Bonus Rewind: Simple Steps to Financial Security with Ron Rauch, CPA

Bonus Rewind: Simple Steps to Financial Security with Ron Rauch, CPA

Money is often a stressful topic for solo parents, but it's a crucial part of life today, and you can gain control and confidence in this area. For the month of December, we are going back and playing clips from some of our (and your) favorite episodes over the last few years. Each week, a different member of the Solo Parent team selects an episode that was a high point and we're going to play it and reflect on it.

Most solo parents worry about how they're going to make ends meet during the challenges of living as a one-income family. And any significant life transition or crisis can lead to unsettling circumstances, especially financially. Single parents often find themselves dealing with unexpected financial challenges related to budget and practical needs.

We want to reintroduce this conversation we had with a gentleman named Ron Rauch on steps to financial stability. I think it's also timely because it can provide some motivation for a financial reset as we come out of the holidays and approach 2024. And just so everyone knows, we have a little inside joke here. This person is Marissa's uncle. So, we're going to hear from “Uncle Ron.”

We hear a lot from single parents about how overwhelming the financial struggle can be. And so we wanted to look back at this episode and pull out some helpful nuggets, especially after going through a spending spree during the holidays. We’re looking at a new year, and it's a good time to look at how we can push reset financially.

Ron Rauch has a long history of work in the financial sector doing auditing as a CPA. He moved into the arena of personal finances and financial literacy when his wife began working with women at Seattle’s Union Gospel Mission helping them overcome homelessness, addiction, and domestic abuse. These women needed help knowing how to manage money. Ron developed a personal financial literacy course to address these needs and began teaching it regularly.

What is the importance of budgeting and the steps to creating a budget?

I think some people just think, “I've got nothing. So how do I even create a budget?” Most of us don't have unlimited resources, but the word “budget” can be a turnoff. I prefer the term “spending plan.” It's the same concept. In a situation involving divorce or death of a spouse or loved one, the income picture often changes, and it changes to the downside, but the expenses seem to go on or even go up. The best advice is to start with developing a plan for one month at a time. That's a timeframe where we have the most visibility.

The basic principle here is: don't spend more than your monthly income. We have to start with the big expenses: shelter, food, transportation, possibly childcare. These expenses easily consume 65% or more of a monthly spending plan. And they're not discretionary. We have to eat; we need a roof over our head; we have to care for our children. And obviously those expenses can't be changed in the short run. I like to break a spending plan into the areas that I can change in the short term, the medium term, and then the longer term.

Putting off some discretionary expenses on clothing or restaurants [for example] may provide some needed cash for those areas that can't be changed immediately, such as housing. And by the way, I'm assuming here that taking on another part-time job is probably out of the picture, especially if you have children to care for. Changing our food-shopping habits or maybe even selling a car if other transportation is available might be a good short-term strategy to pay for other pressing areas like a child's education. These are tough decisions and probably should not be made without advice from a knowledgeable and trusted friend. Also, there are guidelines online for how much money to expect to allocate to areas of spending for each county and major metropolitan area of the country. So, for a person just starting out, this could be useful to see if their plan is reasonable. The one I'm referring to here specifically is the MIT Living Wage Calculator. They publish their living wage study and update it annually.

How do we tackle leftover debt?

Getting a divorce is extremely expensive. It could be lawyers, court costs, or you may inherit half of the credit card bills that aren't paid off, whatever that looks like. How do we attack that leftover debt? And in a situation involving the death of a spouse, liabilities that we didn’t even know about may pop up, and now you’re 100% responsible for them. They weren't divided.

Part of gaining control over our finances means having a very clear understanding of our debts and obligations. Some of this may be clear from the terms of the separation, and some of it may be hidden as in the case of death. It's always a good idea to start by obtaining a credit report to understand what the financial world knows about us and see if there are any surprises. You may have heard to be careful how much you check your credit score because it can be seen as an inquiry. I wouldn't worry about that. The important thing is to know what the financial world knows about me, are there any surprises, and is it accurate? I think that is much more important than worrying about a “dinging on my credit.”

I'm not a fan of taking on new debts to consolidate old debts. Instead, I favor a more direct approach with debtors. First call them and explain your situation. In that call acknowledge the debt (assuming it's valid). They will rant and rave about collections, but you need to inform them you're working on a plan and would appreciate any help they can give you with some forbearance or reducing the debt. Do not, I repeat, do not make any promises you cannot keep or have thought about clearly, especially on this first call. They will pressure you as much as they can because they want a commitment. These calls can be very stressful.

What stood out to you about this episode?

I really liked that instead of talking about a budget, Ron talked about a spending plan. To me, a budget sounds like prison—very restrictive. Marissa shared that she loved the section on thinking of short-term goals, medium-term goals, and then long-term, and not trying to bite off more than you can chew initially. It’s also beneficial knowing there are some very specific things in the short term you can do to affect the amount of money you keep in your pocket. The part on debt was really interesting with tips on calling the creditors, how to approach that the right way (the smart way, not promising too much), and asking for grace. Let them know that you're trying to make a plan, but you can't give what you don't have.

Personally, I hate dealing with money. I'm not good at it, and it just scares me, and I don't like it. So, my tendency is to just bury my head in the sand and just put bills in a pile. But what I hear Ron talking about is not only being proactive, but going to check your credit score, see what's out there, and how people are viewing you. You might be surprised. According to the divorce decree, my ex-wife was supposed to pay X credit cards, but we were both joint on the credit account. I found out months later that she wasn't paying it. She was still charging but stopped paying. And that affected my credit. So, I had to call the creditors and fax them a copy of the divorce decree to get my name taken off. It's so important to know where everything's at, and it’s a natural tendency to try to bury your head in the sand and just go, “Okay, I don't have enough money to pay everybody. I'm just going to go hide in a corner.” But that is not helping anybody. You're not moving forward, you're not being deliberate about things, and you may actually be losing money. You may actually be putting yourself and your family at more financial risk.

When I was married, I was actually pretty good at budgeting or having a spending plan, and I had my cash envelopes for groceries and for all the different things. After the divorce. It was really hard for me to do that on my own. I needed someone I could sit down with and talk through it, fight about it, and get to a conclusion. And it’s really hard when you don't have anyone to bounce this off of. Amber, who you all know from the podcast, and also our friend Jenn, and I just started our own little club called Breakfast and Bank Accounts. We're meeting once a month at the end of every month to talk through our goals for the next month and track our spending. That's where we're starting. We just started this a couple of months ago, but we're tracking our spending through the end of the year. And at the first of the year, we're starting with spending plans, getting on track, keeping ourselves accountable, and having some real goals we want to meet financially.

Amber recently got her counseling degree and license and started her own practice. She’s never owned her own business before. By doing Breakfast and Bank Accounts, she’s realized she’s not charging her clients enough. She’s at risk of going in the red if she doesn't make a little bit more money. She wouldn't have known that if we didn't pressure each other into making spending plans and looking at the money we're bringing in vs. the money we're spending. It’s really helpful to be able to have like-minded people in a room together going through some of the same struggles. We trust one another with our finances, which is hard to do. Consider finding someone who can be an accountability partner. A rule we've set for each other is we can't spend more than $100 without getting permission from one another. You know what gets us? The $40 here and there; the $60 here and there—those things add up. And that's where the spending plan comes into play.

[Financial expert] Rachel Cruz says, “Budgeting doesn't limit your freedom. It gives you freedom.” It gives you freedom to spend the money that you have. Hearing that helped me reframe my finances. Now, I say, “I have $150 I can spend on groceries this week. Great. Go spend it. Go use it.” Or, “I am giving myself two nights I can go to a restaurant and have dinner.” While that may seem limiting because I can't just go every night, it gives me the freedom to go and enjoy it when I do.

Listener Question

Hi, my name is Brandon. How do I make a dollar stretch more as inflation grows?
It is a spending plan. Inflation's a real thing. Our grocery bills have gone through the roof. We need to look at what we're bringing in and make sure we're being fair to ourselves and having conversations with our employers if needed.

I would say it really comes down to that spending plan and being mindful of where your dollars are going. Unfortunately, there may be some hard decisions you have to make. Maybe you have to cut out an extracurricular or Netflix and all the subscriptions that we're spending so much money on. One thing I wanted to add to the spending plan is as inflation affects us all, it's important to look at our spending plan every year and adjust it. Because once you've established it, don't assume that it stays the same, because we have to change with the times.

To your point earlier, talking about employers, the percentage of raises that people are receiving is not in line with inflation every year. And that can be devastating to a single parent. So, advocate for yourself and have those hard conversations with your employer. There are more and more companies stepping up and increasing their pay, their compensation packages. It might be a hard conversation. You may have to ask; do I need to start looking elsewhere? It's less likely they're going to call you up and say, “Hey, can I give you more money?” You got to go after it yourself.

The six years I worked at Ramsey, we advised people to call their insurance company and get new rates. There are ways to cut rates on your health insurance and car insurance, but you have to do that every year. There's also ways to lower other rates such as internet. You can make phone calls and say, “Hey, I'm actually looking at this other company over here. Is there anything you can do to cut my rate?”

We recommended going through all of those major necessity bills and looking at new rates, getting new quotes, all of those things once a year. It all adds up.


MIT Living Wage Calculator
2022 Episode: Simple Steps to Financial Security with Ron Rauch

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