Friday, April 09, 2010

Spending Formula...

Oprah had Jean Chatzky on her show a while back when she was doing the Debt Diet. Jean suggested the following as the ideal spending formula.

I am completely out of balance and I have a lot of work to do.

Right now my housing expense is 41% and my debt level is at 38%. Thankfully my car is paid off so I fall below the 15% transportation goal to just 8%. The sad thing is because I am overextended in housing and debt, I also fail to meet the 10% saving goal and I am only able to allot 13% for personal spending compared to the 25% goal.

Below is how I will stack up against the spending formula for the rest of 2010.


Aaren said...

Well, your housing and transportation numbers even out, so housing's not your big concern. It's simply the debt that you're servicing that's so astronomical. You're not including the 401% contribution or the match from your employer in your savings either, and that should be considered, I think, even though you're still under the 10% suggestion. The ironic thing about the debt is that your credit card payment equals the 10% you should be saving.

So what plan are you trying to use? You mentioned the 60% solution earlier this year, which would leave you with different allocations. Have you decided that this one is superior, or are you still deciding?

I do harp on that credit card, don't I? I promise, I do it out of love :-D.

How'd your no-spend Thursday go? Have a fantastically marvelous weekend!

Chitown said...

Hi Aaren, make me hate that credit card even more so I guess that's not a bad thing. (wink)

I could throw my savings at the credit card but to me, that wouldn't help me achieve my goal of not using debt. You see, my goal is to have my debt load go down each and every month. Using my savings would only half the credit card balance which is already at a pretty low interest rate. It would also only decrease my payment by $200. So, now I use my cash flow and my savings if necessary but so far, I haven't needed to use my savings and my debt is going down.

Push come to shove, if I needed extra money, I can take the $200/month out of savings and it would still hover around the $10,000 level. Meanwhile, I reduce the principal on the credit card $400/month. I want that sucker gone too and it may just have to disappear with my savings one of these days. I am just hoping that it will leave me with a little savings so that I don't have to turn to debt in cases of cash flow crunches or emergencies.

As for the plans....I can't really use either since I don't fit into anything thanks to the good old debt levels. I am hoping to just use some kind of snowball plan as I reduce my expenses and/or increase my income.

I honestly don't know what to do other than what I am doing now. Ideally, I would like to use both the 60/40 solution and make sure that I am not spending too much in the various categories.

Anonymous said...

I am also curious of which financial strategy you will decide to use.

Do you realize that by dipping into your savings on a regular basis to make ends meet you are allowing yourself to exercise the same behavior as using a credit card?

In your response to Aaren you mentioned that putting your savings towards your credit card would cut the balance in half and decrease your minimum payment by $200. When would your card be paid off if you did this and kept paying the current payment amount instead of adjusting to the new lower payment?

Ultimately I would imagine that the goal is for the debt to go away forever regardless of how much it decreases each month.