Though I try to keep the “Ask the Readers” column general so that the advice can apply to many people, sometimes I get specific questions that seem important enough to be addressed. That’s the case this week.

A young GRS reader named Rebecca dropped a line the other day looking for help. She’s just getting started in life, but feels overwhelmed by personal finance. She worries about money all of the time. Here’s her story:

I am 24 years old and currently work full-time, but only making $12/hour. I get paid once a month, which sucks. But the reason I am writing this email is because I need financial advice. I will tell you all my bills that I have:

  • I have $11,000 in student loans. I make bi-weekly payments, sending in $100 every two weeks. I’m nowhere near making a dent in that debt.
  • I have a $296 car payment, which hopefully will go down with the next car I get. I want a 2012 Camry, but I can’t afford the monthly payments without leasing and I don’t want to lease.
  • $76 cell phone bill.
  • I have a savings account at a local credit union, which I put $200 in every month. But the $1600 I have in my savings is going towards a down payment on my next car. That means I will have to start over on building up my savings account and I don’t have an emergency fund.
  • I opened up a Roth IRA with a local credit union in December because I needed somewhere to roll over my $360 that had built up in my 401k at Best Buy, so I put $200 in every month. I only opened it with the credit union because everywhere else had a “minimum”. I want to move to Vanguard when I hit $1000, but I don’t know if that is the best place to move to.

Besides my regular bills, I set aside $80 for gas a month, pay medical bills if I have them, and if I even have enough money left over I buy groceries when I stay at my boyfriend’s house. I live paycheck to paycheck and I don’t want to do that. I need help. I want out of debt. I want to be comfortable (if not more than comfortable) with money. I don’t want to worry about money anymore; it’s all I ever worry about.

Do you have any financial advice for me? Because I need a lot. I thought the Roth IRA was a smart move, because I don’t even get retirement where I work right now, but I don’t even really understand everything I should about it. When I did some research on it, it seemed to be the best option for me compared to a traditional IRA.

I think maybe I should find another job. I feel underpaid here. I’ve only been here four months, but have accomplished quite a bit. I get full insurance, but I don’t get retirement, paid vacation, or anything. Earning $12/hour and only getting paid monthly is terrible.

To start, I think Rebecca is a prime candidate for using the Balanced Money Formula, one of my favorite personal finance tools. To refresh your memory, this simple budget framework contains just three categories. It looks like this:

This budget uses take-home (after-tax) dollars as a starting point. Here’s a breakdown of the three categories:

  • Needs are things you must pay no matter what: housing, food, utilities, transportation costs, insurance.
  • Wants are everything else: cable television, restaurant meals, concert tickets, comic books, clothing beyond the basics, etc.
  • Saving comes last in this plan. Everything left after you take care of Wants and Needs is set aside for the future. (If you want to get out of debt, that’s also tackled here.)

Going with some rough numbers, Rebecca’s $12 an hour translates to $24,000 per year before taxes. Guessing a 25% tax bite leaves Rebecca with $18,000 per year, or $1500 per month. Using the Balanced Money Formula, that means her targets should be to:

  • Spend less than $750 per month on Needs.
  • Spend up to $450 per month on Wants.
  • Save the rest, with a target of more than $300 per month. (And remember: With the Balanced Money Formula, debt payments count as saving.)

And what is Rebecca actually spending?

It’s tough to say for certain, but we know she’s spending at least $376 (or about 25% of her income) on her car — and that’s only for the car payment and the gas! We also know that she’s setting aside $600 (or about 40% of her income) in debt reduction and savings.

So, based on this, I have three recommendations for Rebecca.

First and foremost, she should do everything possible to get her transportation costs down. They’re outrageous. The car payment and the gas alone take 25% of her take-home pay. Add insurance and maintenance, and the number is probably more like 40%. This is a tremendous drag on Rebecca’s budget, and she should do whatever she can to cut this number drastically. Buy a beater. Bike. Explore public transportation.

Aside: To look at Rebecca’s transportation spending another way, one common recommendation is that people spend no more than 33% of their pre-tax income on housing. Rebecca’s getting close to that level with just her car!

Second — and I can’t believe I’m saying this — Rebecca might actually be one of those people who ought to save less than she is right now. It’s admirable that she’s saving 40% of her income, but it’s also making things feel pinched.

I do not think she should touch the $1600 she’s already saved. Instead, she should use this as her basic emergency fund (using it only for emergencies). But I do think it’s okay for her to stop contributing the $200 to savings if it will help take some of the financial pressure off her shoulders. If she wants to use that $200 in a productive way, she could put it toward her student loans. Then maybe it would seem like she’s making a dent in them.

Finally, I agree with Rebecca that it’s a good idea to find some ways to make more money. I don’t think she should quit her job at the moment, but she might try to find a second job, make money from a hobby, or sell some of the things she owns. At this stage, every dollar of extra income will help her out.

Note: I also think Rebecca should ditch the expensive cell phone. I know that many folks believe smart phones are necessary, but they’re not. They’re a Want and not a Need. Ditching the $76/month cell phone for a prepaid cell phone plan could probably save her about $50/month. That’s $600/year!

That’s what I would do if I were in Rebecca’s situation. What would you do?

What advice do you have for Rebecca? Do you agree that she should ditch her car? Or am I off target? And what about the cell phone? Looking back at your own life, what moves would you have made differently when you were 24 years old? What did you do right? How can Rebecca go from worrying about money to feeling confident about her future?