Financial makeover: A "go-getter" goes after her spending habit

Nina Davis has met plenty of challenges in life.

She's been married and divorced. At 16, when she had her daughter, family circumstances also left her the head of a household that included her 5-year-old sister.

Undaunted, Davis earned a GED, joined the work force and is now, 17 years later, in a job she loves.

"I'm a go-getter," Davis, now 33, says. "And a really hard worker."

That work ethic helped vault Davis from an $8 an hour housekeeping job at Schick Shadel Hospital to a salaried position as the hospital's manager of environmental services.

Between her salary and the money she makes cleaning houses on weekends, Davis earns a net income of about $4,000 a month.

And though more money is coming in, Davis finds more is going out, too.

"All I do is spend, spend, and give, give," Davis said. "Never save for myself and my daughter."

So now she's ready to tackle another obstacle: learning how to curb her spending and live within her means so that she can reach her goals. First she'd like to pay off her debts, which include $7,000 in medical bills and about $1,300 spread among three credit cards.

She'd also like to save up to buy a house. Though the rental home in South King County that she shares with her daughter, Jazzmin, is affordable — $400 a month — Davis longs to be a homeowner.

"My house is so little and I just want something of my own," Davis says.

Jazzmin, 17, graduates from high school next year and has been taking Saturday classes at Seattle University. Davis would like to be able to help Jazzmin with her college expenses.

And finally, she hopes to take an annual vacation and save for the future.

Though she's clear about her goals, Davis said she doesn't know where to start.

"I think if I had a chance to have a financial makeover, it would help me get out of debt and show me how to save," Davis wrote in an e-mail to The Seattle Times.

For the makeover, Davis worked with Tammera Prouty, an associate financial adviser at Sound Financial Planning in Mount Vernon and a member of the Financial Planning Association — Puget Sound Chapter.

Together, they calculated a budget based on Davis' income and expenses and the things she wants to accomplish with her money.

"Without a budget, a person most likely doesn't realize where money is being spent and where adjustments can and should be made," Prouty said. Since the word "budget" carries a negative connotation for some people, Prouty suggested it could also be thought of as a personal spending plan.

No matter what it's called, Prouty said, saving should be a priority.

The goal for Davis — and anyone, Prouty says — should be to pay off debt and get to the point where she can pay herself first.

"I never thought about a budget. It wasn't in my vocabulary and my thinking at all," Davis said. "It was just, live day by day and do whatever I want to do with my money. I work hard for it."

Prouty encouraged Davis to look at her budget as three buckets, from a concept used in First Step Cash Management budgeting software. The three buckets are:

• Money past: This is money that has already been spent, say on a mortgage or credit cards.

• Money present: This refers to money spent on a daily basis or during a week. Food and entertainment fall into this category.

• Money future: This bucket contains money for your dreams and goals, like a vacation or a down payment on a house.

The object, Prouty wrote to Davis in her financial makeover, is to put less into your first and second buckets and more into your third bucket.

The good news for Davis is that her first bucket, money already spent, doesn't consume a high percentage of her income. Her rent and utilities combined are just $520 each month.

Davis pays $215 per month for insurance on her truck, which is paid for. Her health insurance is deducted from her paycheck, but she recently joined a health club at $55 per month.

Prouty discovered that Davis is paying a very high rate of interest — almost 24 percent — on her credit cards. But rather than negotiate or consolidate to a lower rate, Davis said she'd rather just pay down the balances.

To that end, Prouty budgeted $100 for each card each month and another $100 toward Davis' hospital bill, for a total debt paydown of $400 monthly.

She also suggested Davis consult www.creditcard.com if she is shopping for a lower-rate credit card in the future.

"I'm not using the credit cards at all," Davis said, adding that after consulting with Prouty, she has stepped up payments beyond the monthly minimum.

"I just made an extra payment and I'm hoping to pay them off within six months," Davis said.

In order for Davis to save $20,000 for a down payment on a house in five years, Prouty figured she needs to save about $300 a month.

Prouty also suggested that when it's time to buy, Davis should check out the Federal Housing Administration's (FHA) program for first-time homebuyers and the government Web site www.hud.gov for more information about how to buy a home.

Another $100 each month, Prouty said, should be saved to help with Jazzmin's college expenses and the financial planner also advised Davis to contribute $100 each month to build up an emergency fund until she has three to six months of living expenses.

For a vacation, Davis has her eye on Hawaii and Florida. To take what she estimates will be a $5,000 annual vacation, Davis must set aside $400 monthly.

And last, but definitely not least, Davis needs to start saving for retirement.

"You do not want to rely on Social Security as your income when you retire for two reasons," Prouty wrote to Davis. "One, it may not be there; and two, it doesn't pay very much."

Davis' employer offers a 401(k), and she said she plans to sign up during the next open enrollment period.

"The earlier you start saving, the better," Prouty said. "Because it is time that makes your money grow."

Though initially Prouty budgeted just $100 per month for Davis' retirement fund, she encourages Davis to boost it to between $400-$500 per month as soon as she is able.

So as Davis' budget stands now, $1,190 each month will be going to the "money spent" bucket and $1,000 is targeted for the "money future," leaving $1,810 each month for groceries, gas, eating out, entertainment and anything else within her budget.

Prouty recommends to clients who have trouble with overspending that they withdraw a weekly allowance in cash, rather than relying on debit or credit cards.

Prouty and her husband started doing just that at the beginning of the year.

"When the cash in my wallet is gone, I am done spending," Prouty says. "So to me, cash is king! We need to basically go back to the way our parents or grandparents did it."

Davis says she's already cut back on her spending. "(This budget) is very doable," Davis says.

"If I pay something off, I can put more into another goal. It's perfect for me. It's going to work out just fine."

She's already showed Jazzmin the budget and together, they plan to create one for Jazzmin, too.

"It's the best thing that's happened to me for a long time," Davis says. "It feels really good."