Help! I can't afford my life

By MP Dunleavey

Editor's note: Join columnist MP Dunleavey and a group of women as they seek to strip away the myths around money, liberate themselves from debt and find financial sanity. Follow the ongoing quest of the Women in Red every other Wednesday in Dunleavey's column on MSN Money.

In the world of 12-step programs, the recovery process begins when you admit that "your life has become unmanageable."

For people who are trying to make a financial recovery, there is a similar moment: when you admit that your life has become unaffordable.

It was that moment of clarity that propelled Jane, a single mother of two living on Cape Cod in Massachusetts, into the Women in Red. "I have never been so ready to make a change," she told me.

Once I heard the details of Jane's rather desperate situation, it was clear that any substantive change would require her to make some really tough choices.

Fortunately she has already overcome the first hurdle -- looking at the numbers and admitting just how bad things really are.

The good, the bad, the ugly

Things are bad.

I know it's my job as the fearless leader of the WIR to stay calm, but the first thing I did when I got off the phone with Jane was to call my cigar-chomping editor and panic. "I don't know if this is doable," I said.

Here's why:

Jane is 52 and works as a secretary in eastern Massachusetts. Her youngest son turned 18 in May, and at that point $12,000 a year in child support stopped coming.

The good news is that Jane was prepared for this moment.

The bad news is that she took out a $26,000 personal loan, which was co-signed by a friend -- and the loan has to be repaid in full by December 2008.

The good news is that Jane owns her condominium and has about $150,000 in equity. (She couldn't qualify for a home-equity loan because of her credit history.)

The bad news is that it looks like she has to sell the condo in order to repay the loan next year.

The good news is that this might be for the best: Jane can't really afford the condo. While it's in a good area and could be a good investment, the monthly mortgage and fees come to more than $1,400 a month.

The really bad news is that Jane's take-home pay now, without the child support, is $1,840 per month.

But wait -- it gets worse

Naturally, I needed to know what the rest of Jane's expenses were. But to be honest, part of me wanted to remain in the dark.

This was a first. Many's the time I have kept my head in the sand with regard to my own finances; I've never wanted to do that for someone else before.

Luckily Jane is at that point where she doesn't want to hide from the truth. So here it is:

Jane's monthly finances
Mortgage	$1,070
Condo fees	$325
Escrow	$35
Utilities (all electric)	$300
Cable/Internet	$110
Phone	$50
Cell	$100
Gas	$160
Car insurance	$80
Credit card	$125
Dental	$75
Groceries	$400
Eating out	$100
Misc. medical	$100
Life insurance	$63
Clothes/grooming	$50
Misc. inevitable	$65
Total expenses	$3,208
Gross income	$2,440
Health insurance	$272
401(k)	$48
Taxes	$280
Net income	$1,840
Shortfall	$1,368

The bottom line is that, right now, unless aliens invade and spread a lot of wealth around, Jane spends $1,368 more than she earns.

A can-do spirit

While I was trying not to hyperventilate, Jane was actually sounding rather cheery.

First of all, she's a can-do type of gal. She has raised two boys on her own for the last 15 years. One son is in community college and lives at home but takes care of most of his expenses. The other just left for a four-year college.

• Video: Create a budget you can live with

She has some health problems that make it difficult for her to take a second job, but she has recently discovered she has a gift for creating decorative mosaics -- and she is starting to sell some of her work. (She just sold a headboard for $1,000.)

Making difficult decisions

Jane is also optimistic because she is experiencing some of the dizzying relief that occurs when you stop hiding your problems under a rug that's too small for them anyway. "I think this is happening at the best possible time," she says. "I'm ready to do whatever I need to do."

That's good because in order for Jane to achieve a total financial transformation -- which is what we're aiming for here -- she has some tough choices ahead.

Continued: Paring down her expenses

 1 | 2 | next >