Case Study: Put Limits on Everyday Spending

Now, the Costa Mesa couple are trying to learn the steps that will ensure them a lifetime of financial stability. But with just one income, two children in diapers and two in school, that’s no easy task.

"Right now you are going to feel like you are struggling, but that’s just the real world," says Victoria Collins, a certified financial planner in Irvine who reviewed the Ferrises’ financial situation for The Times. "Basically, given where you are in life, you really are on target."

In fact, for Steve, 33, and Jeanie, 34, the biggest challenge is to scale back their day-to-day spending in order to find a bit more cash to put toward meeting their short-term goals. The plans for their long-range goals are largely under control.

Steve, who earns $85,000 annually as a supervisor for an Orange County-based manufacturer, UCAR Carbon Products, is already contributing the maximum allowable amount to his company’s 401(k) retirement program.

Jeanie, who stays home with their four children--Shelby, 7; Jake, 5; Wyatt, 2; and Oliver, who just turned 1--also has a 401(k) account that she started contributing to when she was still working as a registered nurse. Between them, the couple have about $35,000 in these retirement accounts, and Steve is socking away about $500 a month into his.

They have started savings accounts of a few hundred dollars each, to which Jeanie’s father also contributes, for each of their children for college expenses. And they have about $70,000 in equity in their Costa Mesa home. If all goes as planned--that is, if they keep saving at their current rate, their savings continue to earn decent returns, and they suffer no serious health or career problems--they will have paid off their mortgage by the normal retirement age and have about $1.5 million in savings.

What troubles them are today’s financial strains.

"The bills get paid, and then a whole lot of money just gets spent," Steve says with a sigh.

There never seems to be quite enough put aside for things they’d like to do soon, such as remodeling work on their four-bedroom home.

They’ve kept their fixed expenses fairly modest. Their mortgage, on which they pay $984 a month, has a rate of 7.5%. Their only other debt, a loan for a late-model family van, takes $314 per month. Their two other vehicles, a vintage Volkswagen bug and a Toyota Tercel, are paid off.

They pay about $300 a month to send one son to private kindergarten, but he will probably attend public school next year. Their biggest regular expenditures are for groceries, which run roughly $1,000 a month, thanks in large part to the high cost of diapers and baby formula, Jeanie notes.

But even after allotting some money for property taxes, insurance, utilities and the like, the Ferrises ought to have close to $1,000 a month left over for discretionary spending. But, they say, their cash disappears so quickly that they occasionally have to tap their credit cards for unexpected expenses such as car repairs.

Where does the money go?

Jeanie called them "frivolities," then quickly corrects herself, saying that few of them are terribly frivolous. In fact, they include things such as Little League uniforms and pictures, soccer team fees and photos, Girl Scout uniforms and entrance fees, snacks for the kids and their teammates, children’s books, contributions to school fund-raisers. They all seem like minor expenditures, but when taken together, Jeanie acknowledges, they’re budget busters.

"When you go on a daily basis, you think, ’Oh, it’s only 10 bucks.’ But pretty soon $10 and $10 and $10 ends up being $200," she says. "People who don’t have kids might not understand this, but there are just so many little things we end up spending money on."

Jeanie points to a basket of Hercules toys that came in kids’ meals from McDonald’s. "If you realize that they switch toys every few months, you get an idea of how often we eat there," she says. "And then I can show you the basket of Aladdin toys and the 101 Dalmatians. . . ."

Giving up fast food altogether would be impossible with her current schedule, however. Running two children to school and sports, and diapering two others doesn’t leave a mom with much time for making lunches.

"You’ve got to have a certain amount of flexibility with four kids," Jeanie says.