We are a two-parent household with three children under 10. We make about $7,500 a month combined but still struggle and end up living paycheck to paycheck.
We have no savings. We do not have credit cards, and our student loans are paid off. Our cars are paid off but often need repairs. We will need a new one soon. We bought a house last year.
We have child care ($600 a month), a mortgage ($2,750), then utilities and insurance ($500). Groceries are about $1,000. Gas is about $200. Then there are the extracurriculars, like swim lessons. We have lots of medical bills since we have a child with mental health disorders.
What are we doing wrong? Do we need a credit card? Did we buy a house above our means? Do we have to stop enrolling the kids in sports?
-Confused
Dear Confused,
Two things can be true at once. You can be doing everything right yet still be struggling.
You don’t have much fat to trim from the expenses you listed. You don’t have non-mortgage debt. The fact that you’re able to keep your grocery bill at $1,000 for a family of five suggests that you’re pretty frugal.
In a perfect world your housing payment would be a bit less. The traditional guideline is that you shouldn’t spend more than 28% of your income on housing. But I think that’s more a reflection of soaring housing costs rather than buying too much house on your part. But even if you downsized, you’d need a new mortgage at a higher interest rate. That would probably wipe away any potential savings.
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So I’m afraid your kids’ extracurriculars will need to be on the chopping block. You could see if there are alternatives to withdrawing them from their activities altogether. Some community organizations offer a discount to parents who volunteer as a coach. You may be able to find lower-cost activities through organizations like the YMCA or Boys & Girls Club. If your kids are enrolled in a relatively expensive sport, like ice hockey or tennis, you could look into a cheaper sport, like basketball or cross-country.
But you may have to cut the extracurriculars altogether, especially since you know you’ll need to replace a vehicle soon. If nixing formal activities altogether is necessary, try to find ways for your kids to play the sports they love that don’t cost money. For example, you could talk to other families in your neighborhood about organizing an informal game of basketball or soccer at a local park.
Use whatever changes you make as an opportunity to talk to your kids about money in an age-appropriate way. Explain to them that we all need to have money saved in case we get sick or something breaks. You can also discuss how sometimes we need to wait and save to buy the things we want. Check out the Consumer Financial Protection Bureau’s Money as You Grow guide to find more resources for teaching kids about money.
Focus on building a three-month emergency fund. Once you get there, you can start adding some extras back into your budget. Since you don’t have savings, I think you do need to have a credit card. You shouldn’t use it for sports and other wants, of course. But having a line of credit open offers you some protection in case you face an unexpected expense.
Though times are tough, try thinking of your current situation as temporary. As your kids get older, your child care costs will probably shrink, giving you extra breathing room. Ultimately, having emergency savings will provide more benefits to your children than any extracurricular activity can offer.
Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder. Send your tricky money questions to AskPenny@thepennyhoarder.com.
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