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Most budget advice focuses
on carving savings out of your discretionary spending -- how
much you blow on lattes or health clubs or eating out.
But interviews with credit counselors and bankruptcy
attorneys show it’s more often the expenses you consider
fixed or beyond your control that can cause you serious financial
trouble.
These budget-busters can transform a household
that’s getting by into one that’s insolvent and hounded
by creditors. Here are the seven big offenders, and what you
can do about them:
Too much house
Soaring real estate prices, looser lending standards and smaller
down payments mean many families are shouldering bigger and
bigger mortgages -- sometimes to their peril. Foreclosures and
delinquencies are at or near record highs as many people fail
to make their monthly payments.
It’s not just the mega-mortgage that knocks people off
track, said Steve Rhode, president of money counseling firm
MyVesta.com. More expensive houses come with:
Higher property taxes
Larger insurance premiums
Bigger utility bills
More maintenance costs
Yet many people continue to struggle to keep a too-expensive
house when a smarter solution might be to sell it and downsize,
Rhode said.
Ideally, your basic housing expenses -- mortgage,
insurance and taxes -- would eat up no more than 25% of your
pretax income. Most lenders will allow you to spend 31% to 33%,
although some now go as high as 60%. The bigger the mortgage
bite, the more likely you are to run into trouble.
Too many kids
If money were the only consideration in whether to have children,
few people would take the plunge. Fortunately, that’s not
the case. But you do have to change how you budget your money
when you have a child, or you can easily run aground.
In fact, bankruptcy expert Elizabeth Warren says
married couples with children are more than twice as likely
to file for bankruptcy as their childless counterparts. The
Harvard law professor says having a child is now the single
biggest predictor that a woman will end up in financial collapse.
It’s not just the little things, like car
seats and soccer uniforms. You may need a bigger car to shuttle
around those car seats, and a bigger house, with a yard, to
raise those soccer fans. Insurance, food, clothing, medical
costs -- all go up with a child.
“A child is definitely a capital expenditure
that doesn’t go away,” said Dianne Wilkman, president
of Springboard Consumer Credit Management.
How much a child increases your expenses typically
depends on your income. The U.S. Department of Agriculture estimates
a child born in 2002 will cost the following amounts to raise
to age 18:
$127,080 for two-parent families with incomes
under $39,700
$173,880 for similar families with income of $39,700
to $66,900
$254,400 for families with incomes over $66,900
These amounts, which are in 2002 dollars, don’t include
paying for four years of college, which would add $40,000 to
$120,000 to the tab.
Advocates of frugal living will say you can raise
kids on a lot less. Families living in expensive cities and
opting for private schools or child care will tell you it also
can cost a lot more.
In fact, a family living in urban California or
New York with a six-figure income can spend $1 million raising
and educating a child.
Article continued at http://moneycentral.msn.com/content/Savinganddebt/Learntobudget/P58710.asp
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