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Dorothy Rosen -- The Dollar Diva Money Makeover

Finding a budget that works for you

Beth McLean, a 31-year-old computer software tester, clears $4,000 a month. That's nice money for a single woman with no dependents, but it goes out as fast as it comes in, and there's never anything left over for savings. "I need to find a budget that works," Beth laments to the Diva. "I want to pay off my student loans and start saving for the future."

Beth currently has $30,000 in student loans and $2,460 in credit card debt. If she continues to make the same current payments on these debts, she will be shackled to them for seven and a half years, and pay more than $9,000 in interest.

That's too long to be burdened with debt and too much money being thrown away on interest: The Diva is going to help Beth trim her spending, so she can make larger payments on the debt and whack $6,000 off the interest.

Expense chart

Tracking the expenses
Beth doesn't keep track of her expenses; she spends whatever is in her checking account and relies on plastic for emergencies. That's got to change. Quicken and Money are two good software programs for setting up a budget and tracking cash flow; if she installs them now, before the January bank statement comes in, she'll be off to a good start for the new year.

The Diva recommends the following cuts in Beth's current spending:

  • Telephone ($60): Use e-mail instead of long-distance phone calls.
  • Clothing ($100): Stop recreational shopping.
  • Recreation ($100): Cancel CD and book clubs.
  • Dining out ($60): Find cheaper substitute for daily $3 café lattes.
  • Gifts/holidays ($20): Small gifts, large love notes, until debts are paid off.
  • Vacations ($380): Moratorium on travel to speed up paying off debts.

These cuts will put an extra $720 a month in Beth's pocket; $680 will go toward paying off the debt; $40 will be put in savings.

Beth tithes 10 percent of her income to her church; this expense is not negotiable. Experience has taught her that tithing has to come off the top; otherwise the money gets frittered away. Beth needs to make savings as nonnegotiable as her tithing, and she needs to take it off the top.

"Payment Push" strategy
Beth is tired of having so much of her hard-earned cash going to lenders. She's not crazy about paying more than $200 a month in interest, either. With the Diva's "Payment Push" strategy, her debt will be history in two and a half years and she'll have $1,250 a month to sock away for the future:

Here's how it works:

  • Make a commitment to wipe out the debt: A daily affirmation helps: "By practicing fiscal restraint and developing smart spending habits, I will have the cash necessary to pay off my debts within two and a half years. I will save $6,000 in interest and be able to save for the future."
Debt repayment schedule
Beth McLean
Balance due
Interest rate

Current payment

"Payment Push" period**
Capital One
February 2002
Funding the "Payment Push:" Starting 02/02, combine the $70 current payment with $490 from belt tightening to pay off debt in one month. The $70 that is freed up when this debt is paid off will be used to pay off Bank of America.
Bank of America
March 2002 - May 2002
Funding the "Payment Push:" Starting 03/02, combine the $50 current payment with the $680 freed up from belt tightening and the $70 freed up from paying off Capital One to make total monthly payments of $800;this debt will be history in May 2002. The $800 that is freed up when this debt is paid off will be used to pay off the student loans.
Student loans
June 2002 - July 2004
Funding the "Payment Push:" Starting 06/02, combine the $450 current payment with the $800 freed up from paying off Bank of America, and make $1,250 payments until the student loans are paid off in July 2004.
Total debt
** calculators "The true cost of paying the minimum" and "What will it take to pay off my credit card?" will help you crunch your numbers.


  • Apply the "Payment Push" strategy to the debt on the top of the list: All extra, available cash is used to pay down the debt with the highest interest rate, first. That includes raises, bonuses, gifts, belt-tightening and any other cash that crosses your palm.
  • Hammer away at the rest of them. When the first debt is paid off, use the cash that is freed up to pay off the next debt on the schedule. Relentlessly seek out ways to cut costs and bring in more money until the last debt is history.

Beth can expect to be debt-free by the summer of 2004; even sooner if she gets a fat raise or bonus, brings in more cash from free-lancing or tightens her belt another notch or two.

Managing her money
"I have always had a problem spending more than I earn," confides Beth. It's a song the Diva has heard many times before, and one that Beth will keep singing until she learns how to manage her money.

Beth's future budget includes monthly allocations for all of her living expenses; but not all of those expenses occur on a monthly basis. Christmas comes but once a year; she takes a bunch of clothes to the dry cleaners twice a year; taxes are due in April, and the car only gets fixed when it's broken.

Money allocated for current, monthly expenses -- such as rent, utilities and food -- belongs in the checking account. All other cash should be transferred to a savings account. A money market fund with checking privileges is a good place to store funds that will be needed within the next six to 12 months; certificates of deposit or U. S. Series I bonds are good places to put longer-term savings. Read the Diva's "Where to open and emergency-fund account" for more suggestions on where to stash your extra cash.

Beth is a hard-working, conscientious young woman who is eager to take control of her financial life. When the Diva asked her to make a "wish list," Beth turned it in with only one wish on it: to pay off her debts as quickly as possible. With that kind of single-mindedness, she's sure to make her wish come true.

Success is a journey, not a destination. The Diva wishes Beth the best of luck on the road to financial freedom. The Money Makeover is a weekly feature of in which money experts help readers untangle their finances. Do you need to get your financial house in order? Could you benefit from the guidance of a customized financial plan? If so, click here to enter the Money Makeover contest! To read more makeovers about people just like you, click here.

-- Posted: Feb. 1, 2002

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