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Financial planning involves three basic steps: knowing where you stand, determining where you want to go and figuring out how to get there.
That journey was the subject of The Times' Money Make-Over, a series that highlighted the financial problems of Californians in all stages of life.
The make-over advice these people received was as individual as their situations. But a few universal truths emerged. They learned that avoiding debt and starting to invest as early as possible can get them to their goals more quickly. They also learned that financial mistakes are common and don't have to keep them from getting what they want.
Here are the stories of four make-over subjects, and the lessons they learned:
Starting Out in Debt
At first, Eileen Zyko dreamed of being an actress. Then she wanted to be a producer. Two years after moving to Hollywood, Zyko landed a job as an executive assistant to the president of Virgin Records America, where she earns $35,000 a year.
Meanwhile, she had racked up $64,000 in debt, including $16,000 on high-interest credit cards and $38,000 in student loans.
Kathleen Stepp, a fee-only certified financial planner based in Overland Park, Kan., advised Zyko to set two overriding priorities: paying down the debt and figuring out what she wants to do with her life.
At $350 a month, it would take Zyko, 26, seven years to pay off her credit card debt, assuming a 15% interest rate. If she could raise the payment by $150 per month, to $500, Zyko could be rid of the credit card debt in four years. The student loans can wait, with Zyko paying the minimum required until her higher-rate consumer debt is paid off.
Other financial goals, including saving for retirement, should take a back seat at least until the credit card debt is gone, Stepp said.
To really get ahead, however, Zyko needed to look at her career and the best way to advance to a better job--and better pay. Her current job wasn't moving her toward the goal of being a producer, but Zyko found she really liked the work and the environment.
With the help of Toni Bernay, a Beverly Hills clinical psychologist and executive coach, Zyko discovered a new long-term career goal that combines her past ambitions and present experience: film or TV music supervisor.
"I love music; I always have," Zyko said. "It's something I could be good at."
Making a Nest
Michael and Anita Meagher have largely conquered their consumer debt, whittling $40,000 in credit card bills and loans down to $5,000. But now they worry that the one-bedroom guest house they rent in Ventura won't be large enough when their baby arrives. They wanted to buy a two-bedroom home as soon as they could, with the idea of relocating to a more rural wine region in a few years.
But Delia Fernandez, a fee-only certified financial planner in Los Alamitos, urged them to stay put--at least for now.
The Meaghers are getting by on Michael's $48,000 salary as a winemaker because Anita, 36, has been ordered to spend her entire pregnancy on bed rest. Babies and new homes are expensive, and the Meaghers' desire to move within a few years makes a home purchase now a risky proposition, Fernandez said. "You can't predict the real estate market for such a short period, and you could find yourself tied to a house you no longer want to live in due to a slow market," Fernandez told the couple. "Renting will give you the freedom to build for a down payment."
Fernandez urged them to keep their expenses as low as possible and build their retirement funds, which could be tapped for a home down payment. The Meaghers can take up to $10,000 from an IRA, for example, for a first-time home purchase without paying early-withdrawal penalties.
Fernandez suggested that Michael, 33, invest the maximum $2,000 a year in his own IRA, which is tax deductible because he does not have a retirement plan at work. Because the money will be needed within a few years, the planner recommended that it go to a low-risk bond fund, such as Vanguard Short-Term Bond Index (three-year average annual return: 6.3%). More aggressive investing can wait until after their home is purchased.
Saving for Retirement
That journey was the subject of The Times' Money Make-Over, a series that highlighted the financial problems of Californians in all stages of life.
The make-over advice these people received was as individual as their situations. But a few universal truths emerged. They learned that avoiding debt and starting to invest as early as possible can get them to their goals more quickly. They also learned that financial mistakes are common and don't have to keep them from getting what they want.
Here are the stories of four make-over subjects, and the lessons they learned:
Starting Out in Debt
At first, Eileen Zyko dreamed of being an actress. Then she wanted to be a producer. Two years after moving to Hollywood, Zyko landed a job as an executive assistant to the president of Virgin Records America, where she earns $35,000 a year.
Meanwhile, she had racked up $64,000 in debt, including $16,000 on high-interest credit cards and $38,000 in student loans.
Kathleen Stepp, a fee-only certified financial planner based in Overland Park, Kan., advised Zyko to set two overriding priorities: paying down the debt and figuring out what she wants to do with her life.
At $350 a month, it would take Zyko, 26, seven years to pay off her credit card debt, assuming a 15% interest rate. If she could raise the payment by $150 per month, to $500, Zyko could be rid of the credit card debt in four years. The student loans can wait, with Zyko paying the minimum required until her higher-rate consumer debt is paid off.
Other financial goals, including saving for retirement, should take a back seat at least until the credit card debt is gone, Stepp said.
To really get ahead, however, Zyko needed to look at her career and the best way to advance to a better job--and better pay. Her current job wasn't moving her toward the goal of being a producer, but Zyko found she really liked the work and the environment.
With the help of Toni Bernay, a Beverly Hills clinical psychologist and executive coach, Zyko discovered a new long-term career goal that combines her past ambitions and present experience: film or TV music supervisor.
"I love music; I always have," Zyko said. "It's something I could be good at."
Making a Nest
Michael and Anita Meagher have largely conquered their consumer debt, whittling $40,000 in credit card bills and loans down to $5,000. But now they worry that the one-bedroom guest house they rent in Ventura won't be large enough when their baby arrives. They wanted to buy a two-bedroom home as soon as they could, with the idea of relocating to a more rural wine region in a few years.
But Delia Fernandez, a fee-only certified financial planner in Los Alamitos, urged them to stay put--at least for now.
The Meaghers are getting by on Michael's $48,000 salary as a winemaker because Anita, 36, has been ordered to spend her entire pregnancy on bed rest. Babies and new homes are expensive, and the Meaghers' desire to move within a few years makes a home purchase now a risky proposition, Fernandez said. "You can't predict the real estate market for such a short period, and you could find yourself tied to a house you no longer want to live in due to a slow market," Fernandez told the couple. "Renting will give you the freedom to build for a down payment."
Fernandez urged them to keep their expenses as low as possible and build their retirement funds, which could be tapped for a home down payment. The Meaghers can take up to $10,000 from an IRA, for example, for a first-time home purchase without paying early-withdrawal penalties.
Fernandez suggested that Michael, 33, invest the maximum $2,000 a year in his own IRA, which is tax deductible because he does not have a retirement plan at work. Because the money will be needed within a few years, the planner recommended that it go to a low-risk bond fund, such as Vanguard Short-Term Bond Index (three-year average annual return: 6.3%). More aggressive investing can wait until after their home is purchased.
Saving for Retirement
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