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" Take a dual-income, no-kids couple, add two children in two years, subtract one salary, and what do you get? A financial equation that doesn&amp;#039;t add up. That&amp;#039;s the situation that Sarah and Andrew Howell, of Lake Oswego, OR, find themselves in today. Two years ago, the Howells were bringing in a comfortable six-figure income. Then Sarah gave birth to son Charlie and scaled back her work as a public relations executive. When daughter Romy arrived 17 months later, Sarah quit her job altogether. &amp;quot;Before I had kids I envisioned myself having it all \u2014 the wonderful career and a family,&amp;quot; says Sarah, 32. &amp;quot;But after I had my son, I decided I&amp;#039;d rather pare down our expenses and be home with my kids than work.&amp;quot;  But the transition from &amp;quot;his&amp;quot; and &amp;quot;her&amp;quot; money to &amp;quot;our&amp;quot; money hasn&amp;#039;t been easy for the couple. Not only did they lose Sarah&amp;#039;s $50,000 annual salary but Andrew&amp;#039;s base salary also dropped 20 percent \u2014 from $110,000 to $88,000 \u2014 when he stepped into his new sales position, which has the potential to bring in big commissions...eventually. As a result, the couple is racking up debt each month thanks to what Andrew calls the perfect storm: &amp;quot;Our income has gone down while our expenses continue to go up.&amp;quot;  Then there&amp;#039;s the emotional impact of Sarah&amp;#039;s not working. &amp;quot;I feel a lot of pressure being the family&amp;#039;s sole breadwinner,&amp;quot; admits Andrew, 34. Sarah recognizes this, which fuels her guilt over how being a stay-at-home mom has hurt the family&amp;#039;s finances. &amp;quot;A lot of couples don&amp;#039;t realize how drastic a change it is to shift from two incomes to one,&amp;quot; says Erica Sandberg, a certified credit counselor and author of Expecting Money: The Essential Financial Plan for New and Growing Families.The Howells&amp;#039; choice to have Sarah stay home was sensible in many ways, but it has also created financial and emotional distress. &amp;quot;And continuing to incur debt isn&amp;#039;t an option,&amp;quot; says Sandberg. &amp;quot;Sarah and Andrew need to either reduce expenses or increase their income \u2014 or both \u2014 to close the gap and get ahead. FINANCIAL ROADBLOCK: &amp;quot;We&amp;#039;re going deeper into debt each month.&amp;quot; Money-smart solution: Figure out where you&amp;#039;re spending and start a monthly budget.  Andrew makes a comfortable income, but it barely covers the Howells&amp;#039; mortgage payment and utility bills. So each month, they&amp;#039;re drawing on their Home Equity Line of Credit \u2014 to the tune of about $40,000 so far \u2014 to cover groceries and clothing. But the real problem is that they aren&amp;#039;t on top of exactly where they spend that extra money each month, or the total amount of their monthly shortfall. &amp;quot;It&amp;#039;s hard to develop a budget for things like gas and groceries when we technically shouldn&amp;#039;t be spending anything,&amp;quot; Sarah says. Adds Andrew, &amp;quot;It&amp;#039;s frustrating, because I feel like I make a good salary. But where does it all go?&amp;quot;  Using their home as an ATM is a huge mistake, Sandberg says. &amp;quot;If Sarah and Andrew were to get so far under that they can&amp;#039;t cover their mortgage payments, they could lose their home to foreclosure,&amp;quot; she says. A smarter option: Get serious about setting \u2014 and sticking to \u2014 a budget. &amp;quot;Virtually everyone will overspend if they don&amp;#039;t know where they are really spending their money,&amp;quot; Sandberg says. &amp;quot;Sarah and Andrew should know exactly how much money they need to support their lifestyle.&amp;quot; Tracking their spending using a software program like Quicken can help them find areas to cut costs.  Getting their income taxes in order will help too. Last year, the couple received a $10,000 tax refund, and they expect another big check from the IRS this year. &amp;quot;That breaks down to about $800 per month that could go back into their monthly budget!&amp;quot; says Sandberg. &amp;quot;They need that money today, not at the end of the year.&amp;quot; It&amp;#039;s possible that the Howells aren&amp;#039;t taking the proper deductions, so they should meet with their accountant to help them correct the imbalance and keep more money each month.  Once they close their shortfall, the Howells can budget for &amp;quot;quality of life&amp;quot; splurges like a semi-regular manicure for Sarah and the couple&amp;#039;s occasional sushi dinners. &amp;quot;Without planning for and allowing for affordable luxuries, life becomes dreary, and that impacts the ability to stay true to a budget,&amp;quot; Sandberg says. Additionally, she recommends that the couple move to a new cash-management system: taking a weekly allotment for expenses. &amp;quot;Put half in your wallet and the rest in a safe place,&amp;quot; Sandberg says. When the cash is gone, the spending is done. FINANCIAL ROADBLOCK: &amp;quot;Our mortgage is breaking us!&amp;quot;  Money-smart solution: Slow down on the extra payments \u2014 for now.  A mortgage payment \u2014 plus all related housing costs \u2014 should consist of no more than 30 percent of your take-home pay, says Sandberg: &amp;quot;That way, there&amp;#039;s plenty of room in your budget for other essentials as well as savings.&amp;quot; The Howells were close to that figure when they first bought their house. But now that Sarah&amp;#039;s not bringing in an income and Andrew&amp;#039;s salary has been reduced, their mortgage payment eats up roughly 70 percent of their net income, creating a classic house-poor situation.  A big part of the problem is that the Howells have been making the equivalent of one extra mortgage payment a year \u2014 broken down into $227 monthly increments \u2014 with the intent of paying off their mortgage in 22 years rather than 30. &amp;quot;If we can pay down the mortgage earlier,&amp;quot; says Andrew, &amp;quot;we&amp;#039;ll have money for college payments when the time comes, since we haven&amp;#039;t been able to save for the kids&amp;#039; tuition yet.&amp;quot; But that&amp;#039;s a noble goal that Sarah and Andrew really can&amp;#039;t afford right now, says Sandberg. &amp;quot;Clearly, that money would be put to much better use paying bills,&amp;quot; she says. Dropping that extra payment is a painless way the Howells can start chipping down their debt immediately \u2014 and how they can avoid having to downsize to a less-expensive home. FINANCIAL ROADBLOCK: &amp;quot;We feel uncomfortable in our new roles.&amp;quot;  Money-smart solution: Restore the balance of responsibility.  Sarah doesn&amp;#039;t necessarily feel Andrew&amp;#039;s income is &amp;quot;his&amp;quot; money as opposed to theirs, but that doesn&amp;#039;t mean she hasn&amp;#039;t felt some angst over the loss of her own salary. &amp;quot;I feel pressure to keep my spending under control and make the right choices, and it&amp;#039;s hard sometimes not to resent that,&amp;quot; she says. &amp;quot;Before, I had my own money, and if I wanted to do something frivolous with it, I could.&amp;quot; Now, she thinks twice before dropping cash on things like fancy ingredients for her cooking hobby or magazines at the checkout counter \u2014 things she used to buy without a care \u2014 and runs even small purchases, like towels that were on sale at Costco, by Andrew for approval or validation. She&amp;#039;s also held off on signing Charlie up for a music class because she didn&amp;#039;t feel they had the money. &amp;quot;I&amp;#039;ve always envisioned myself being able to spend freely on my children,&amp;quot; she says. &amp;quot;Trying to rein it in has been a challenge for me.&amp;quot;  Making the transition from income earner to full-time parent can be a challenge, Sandberg says. &amp;quot;If you&amp;#039;ve been self-sufficient your entire adult life and then suddenly become dependent on another person for total economic support, chances are it&amp;#039;s going to trigger a &amp;#039;who am I?&amp;#039; reaction.&amp;quot; Plus, Sarah has been thrust into the position of stretching the family&amp;#039;s limited dollars. &amp;quot;That&amp;#039;s a lot of pressure and responsibility,&amp;quot; Sandberg says. &amp;quot;And because the Howells don&amp;#039;t have enough money right now to cover their costs, Sarah is &amp;#039;failing&amp;#039; and feeling terrible.&amp;quot;  Sarah and Andrew mustn&amp;#039;t discount their emotional reactions to the change in their status as earners. &amp;quot;Even if you&amp;#039;re happy and committed to your decision, adapting to your new roles can be scary,&amp;quot; Sandberg says. The couple must give themselves time to adjust \u2014 and talk about the pressures each feels surrounding his or her role. Sarah and Andrew should also make a point of having regular conversations that cover all aspects of their finances \u2014 including exciting goals (like the trip to Beijing they dream of taking) \u2014 rather than leaving savings responsibilities to Andrew and day-to-day decisions to Sarah. With a new, shared responsibility for the family&amp;#039;s financial decisions, along with a workable budget, the Howells will reduce their stress over the loss of Sarah&amp;#039;s income and have more energy to enjoy their family life. And that&amp;#039;s an equation that does add up. THE COUPLE&amp;#039;S REACTION: SARAH: &amp;quot;After speaking to Erica, I realize that we have several opportunities where we can save more and spend less. I&amp;#039;m excited to start putting her advice into practice. We&amp;#039;ve already canceled the extra mortgage payment, and we&amp;#039;re meeting with our accountant to find out our optimal tax deductions each month.&amp;quot;  ANDREW: &amp;quot;Erica made us realize the importance of figuring out exactly how far we&amp;#039;re falling behind each month. Sarah and I sat down and figured out our true cash-flow situation. We had never tallied what we&amp;#039;re spending each month in incidentals like gas, clothing, and groceries. By really looking at where our money goes, we&amp;#039;ve uncovered that we may be able to save more than $1,000 a month! We&amp;#039;re developing a new monthly budget to address the gap and work our way back into the black.&amp;quot; Andrew&amp;#039;s Update When we decided to have Sarah stay home, we knew it would affect our budget, but we never really sat down and figured it out. In working with Erica, it forced us to have some tough conversations about what&amp;#039;s important today, tomorrow, and ten years from now. I think many people know what the right things are to do, but it&amp;#039;s putting it all together and having the discipline to stick to them that&amp;#039;s difficult. Having Erica advise us motivated us to be more disciplined. We still have a way to go, but we can see a way to get there.  Sarah&amp;#039;s Update I&amp;#039;m very grateful for Erica&amp;#039;s advice. After speaking to Erica we worked on our budget and have taken action. I&amp;#039;ve noticed that our spending has decreased significantly. These last few months we&amp;#039;ve been more accountable for our spending. Erica suggested we change our tax deduction and adjust our investments, which has put 25 percent of our take-home dollars back into our pocket. I also decided to switch to &amp;quot;cash only&amp;quot; for discretionary purchases like groceries, and this has helped me be more disciplined with the day-to-day purchasing decisions. I&amp;#039;m still able to stay home with the kids, and overall I feel like we are on the right track. Thanks again for your help, Erica! Want a Money Makeover? Send your story to moneymakeover@redbookmag.com. "^^<http://www.w3.org/2001/XMLSchema#string>
<http://www.redbookmag.com/life/money-career/a2558/money-makeover-0208/>