I need a good plan for covering living expenses while alimony decreases
April 25, 2013 9:21 PM   Subscribe

Looking for some general advice on my financial situation. I'm contemplating hiring a financial planner, but they're $500 for two hours worth of work. I don't think my stuff is that complicated. I'm coming out of a nasty divorce, and count myself fortunate that I don't have debt to my eyeballs. Nevertheless, I want to make the best of what I have. So I'm looking for advice on where to throw money, where to take money, etc.

Here are the facts in my situation:

I have to pay $10,000 in attorney's fees this week
I have $20,000 in stock
I owe $4,000 on a $10,000 credit line. The interest rate on that credit line is about 8.5%
I have a credit card with a zero balance, at 13.2%
My credit score is excellent

The first year of alimony/child support leaves me about $600 each month outside of my rent, utilities, food, therapists and payment on the credit line. I have some big expenses through the year like life insurance ($400) and car tag ($200).

This summer specifically I will have neighborhood swim/tennis club dues ($600) and camps for my two kids so I can work ($1200-$1400) (she won’t pay for camp while the kids are with me, don’t ask).

I’m expecting a bonus of at least $5000, but possibly $10,000, at the end of this year.

In 12 months my alimony goes down by $1000 per month. 12 months after that it drops by another $500. Then another $500. Then done after 5 years total.

I used to pay a lot into a 401(k) but I had stopped due to the divorce and a job change. My new employer matches 4% of 401(k) contributions, but I don't know if that's 50% match or 100% match (trying to find out).

I basically see myself front loading expenses this year, and trying to make up for that in subsequent years.

So, given all this, here are my questions.

How should I pay the attorney bill? Sell half my stock? Put it on the credit card and pay it off in large chunks? Put part of it on the credit line, part on the credit card? Try to get my credit line extended? If I make it all debt, the monthly payment for that debt will likely eat up the rest of that $600 I mentioned above. Then what about the camp and other expenses?

What should I use for emergencies, like big car repairs (my car is 7 years old and runs pretty well). Credit line, credit cards or stocks?

Should I contribute to my 401(k) just enough to get that employer match and make it up monthly by drawing a little bit from the credit line, or selling stocks? Contribute the maximum, maybe? Or wait 12 months and then start contributing?

I need to buy some furniture. Should I take advantage of those “no payments no interest for 3 years” plans?

I am renting now but I want to buy a house in a year. I can’t see making any progress on a down payment for that.

Lots to consider here, I know. Thanks!
posted by punocchio to Work & Money (9 answers total) 3 users marked this as a favorite
Should I take advantage of those “no payments no interest for 3 years” plans?

I have no useful thoughts on anything else, but on this: no.

Here's how those loans typically work. As advertised, you pay no payments and no interest for three years. What tends to get glossed over is that at the end of the three years, the entire amount becomes due immediately. If you don't have, say, $5k to buy furniture now, will you have $5k in three years? With all the unexpected expenses and things that could go wrong in the meantime? If you can't pay off the entirity of the loan, they will charge back interest for all three years and hit you with ongoing interest, and the interest rates are usually not, shall we say, competitive. Suddenly your $5k loan becomes $8k overnight and it's going up another hundred+ every month.

Those loans make me very grrr-y because they exist only to exploit people.

So bypass them and put your household together another way. Buy furniture from charity shops, classifieds, Craigslist, eBay. Ask people you know if they have anything spare -- a surprising number will have an old washing machine or dining table stashed away in their garage. Go somewhere like Ikea or Target for cheap and cheerful kitchenware, towels, sheets, etc.

If you have any friends who like homemaking, this could be a great project to get them involved with. Most people love sharing their knowledge and expertise, especially to help their friends.
posted by Georgina at 10:17 PM on April 25, 2013 [1 favorite]

The first thing that springs to mind is, if the 10k is the totality of your attorney's fees, can you pay it in installments? Like, 2k this week, 2k next month or 90 days from now, 2k 90 days from that, the balance with your bonus?

I know there could be a bunch of reasons why you can't (it is court ordered, you are paying your ex's fees and they can't be put off, it's actually the first installment, etc), but if those reasons don't apply, in your shoes, I would definitely try to spread that note out.

In your shoes, I would cash out the stock to pay the attorney's fees and to pay off the credit card. BUT I am highly, highly debt intolerant. Some people are more debt tolerant and prefer to have the cash lying around for security and would finance the legal fees and pay down the card slowly as their cash freed up.

You might also see what a local bank or credit union could do for you as far as a personal loan to cover the attorney's fees. I don't know if they would be able to beat the 8.5% but it's probably worth a look.
posted by Snarl Furillo at 10:47 PM on April 25, 2013

Best answer: Also, the $600 figure is not actually that bad if it is after all of your expenses. You could set aside $400 a month for stuff like your car tags, summer camp, life insurance, etc, and still have $50 a week of walking around money. It's not buying lunch every day money, but you shouldn't be scraping, either.

You could also do $200 to savings/$100 a week walking around.

It's only a year before you have the extra grand back in your pocket; you can live lean for a year. Try to think of it as living lean and staying out of debt to secure your children's future, because that's truly what it is. The best gift a parent can give a child is the parent's own financial security. In a year, you can think about putting the extra grand towards your kiddo's college funds, your 401(k), investments, etc.

Unasked for advice: As you manage your financial life, try not to think of your kids as expenses that are draining you. It's tough to sustain two households, but I can tell from your question that you want your kids to have the best standard of living that they can. Hold onto that feeling and honor it during the tough times.
posted by Snarl Furillo at 10:55 PM on April 25, 2013

You need to get out a spreadsheet and figure out what will save you the most money over the long term. Max out your line of credit before you carry a balance on your credit card at higher interest. Sell your stocks to pay off your debt if you're getting less in returns than you are paying in interest (at 8% on your line of credit, and the way the market is now, this is probably close enough that it's not worth doing, you have to consider fees and taxes, too). If your credit card gives you 'rewards' then use that for groceries or whatever, but only as much as you can pay off every single month, so you never pay interest. If you can spread out those payments to the lawyer without paying interest, then absolutely do that rather than add it to your debt. Max out the match to the 401k if you can do it without generating credit card debt (given that it's put in before taxes, you probably won't even notice it).

Don't buy the furniture until you can afford it -- ikea is a really cheap way to furnish your place. I did that when I moved into my current place and I've been buying better furniture as I can afford it.

It's just really basic math. You can figure this out.
posted by empath at 11:35 PM on April 25, 2013

If the stock is in a non-retirement account, then yes, you should absolutely sell enough of it to pay your attorney's fees and the remainder of your LOC and get/keep yourself out of debt, rather than paying 8.5/13.5% interest on all that and hoping the returns on the stock will beat that.

Depending on where that puts you in terms of your budget, you may also want/need to sell a bit more to cover the summer expenses so you're not putting those on a credit card. In fact, in thinking about it further, I'd just sell it all and pay everything off, keep enough to pay your anticipated upcoming expenses, and perhaps take a little bit out of your paycheck to put into your 401(k) which is going to (a) get your employer match; (b) keep you in the market which might ease the sting a little and (b) improve your tax situation to offset any tax burden you might see next year from capital gains.

Live within your means for the remainder of the year and leave your credit unutilized to serve as your emergency fund. Known expenses like the swim club dues are not emergencies!
$600/month left to spend after you've covered the basics like food and rent is actually not completely horrible. Buy used furniture. Furniture is as bad as cars insofar as it loses a small amount of service life but a big chunk of its value the minute you take it out of the store.

You will probably need to hold off on buying a house for more than a year. Just reconcile yourself to that. It's probably a good idea--a lot of transitions are going on right now. Let your life settle down a little more before piling any more on.
posted by drlith at 3:53 AM on April 26, 2013 [3 favorites]

Yeah, I came to say pay off all the debt that you can -- keeping your stock won't beat the high credit card rate, for sure, and really they're not doing much right now. The only exception would be if selling them would create a big capital gain (like if you bought them for much less than they're worth now), as that would make for a big tax hit. If so, then I'd just sell part to cover the credit line and plan to pay off the other stuff on a more gradual basis.

Also, I'm not running all your numbers right now, but if you can possibly swing a reasonable life with all your expenses and still put money into your 401k up to the amount that your employer matches (and I suspect that it's some amount up to 4% of your salary, rather than just being a piddly 4% of whatever you put in), then that's a good first place to *put* money, as it gets you free additional income. But otherwise, just hold on for a bit until your alimony drops (and then maybe put some of the difference into that account). Good luck!
posted by acm at 6:36 AM on April 26, 2013 [1 favorite]

Best answer: Sell the stock, pay your debt.

Continue to invest in your 401(k) to the level that your employer will match. Even at a 50% match, what investment is guaranteed a yield like that?

Once you pay your credit cards and lawyers, you'll have $6000 in stock money. Spend the $2000 for swim club and camp from that.

As for furniture, it doesn't have to be nice. Not just yet. Check out Craigslist for cheap finds on case pieces (wooden furniture), and get some disposible cheap stuff from Overstock or Futons from Wal-Mart. Spend real money on a mattress for yourself. Use some of your stock money for this.

Start socking a bit of dough away every month in a regular savings account, so that you have some liquid savings if you need to repair your car, or some other unexpected expense. Even if it's just $50 to start with.

Put off buying a house for awhile. You'll be happy you did, because houses have a way of generating unexpected expenses like nobody's business.

When you get your bonus, allocate some dough for regular expenses throughout the year. Stuff for the kids, etc. Buy some nicer furniture if you feel the need.

Be debt free for now, you have credit cards if you run into an emergency, but if you can get by without using them, it's MUCH better.

You're in a LOT better shape than a lot of folks after a divorce.
posted by Ruthless Bunny at 7:08 AM on April 26, 2013

On the furniture thing, craigslist and freecycle are even cheaper than Ikea.
posted by Aizkolari at 8:10 AM on April 26, 2013

Response by poster: Great advice all around. It is simple math after all. I just need live lean and debt free. I forgot to mention that I have a 401k as well, but I'm not touching THAT!

Until I sell the stock, I charged the attorney fees to a credit card and will pay them off in full next month, so I'll get those card cashback points.

My work's 401k match is 100% for the first 3% of my salary, and 50% of the next 2%. I'll see if I can swing the 5% monthly.

I don't think the capital gain will be that big, but I will check the cost basis when I sell them.

posted by punocchio at 4:06 PM on May 1, 2013

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