Emily and Rachid Bahhar, both 31, were overjoyed to have a baby boy about a year and a half ago, but they never realized that along with Kalil would come so much stuff. “We’re running out of space,” says Emily, who would like to quit paying rent on their two-bedroom apartment in Bethesda, Maryland, buy a house, and start building equity. She and Rachid, who moved to the United States from Morocco in 2000, would also like to travel to Africa to see his family. “I’ve never met them,” says Emily, “and we’d like them to meet Kalil.”

Trouble is, the Bahhars barely have two pennies to rub together at the end of the month. The cost of living in the Washington, D.C., area is high, and the family is getting by on just one salary. Rachid used to work in a restaurant, but he was laid off and now stays home with Kalil. Even if he returned to work, his income would barely pay for daycare, says Emily, who works in downtown D.C. as a communications specialist for a labor union. Although the Bahhars have been able to save money―as much as $5,000 last year―they typically end up spending it on something like a new television or unplanned expenses rather than saving for a longer-term goal. Last year, for instance, Rachid needed to travel to Morocco for his brother’s wedding. “That trip ended up costing more than we expected,” says Emily. At the same time, they don’t follow any regular budget and often go overboard on ordinary expenses, such as groceries.

The Numbers

Their monthly pretax income: $5,600
Their monthly spending: $4,284

Emily’s monthly outlays:
Rent: $1,675 (includes all utilities)
Groceries: $800
Consolidated loan payment: $333
Medical (monthly premium and copayments): $330
Car payment: $300
Phone bill: $175
Miscellaneous and entertainment: $150
Car insurance: $115
Personal (toiletries, diapers, nonfood products) $75
Retirement savings: $59
Baby toys, clothes: $50
Clothes (adults): $50
Family eating out: $50
Gas: $50
Metrorail pass: $50
Internet: $22
Total: $4,284

The Expert Advice

The Bahhars were smart to consolidate their debt and stop using their credit cards. But they still need to get a better grip on their spending and start a regular savings program. “When people save on a monthly basis, they tend to treat it as a bill or a regular expense,” says Heather Swob, a financial planner with Truepoint Capital, in Cincinnati. She recommends that they salt away a set amount each month automatically in a money-market account. “If they keep their money in a savings account that is linked to their checking account, it’s too easy to spend it,” she notes. Another way to keep their savings out of reach would be to put it in a short-term CD (certificate of deposit).

Before saving for travel or even a down payment, though, the Bahhars need to build an emergency fund, says Swob. This will provide them with protection if they have sudden, unexpected costs or crises, like car repairs or the loss of Emily’s job. Ideally, they should save a full six months worth of living expenses, says Swob. Another reason to delay saving for a home: They need to pay down their debt first. The Bahhars have approximately $14,600 left on their $16,000 consolidated loan and about $10,400 on a car loan. If they pay off these debts, they’ll stand a better chance of getting a good mortgage.

The big question, of course, is how they will increase their savings. Swob recommends that they start keeping closer track of their expenses and create a budget. The line items that stand out the most are groceries and entertainment. Groceries, for instance, are an essential, but $600 a month is a more typical bill for a couple in their income range than the $800 they spend, says Swob. They don’t dine out much, but their entertainment costs are still high at $1,800 a year. Much of this expense goes toward Rachid’s smoking habit.

If they pare down the fat in their budget, they can build a healthy emergency cushion―and eventually a down payment. In the meantime, they should try to renegotiate the terms of their lease. “Property owners are feeling the pain of this market, too, and they don’t want to lose tenants,” says Swob. If they approach their landlord explaining that Rachid has lost his job and present him with comparable rates in the same building or local area (which, they can hope, are lower), the landlord might be open to an adjustment.