Tricia over at bloggingawaydebt.com recently posted a link to an article in a Kansas newspaper about a couple deep in debt. This couple has 1 kid and a second on the way. They are only 24 and 26 and already in almost $100k of debt. Their total debt, including their mortgage, is $187k.
The question this couple has is
“How can we get caught up with our bills and get our expenses together to start saving?”and the answer, apparently, is
“Reducing your big tax refunds will almost correct your negative cash flow. But cutting expenses and paying off credit cards will be critical for longer term success.”
What? What kind of useless advice is that? This couple is completely broke and in debt. Adjusting their withholding isn't going to help much. Worse, they sugar coat their situation by claiming a net worth of $24k. But when you look at their "assets", they include $55k of "stuff" and $150k in home value. Though we don't know how they calculated their home value, the market is tanked. And the stuff? I guarantee they could not liquidate everything in their house and raise $55k at a garage sale, unless they have some seriously valuable antiques or collectibles.
How much do you want to bet they have a big plasma screen TV? They have only $1k in actual cash and $1k held up in a retirement account. They have $23,000 in car loans with cars supposedly worth $25k.
I think this family has a problem with living beyond - way beyond their means (all this debt was accumulated before they were making $60k/yr, and she has yet to finish school). Sell the cars and buy small older ones, sell any expensive appliances or electronics, cut up the credit cards (and try to find lower interest balance transfers if their credit isn't already trashed), and forget about saving. You've got a small emergency fund, you have negative net worth, you're still young. Get those credit cards and the personal loan paid off, then start saving a tiny bit for retirement while you attack the student loan. Then save up for a car and buy one with cash. But most importantly, stop living like a king.