Suze Orman
Photo: Marc Royce
Tax debt, garnished wages, zero savings, and a faltering marriage: Repairing this family's finances was anything but simple.
Erin Mason*, 38, may be a Web-search expert, but she and her husband, Jeff, 40, have been feeling pretty lost: "We owe nearly $15,000 in back taxes," she told me last summer. "Our wages have been garnished. We have two liens on our house. We both make good money, but we can't get ahead. We don't know where to start."

Erin wasn't kidding about the good money part—together, she and Jeff, a systems administrator, net nearly $6,800 each month. But they're so far behind on their income tax payments that the state garnishes $800 per month from Jeff's paychecks, and the couple also pays $283 toward federal back taxes each month. These payments are included in their monthly expenses of $5,900 ($2,100 goes toward the mortgage on their Portland, Oregon, home). Despite a $900 monthly surplus, Erin worries about providing for their children: Andy, 16; Meg, 10; and Joseph, 12, whose developmental disability is another financial concern. In fact, Erin has even considered filing for bankruptcy.

Bankruptcy? When you make more than $100,000? I don't think so. The Masons need to fix their own mistakes. Erin seemed ready, but I would soon find out that she and Jeff weren't exactly on the same page.

When Erin and I first spoke, I found myself confused. Despite that extra $900 each month, the Masons had saved very little. "We're scraping by," Erin said. Yet her expense list included $60 a month for pet food and vet care, $125 for meals out, $67 for a YMCA membership, $48 for magazines, newspapers, and books, $200 for Costco runs, and $86 for charitable donations.

They clearly weren't spending responsibly. And there was another issue. Erin told me she was serious about fixing their financial mess, but that Jeff felt differently—he spent about $100 a month adding to his massive sports memorabilia collection. "He has no perception of how much he really spends," said Erin, who estimated that Jeff had dropped up to $30,000 on the collectibles over the years.

I was eager to tell Jeff that selling this collection could be their ticket out of trouble: Even if it brought only $15,000, they could pay off the entire amount due on their back taxes. I had also figured out that the Masons were heading for more tax trouble in the coming year. As an independent contractor, Erin must pay quarterly state and federal income tax, including self-employment tax. Yet she wasn't setting aside what she owed. Finally, I had my eye on Erin's $27,000 soon-to-be-due student loan (she earned her bachelor's degree in June 2010—her job lets her work at home and set her own hours). She starts repaying in January 2011, meaning she'll have another $200 to $400 monthly expense. Unless the Masons made some changes, that payment would be tough to handle.

I told Erin that no matter what happens, it's time for her to make better choices. First things first: The unnecessary spending has to stop. Instead of buying books and magazines, they could use the library. At Costco, Erin must make a list—focusing on needs, not wants. And while charity may be noble, the Masons can't afford it right now.

Keep reading: Suze's plan to turn things around

*Indicates name has been changed.
What Erin can't afford not to do, however, is follow my plan to turn things around:
  • Control the cash flow. Unfortunately, Erin must take a drastic step and move all the couple's money to a new checking account—in her name only. She needs to hold the purse strings from now on.
  • Get a will and trust. The Masons have neither, which puts their children at risk. I sent Erin and Jeff my Must Have Documents Kit (available at and asked them to fill the forms out pronto.
  • Purchase ample life insurance. The couple had a $90,000 policy on Jeff's life, which is equal to about 1.5 years of their living expenses. You need a death benefit equal to at least 20 times your annual living needs—and the Masons' policy should insure Erin's life, too, since she's also a breadwinner. Erin went to and qualified for a $1.2 million, 15-year-level term policy costing just $100 a month.
  • Create a special needs trust. If anything happened to Erin and Jeff, whatever inheritance Joseph received could be kept in this account to ensure that he qualified for the federal Supplemental Security Income program. SSI provides financial support to the disabled, but disqualifies any individual with more than $2,000 in assets (excluding a home and a car) from receiving benefits. Should Joseph inherit anything more, keeping the money in this trust would allow him to remain eligible for those federal funds.
  • Set aside money for taxes. I want Erin to arrange an automatic deposit into a savings account so the money is waiting when the quarterly payments are due. This will help prevent another massive bill next April.
  • Build an emergency fund. I recommended the Save Yourself account at TD Ameritrade ( If Erin has at least $100 automatically deposited each month, after 12 deposits she'll receive $100. Once the year is up, she can shop for a better interest rate.
  • Keep the car. Erin has 18 months left on a car loan costing $415 a month. (They own Jeff's car outright.) When the loan is paid off, Erin needs to drive that car for at least five more years and put the $415 toward the emergency fund. In five years that would add about $25,000 to their savings.

Erin was enthusiastic about following through. "After we spoke, I canceled cable, saving $35 a month, tweaked our YMCA membership to be summer only—part of Joseph's ongoing therapy is swimming—and scaled back the charitable giving," she said. She's got the life insurance, and is working on the special needs trust. Best of all, after his initial resistance, Jeff came around. Erin told me, "He's giving me a ton of stuff to sell on eBay, and he's researching ways to save energy in the house and make our own home improvements. He's taking your words as a personal challenge." Music to my ears!

Buckling down is hard, but Erin has been so willing to change. And that's the attitude that will help her become the mom she wants to be: one who's committed to doing the right thing for her family.

Next: Suze Orman's advice on giving your finances reality check
Please note: This is general information and is not intended to be legal advice. You should consult with your own financial advisor before making any major financial decisions, including investments or changes to your portfolio, and a qualified legal professional before executing any legal documents or taking any legal action. Harpo Productions, Inc., OWN: Oprah Winfrey Network, Discovery Communications LLC and their affiliated companies and entities are not responsible for any losses, damages or claims that may result from your financial or legal decisions.


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