Finding a financial road map

Nearly a year ago, Alicia Cardenas knew it was time to take drastic action to prevent her fragile financial condition from crumbling into dust.

She struggled to make monthly payments on her high-interest adjustable-rate mortgage, and often wound up at a payday loan store to get money to buy groceries and gas up her dusty, 7-year-old minivan. She lost sleep fretting about losing her home, where she lives with her three children and 80-year-old mother. For help, she turned to Money Makeover, a monthly feature in The Times.

“It was the best thing I ever did in my life,” said a now-relaxed Cardenas, 46, sitting in the sunny dining room of her North Hollywood home.

With help from Los Angeles financial planner Jennifer Hartman, Cardenas staved off foreclosure by negotiating a more manageable fixed-rate mortgage. She also created a household budget, slashed her expenses and started tracking her spending. In the process of fixing her finances, Cardenas found peace of mind.

“I’m not panicked anymore,” she said.

The Times went back to Cardenas and other people who had volunteered over the last two years to disclose their money problems in return for free help from financial planners and other professionals. The aim was to see how they were faring, especially as the nation’s economy fell into the worst recession since the Great Depression.

The main finding: Regardless of whether they followed their financial plans, Cardenas and others said they were now less anxious and more financially grounded, breaking some of the bad habits that put their finances into disarray. A few even managed to achieve such dreams as buying a home sooner than advisors had expected.

You may not need a financial planner, but you do need a financial road map, said Delia Fernandez, a fee-only financial planner in Los Alamitos. (The Times works with fee-only planners because they do not receive commissions or any income related to the financial products they sell.)

“People don’t realize that life doesn’t take care of itself,” Fernandez said. “If you don’t know where you’re going, you may not end up where you want to be.”

The makeover plans enabled many people to take charge of their lives and their finances even in the face of significant change.

Soon after her makeover, Cardenas lost her job at a local dairy, where she worked as a human resources manager. But within five weeks she landed a more fulfilling job at the Los Angeles Regional Food Bank. She’s making about $6,000 less a year, forcing her to keep an even closer eye on her spending. But Cardenas says she’s a lot happier.

“It was a blessing in disguise,” she said.

Other makeover volunteers went through a lot too. Glen Golightly, who handles public relations for a Southland aerospace company, also feels the heat of the recession and worries about layoffs. Mark and Jessica Stone bought a house and welcomed a new baby, although they already were stretched by bills and other financial pressures. Steve Haibach suffered an injury that put him on disability and delayed his retirement. And Michael Sausser continues to battle the ill health that wreaked havoc with his finances in the first place.

But Sausser, like the others, feels more in charge of his money.

“For the first time, I pulled my numbers together and saw where I stood. That was important. It gave us the impetus to move forward no matter what,” said Sausser, 47, an AIDS survivor.

Advice, not consent

Not everyone, however, went with the program their advisors drafted for them.

In August 2007, Los Angeles financial planner Erick Bruck wanted retiree Debbie Loss to sell her rental home in Encino, where she had difficulty getting her tenant to pay his rent. But Loss decided to hold on to the home, believing that the renter would eventually make good and that she’d turn a profit on the property.

“I definitely didn’t follow the advice,” said Loss, 53, “Emotionally, I just couldn’t do it.”

Steve Haibach, 57, and his wife, Judy, 56, also couldn’t resist the temptation to go against their planner’s advice. They pulled their investments out of the declining stock market instead of staying put.

“The challenge with moving in and out of the market is that you have to make two decisions right: when to get out and when to get back in,” said their financial planner, Brent Kessel of Pacific Palisades.

The Haibachs may have saved themselves from some losses, but they acknowledge that they also missed some gains as stocks moved up.

Nevertheless, the makeover participants are more comfortable with their money management skills, they said, largely because of the actions they took and new financial habits they developed after going through the planning process.

Sausser, for example, negotiated a zero interest rate on a substantial portion of his credit card debt and refrained from taking on any more. He reduced other fixed expenses, and he and his partner have found creative ways to live more frugally. After the makeover, they rented out Sausser’s Van Nuys home and moved to Palm Springs for the cleaner desert air.

Many makeover volunteers had only a vague sense of where their money went before their financial planning sessions. Some weren’t sure how much they earned or how their money was invested. And many hadn’t done other planning, such as buying life insurance or creating wills.

“Most people do not know [where their money goes] until they start tracking it on a daily basis,” said financial planner Sandra Field of Cypress. “They can’t see the big picture until they look at the details.”

Before her makeover in June 2007, Lesley Hawks didn’t know whether her bank account held $10,000 or $100,000. She was so busy that she rarely opened financial statements and squandered 16 years of potential appreciation in a key retirement account because she didn’t monitor it.

Hawks, 48, has since turned her situation around. She now regularly reviews her finances, and hired an accountant to help manage her paperwork. She also retained a financial planner to help her negotiate the benefits package that came with a new job.

“I now have a sense of what is where,” Hawks said.

Cardenas was similarly in the dark when it came to tracking her money. The only thing she knew was when she ran out of it. Because she didn’t track her spending, Cardenas continually tripped into debt. Now she logs her expenses on a computer spreadsheet and curtails her spending as needed so she can meet her monthly bills.

“I’ve learned that the small things really add up,” Cardenas said. “Would I like to have Starbucks coffee every morning? Sure. But do I need it? No.”

After seeing where the money goes, many of the makeover volunteers found it much easier to change the behaviors that created their financial difficulties or kept them from their goals.

For many, fixing their finances meant changing their lifestyles. For some, that meant saving instead of spending.

Nathan Drake was nearly $54,000 in debt and on the verge of filing for bankruptcy protection in January 2008. After a divorce, he got in the habit of spending beyond his means. At the time of his makeover, he was shelling out $2,000 a month more than he earned.

“For me it was seeing it on paper and hearing the obvious,” Drake, 31, said about what led to his turnaround. “The whole process switched everything for me.”

He cut back on eating out and on weekend trips in his gas-guzzling truck, and he refused to put any more debt on his credit cards. Thanks to a newfound frugality and to about $15,000 extra in commissions, he’s knocked down his credit card debt to about $12,000. He also lowered balances on a bank loan and money he borrowed from his 401(k) retirement account.

“I’ve learned to never get into this position again,” Drake said.

Reality check

For others the makeover forced them to reevaluate whether pursuing a dream or entering into retirement was realistic.

Before their makeover in December 2007, Marc Levy, 57, and Susan Gaer, 52, had grand visions of living retirement in style. They planned to have two homes: a town house in the wine country near Paso Robles, Calif., where they could spend their afternoons sipping Zinfandel, and a main home in woodsy Arrowhead.

But after financial planner Carl Camp in Fullerton ran the numbers, the couple realized they could wind up house rich and cash poor. Now they plan to stay in their modest home in Torrance for at least four more years before selling it to build their retirement getaway in Arrowhead.

Not everyone’s dreams faded, though.

Iraq war veteran Gabriel Medina, 26, a rookie Los Angeles police officer, relied on his military and police training to discipline himself into achieving his financial goals. As a result, he bought his first home six months after his financial makeover in June by following the advice of Santa Barbara financial planner Brad Stark.

Without the makeover, Medina said, “it would have taken me a lot longer to buy a house.”

Their own home

Public school teacher Mark Stone, 33, and his wife, Jessica, 32, were renting an apartment but yearned to own a home where they could raise their three children.

Despite Mark’s modest income of $69,000 a year, they secured a state loan for low-income borrowers and played the slumping real estate market to buy a distressed, three-bedroom town home in Huntington Beach -- exactly what planner Victoria Collins in Irvine suggested.

Most makeover volunteers still have work to do. Some need to pay down debt, others need to build up savings and some need to re-balance their investments.

Although Cardenas has held on to her home, she still struggles to save. When the radiator on her daughter’s car broke, she scrambled to pay the $600 bill. She has no emergency savings and only a few hundred dollars in her retirement account.

For Cardenas to get ahead, she needs to look for ways to cut her expenses and save, even if it’s just $5 or $10 a week, financial planner Hartman said.

Nonetheless, Cardenas’ life is on a far better trajectory. Before the makeover, everything was “gloom and doom,” she said. Now, if another financial crisis befalls her, she believes that she has the financial know-how to handle it.

“Every day, I thank God that I’m healthy and employed and that I have a roof over my head,” she said.