What happens when a family says "yes" to pretty much everything? A mushy budget and credit card debt

Every budget has its love handles. You know, those little indulgences that the budgeter “should” cut, but doesn’t. Usually, it’s not the end of the world. Every budget I’ve reviewed has had its fleshy midsection, but every one of those budgeters could make quick, significant progress in spite of the fat.

But what happens when every category carries a few extra ‘lbs’? Your budget gets…mushy. And nobody wants a mushy budget. It’s unsightly.

Chase tells me his (and his wife, Beth’s) goal is to be debt free – not including mortgages – within two years. He didn’t specify whether he’d like to pay off the home equity lines of credit along with the cards and the car, but I’m assuming he wants them gone (because why wouldn’t he?).

First, the debt table:

LoanBalanceInterest RatePayment
Credit Card 1$4,364.6213%$109
Credit Card 2$2,650.726%$66
Credit Card 3$2,555.770%$64
Home Eq. Loc 1$31,000?$285.34
Home Eq Loc 2$15,375?$110
Loan Totals$66,595.11 $1,029.38

A hefty chunk, but given Chase’s budget, you’ll find he can be rid of all that debt in two years without much sacrifice.

Budget Background: Chase is a software developer; Beth is a server at a restaurant. Their combined average take-home pay (averaged out over the seven months of YNAB data they shared with me) is $8,513.42. That number includes income from their rental property.

Chase’s health insurance and 401k contributions are withheld from his paycheck. Worth noting that between his contribution and his employer match, he’s saving 12% of his gross in the 401k. He’ll soon be bumping that to 16%.

Pre-YNAB Debt All these debts have balances, but Chase hasn’t ever assigned dollars to these categories (in the last 7 months, anyway). What that tells me is he had a bunch of cash in the checking account from a work bonus early in the year, and he’s used the extra cash to make big monthly payments to the cards. Unfortunately, this year’s spending has outpaced the payments, so he still has balances.
Credit Card 1$0 
Credit Card 2$0 
Credit Card 3$0 
Pre-YNAB Debt Total$0 
Mortgages and HOA Fees  
Home – 1st Mortgage$1,542.95Current balance is around $173,000, and they’ve been in the house less than 7 years. Chase estimates his home value at $237,000.
Home Eq. LoC$285.34To get 100% financing on their home, they did an 80/20 split which involved this loan. Allowed them to avoid Private Mortgage Insurance.
Home – HOA dues$66 
Mortgages and HOA Fees Total$1,894.29 
Rental Property  
1st Mortgage$370.20Current balance is just under $32,000. Estimated value is $50,000.
Home Eq. Loc$110Incurred this debt around 7 years ago (when this was still their primary residence) to pay off other debts.
HOA$219I’ve never seen an HOA fee this high. According to Chase, it doesn’t cover anything (utilities, internet, trash, etc). What could this HOA possibly be doing to warrant $219 per month in fees?
Rental Property Total$699.20Rental income average is just under $500, which means Chase and Beth lose around $200 per month on the property.
Monthly Bills Most of the numbers below are averages based on 7 months of data, rather than Chase’s budgeted amounts.
Cell Phones$166Covers three phones and a tablet; there are three users in the household.
Pet Insurance$40.35 
Internet$95.43Covers internet and land line.
DirecTV$91.85Under contract for six more months.
Car Payment$395.04 
Natural Gas$50Estimate based on 7 month average.
Storage Unit$85Will be dropping this soon.
Credit Card 1 Interest & Fees$40 
Credit Card 2 Interest & Fees$30 
Credit Card 3 Interest & Fees$6 
Bank Fees$2 
Gym Membership$100*Financed by gym at 0% for a year in order to get second year free at gym. I should probably have included this in the debt table.
Monthly Bills Total$1,288.67 
Dentist$300Covers outstanding balances on braces and restorative dental work. Financed by dentist/orthodontist at 0%, this may also belong in the debt table.
Dentist Total$300 
Everyday Expenses Most of these are averages; there’s no real consistency in the budgeted amounts of Chase’s categories.
Her Spending Money$125 
Household Goods$100 
Pets$216.57Three dogs. Only one of them is covered by pet insurance listed above.
Fuel and Car Washes$223.62 
Work Gatherings$72Dinners and drinks with co-workers. Separated from ‘Restaurants’ because Chase just likes to know. Average. Max: $173, Min: $30
Online Subscriptions$35 
Mary$138What is this? Daughter? Max: $592, Min: -$10
Other Medical$0Nothing budgeted, and no category balance.
Everyday Expenses Total$1,964.64 
College Expenses  
Tuition$375Covering 18 year-old daughter’s tuition at local community college nursing program. $4,500 per year.
Misc$50Only one $86 outflow in the last seven months, but with school just starting I imagine there will be more here.
College Total$425 
Investments Planning to stop the lending club and Scottrade invesements to increase 401k contributions.
Lending Club$128 
Investments Total$291 
Infrequent Expenses Again, I used averages here because there doesn’t seem to be much relationship between budgeted amounts and actual spending.
Vehicle Registration$28 
Car Insurance$70 
Car Repairs$20 
Home Maintenance$231 
Birthdays & Gifts$129 
Reimbursable Expenses$74I see lots of reimbursable expenses, but very few reimbursements. Forgetting to turn in receipts? Or are reimbursements included in take-home paycheck numbers?
Just Because$85Average. Max: $297, Min: $0
Stuff I’m Forgetting About$2Average. Doesn’t budget anything to the category.
Infrequent Expenses Total$732 
Vacation Nothing currently budgeted, but total spending on vacation this year is $8,911.04 (this is the source of new credit card debt).
Vacation Total  
Budget Total$7,594.80 

Outflows average $7,595; inflows average a little over $8,500. Chase and Beth are working with a surplus of $900 per month, and that doesn’t include the $35,000 work bonus Chase is expecting February.

In other words, the debt elimination story here is…boring:

Chase’s work bonus is in the $30,000 to $40,000 range annually. If he and Beth continued running their current surplus and and applied most of their next two bonuses to debt, they’d have the credit cards, the car, and both equity lines of credit paid off easily in two years.

But that might be a pretty big if, given Chase and Beth’s budgeting and spending patterns.

Chase and Beth –

Although your current spending doesn’t exceed your income, you have a history of living beyond your means and using windfalls to keep the total debt balances down (but not at $0). You seem to say “yes” to basically everything.

Upgraded cable TV? Yes.

$600 per month at restaurants? Yes.

More mobile devices with data plans than people living in your home (AND a land line)? Yes.

Vacations? Yes.

Financing a car? Yes.

Lots of pets and pet insurance? Yes.

Braces and cosmetic dental work? Yes and yes.

Help daughter with school? Yes.

Plenty of personal spending money? Yes.

The sum of all those yeses is an enormously inefficient and unfocused budget. I counted around 60 categories, and looking through the transaction history and monthly budgets, there’s almost no relationship between budgeted amount and actual spending. In other words, you’re using YNAB for expense tracking, not budgeting.

Where do you go from here? Back to basics. You already have a $900 monthly surplus. Use your YNAB spending reports to set realistic category amounts going forward by subtracting a good percentage from your historical average. Use the YNAB mobile apps on those internet-connected devices to check the budget before you spend. Talk to each other more about your goals and help each other stay on track with spending. Need more motivation? Just look at your retirement account balances (which are low, given my estimate of your age).

You need to get out of debt and apply all that extra money to your investments. Commit to being finished with borrowing, and use your high earning power to get ahead fast.