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Money Makeover: “Can we afford to have a baby?"

FINANCIAL ROADBLOCK: "We live from paycheck to paycheck — and we can't seem to save a dime." continued...

And because Breanne and Larry spend more on their cars each month ($655 — and that doesn't include gas) than on their home, they should consider downsizing to one car, or at least switching one to a much less expensive, more gas friendly model, Ulrich suggests. "By bringing down their car payments, they can save over $200 a month and put that cash toward their cushion or paying off their debt." Breanne and Larry can also lower their utility bills (they spend $180 per month on electricity and gas) by being vigilant about turning off lights and computers when they're not using them. "They can log on to lowermybills.com to check for better deals on their Internet service, phone, and insurance," says Ulrich.

Next step: Start saving. Once Breanne and Larry make a dent in their debt, they can start stashing 10 percent of their take-home pay in a high-yield savings account (check bankrate.com to find one with a rate of 5 percent or higher); they should fund that account with direct deposit or automatic transfers from their checking accounts. "Setting aside money will be hard at first," Ulrich warns. "But with automated savings — which practically every bank offers — they won't even notice it," she says. "And they'll be pleasantly surprised by how much money they save in just one year." Breanne and Larry should also contribute at least 2 percent of their take-home pay toward a 401(k) retirement fund (log on to irs.gov/retirement to find out how to open an individual IRA if you're not employed or if your employer doesn't offer a retirement plan).

The couple should also look for ways to bring in more cash. "Larry should work as much overtime as he can since he gets time-and-a-half, and perhaps Breanne can babysit for friends once or twice a week," Ulrich suggests. "She could bring in an extra $100 or more a month." Breanne and Larry can get creative, too, and reap even more monthly earnings. "Breanne likes to jar her own salsa," Ulrich says. "If she prints some labels and sells the jars for $5, selling several jars a month will net them another $25 to $35 — a nice windfall for doing something she enjoys."

With all this strict economizing, however, Breanne and Larry risk losing motivation and possibly going back to their old spend-y ways. That's why they should pay themselves $50 each week in "fun money." "Total deprivation can result in a binge later," says Ulrich, "so it's important for them to feel like they get the chance to enjoy some of their hard-earned money."

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