Peggy is a current client of mine, who has been with me since September of 2020. She is a 68 year old divorcee who came to me initially with $20,000 of debt on 5 credit cards. She had $12,000 in savings left over from her divorce settlement after her buy-in at the senior community where she lives. Her $4,600 monthly income was comprised of Social Security, an annuity payment, and a pension... all “fixed income".
Peggy lives independently but with the option to move to assisted living someday if that becomes necessary, which is important to her. It’s an ideal place for her as far as living conditions; however, her lease payment for that housing takes up about 40% of her monthly income, which is pretty steep, making living on the remainder a real challenge.
Immediately after our first coaching session, as luck would have it, Peggy was in a car accident, and her car was totaled. The insurance company gave her $9,250 for the wrecked vehicle. She drove a hybrid car and she really wanted another one like it. It came down to a choice between 2 vehicles...one that was about $1,500 more than the insurance check, and one that was $2,000 less than the insurance check. Despite some trepidation about future repairs, she chose the less expensive car, to help knock out some of her debt.
Between the insurance check and her existing savings, Peggy was able to buy the car (and pay for a couple of immediate repairs...gahhh!!) AND pay off 3 of her 5 debts completely, plus about 2/3 of her 4th debt, getting her remaining debt down to about $16,000. She also made a large timeshare payment, and set up her sinking fund for those payments in the future as well as for her long term care insurance, Christmas, and a few other items.
In this process we took her savings down to less than $2,000, and set a goal of beefing it back up to $3,000. This is more than the usual baby step 1 emergency fund of $1,000, yes, but the reason is that her monthly income vs her regular expenses made her normal budget VERY tight. With the possibility of additional car repairs, and no margin in her budget to cover them, the slightly higher emergency fund provided her a lot of peace as we worked through her remaining debt. And it turned out to be a wise decision in hindsight as well, as she has had to dip into that fund a few times.
Early in 2021, Peggy got a $4,000 tax refund which let her complete her $3,000 emergency fund AND knock out that 4th debt, leaving only one remaining credit card with a balance of about $14,000. The continuing struggle, though, was finding any extra money in her regular monthly budget to apply to that debt.
Then Peggy was told by the administration of her senior community that she was a month behind on her condo lease. This was news to her, but after a long look back through her payment history, she could see that they were right. (Too bad it took so long for her to be told about it.) Sooooo....they agreed to let Peggy catch up the missing payment over a period of 4 months, putting an even bigger strain on her already tight budget.
So in June of 2021, after multiple conversations with me about options, Peggy came to grips with the fact that she needed to generate some more income, and she started doing food delivery for DoorDash. At first she was making $1,000-$1,200/month, but as she grew comfortable with the process and found out she really actually enjoyed it, she ramped it up to her current $1,800-$2,000/month. Not only did that money totally revolutionize her budget, and allow her to make really rapid progress paying off her debt, but the newfound confidence and self-esteem it created also made her seem like a totally new woman.
In the ensuing months, I showed Peggy how to set aside money for, and pay, estimated income taxes on her business income (yes DoorDashing is a business). She paid for some more car repairs (sigh...that car!) mostly out of monthly income, but most months she still paid at least $1,000/month on her one remaining debt....about 4X the minimum required payment.
Peggy also became more comfortable with whittling her baby step 1 emergency fund down to $1,000, as she became confident in creating that extra income each month. That helped her set a more aggressive goal on the debt payment each month. Now she’s at a point where she’s upset if she can’t pay $2,000/month on that debt!! What a difference!
This month Peggy got a $1,900 tax refund. She was excited to possibly pay $3,500 this month on that debt, but alas, that dang car needed another repair. Still, Peggy is on track to be debt free by this June. The woman is on FIRE!!!
Back in September of 2020, we had agreed that a good set of goals would be: debt-free by February of 2022, a $10,000+ emergency fund by November of 2022, and upgrade her car by May of 2024. Given the numerous obstacles that life has tried to throw at Peggy in the last 18 months, the looming debt-free date of June is pretty impressive!!!
It will soon be time to discuss a firm goal date and amount for that Baby Step 3 emergency fund. Once she is debt free, Peggy will build up her emergency fund to probably $12,000 - $15,000, perhaps more depending on her comfort level, by the end of this year. The nature of Peggy’s income is such that there is no fear of job loss other than her ability to keep DoorDashing, so a reserve of 3 months’ worth of expenses might suffice.
A better car is for sure still on the radar (more so than ever, really), so we’ll balance saving up cash for that vs. the size of her emergency fund. I still think Peggy made the right decision on which car to buy a year and a half ago, though. There’s no guarantee that a more expensive car would have cost less in repairs. (And the fact that it’s a hybrid with great gas mileage makes her look like a genius these days, out there DoorDashing!) But regardless, you make the best decision you can at the time, and then deal with the consequences. And Peggy has done so, admirably.
I expect Peggy will eventually cut back on her side hustle a bit, as she has been hitting it really hard lately. (The benefit of sacrificing deeply is that it makes the temporary period of sacrifice even shorter.) But I also hope she won’t quit altogether, because what I love most is what it has done for her mindset and her outlook on life.
By mid to late summer, Peggy will likely move into my “maintenance mode” of coaching for a while before she completely cuts ties. While I’ve enjoyed developing a great relationship with Peggy, my ultimate goal for every client is to “launch” them when they feel confident on their own with their new money management habits. Of course, I’m always here for a review, a new goal-setting session, or just an occasional sanity check. I love to hear from former clients about their continued progress and the milestones they’ve reached.
If you’d like to talk about getting started on your own financial transformation, just schedule a time on my calendar using this link: