget). We don't go out to eat, we don't have a home phone, we don't have cable, we don't go to the movies, we don't go shopping, and we haven't been on a "real" vacation (not a road trip with both sets of parents or fishing with IL's) since I was newly pg with DS1. We live in the STL area and there are a ton of great family attractions that are free (or we buy memberships when there are specials). I don't feel like we're really missing out on much, but we've decided what's a priority and what isn't. It sounds like they're treating everything like it's a priority.

Or maybe he cant get a different higher paying job. It's not quite that simple.

I never said it was "that simple", but it can be an option depending on his line of work, education, and experience. I don't necessarily think that more money would help their issues (actually probably make them worse) as they probably have more of a debt issue than income issue.

brij2006 · September 2013

He is actually lucky to be in the job he is in, and getting paid what he does. He started it during college when he was going for his bachelors degree in Business Management. So it's a management position. He ended up changing his major to Communications with only a year left, then never continued his education. So technically he only has a High School diploma and is in a management position he only received because he was in the process of a management degree. He knows that if he were to change jobs, he wouldn't be paid anywhere near what he is now, or have the position he does.

We've told him many times to finish his degree. He only has 3 classes left, and he would have a bachelors. Instead he just writes his college on his resume and puts "some college." Now he says that with having a family, he would rather support them instead of going back to school.

It makes me sad that some people don't realize the way to get ahead is by making sacrifices.

hoffse · September 2013

This is tough, and I sympathize with you OP. I have helped a couple of friends get out of debt, and it was a pretty intense process. This is basically what I did:

First and foremost, I think these friends of yours need to be willing to turn over financial info to you if you are supposed to "fix" this problem for them. I will talk to my friends about investments, saving, etc. generically, but for the couple that I helped pull out of debt I asked them to give me print-outs of their credit card and bank statements (with account numbers blacked out of course) for the last few months. I also looked at paystubs to see what their withholdings were, etc. to see if anything needed to be adjusted there. Frankly, I found that just telling them to "save more" and "spend less" didn't really work for them. Instead I had to sit them down and say, "Look. We have budgeted $300 this month for your groceries. You have spent $225 in the last two weeks. Budget that remaining $75 for the next two weeks. Here are some recipe ideas that used canned food instead of fresh produce." I know my method sounds intrusive (and it is), but what they were asking for was essentially a financial intervention. Without sitting down with them and being honest about the numbers, a real intervention would have been impossible.

Ultimately, I think that they have to want to be helped, and they have to be willing to disclose some very personal info to you in order for you to straighten them out yourself. Otherwise, they will need to pay a fee to a financial adviser (who will require that they disclose all of this anyway) or use a site like mint to get back on track.

Given that you've said that these people are competitive with you, I might just decline. It takes a pretty good and honest friendship to be able to open yourself up like that financially without worrying about being judged. My friends realized they were just in deep deep trouble, and it was only getting worse. They decided they needed help from somewhere, and paying a fee to have a professional do it wasn't something they could afford. That's why I got involved. Unless this couple is in that situation, I would probably stay out of it if I were you.

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