Well on their way to family goals
Mark and Jessica Stone’s dream is simple and basic.
They want to buy a house in Southern California, send three children to college -- Jessica is pregnant with their third child -- and fund their retirement. The problem is that they want to do it all on Mark’s income, now $68,000 a year, as a public-school teacher in Long Beach.
With so much to save for, the family rarely eats out or buys new clothes. They don’t go to movies, unless it’s to an independent theater where tickets cost only $1.75. Their principal entertainment is hanging out together at the beach or a park.
“I’m just really impressed,” Victoria Collins, a certified financial planner in Irvine, told the Stones. “You have your heads screwed on right. You haven’t gotten caught up in this consumer trap that everyone is caught in. I don’t know how you do it, honestly.”
Mark, 32, probably could get a higher-paying job, but he’s committed to a teaching career, and they both want Jessica, 31, to be able to stay home to raise their children.
Nevertheless, Jessica is using her skills as a former professional ballerina to teach dance to grade-school students. She’s been able occasionally to add about $300 a month to their income.
If they can maintain their frugal ways, Collins said, she thinks they can achieve their goals, but only if Jessica brings her teaching income up to $1,000 a month after the baby arrives in July.
Even before they met Collins, the Stones had started to turn their finances around through a financial management class at their church.
Three years ago, after the birth of their second child, they’d racked up $10,000 in debt on one credit card by overspending on food, movies, gas and, Mark said, “living beyond our means.”
The minimum monthly payments grew so large they started to miss them.
The class taught them how to budget and reduce debt. Today they have $2,000 on one card that charges no interest through March. Recently they paid off their car, eliminating a monthly $250 payment. They still pay $176 a month toward Mark’s student loan. The $34,500 balance should be paid off by 2032.
Overall, on a monthly take-home income of $4,864 for 10 months of the year -- Mark doesn’t get paid during the two-month summer vacation -- the Stones keep their fixed expenses at $4,649. That includes a $480 monthly tithe to their church and an $800-a-month savings to cover the summer months.
“Once we learned how to budget, everything got easier,” Jessica said. “We feel more content.”
So far, they’ve saved $23,700, including $15,000 in retirement accounts. If he stays in his current position for 30 years, Mark would start receiving close to $5,000 a month at age 63 through the state teachers’ retirement program.
For their short-term savings, they’ve built up a $4,800 emergency fund and set aside $1,500 toward college for their kids.
They also earmark as much as $80 a month for three goals through their ING Group online checking and savings accounts. They have more than $300 in reserve for each category -- vacations, gifts and annual membership fees for state parks and theme parks -- all earning 3.4% interest.
The couple’s two-bedroom apartment on a leafy street in Long Beach rents for $1,200 a month. Their two children -- Scotty, 5, and Cora, 3 -- romp around the large living room that doubles as a dance space for Jessica. The kids share a tiny bedroom not much bigger than a closet.
With another child on the way, they need more space.
“People are saying this is a terrible time in the housing market, but it’s a good time to buy,” Collins said.
Cautioning them to stay within their means, she gave her blessing to one prospect, a small condominium in a homely-looking complex in Huntington Beach that is listed for $314,000.
“It’s not a dream home,” Mark said. But Jessica put a positive spin on it: “It’s a starter dream home.”
If Jessica’s teaching income rises to $1,000 a month, Collins said, they could afford the $2,200 mortgage, plus taxes and homeowners association dues. However, given the state of the housing market, the planner advised that they also shop around for builders that are offering incentives in new home developments.
Builders get so desperate, she said, that they may reduce prices dramatically to sell the houses and get the properties off their books.
To ensure that they get the best rate on a home loan, Collins urged the Stones to do whatever they could to increase their FICO scores, a key number that lenders rely on to assess a buyer’s creditworthiness. They should aim to keep their scores above 720, checking the scores often to correct any errors they find.
She suggested moving the $2,000 in credit card debt to another no-interest card before the rate on the current card jumps to 12%.
“That’s a killer,” she said about the rate. “If you just pay the minimum, it will take you forever to pay it off.”
The Stones plan to open college accounts for each of their children, under Sec. 529 of the Internal Revenue Code. The plans allow the money to grow on a tax-deferred basis and to be withdrawn for qualified education expenses.
“It’s so easy to do and it gives you great flexibility,” Collins said. She also urged the Stones to get their parents to contribute to the funds in lieu of giving gifts to the kids. “Gifts for young children are wonderful, but sometimes a 1-year-old or a 3-year-old doesn’t appreciate them. [Financial] gifts will mean a lot more later on.”
Though the Stones have adequate life, health and disability insurance, Collins questioned the $83 a month they pay for so-called dreaded-disease insurance on Mark to cover the possibility of getting cancer.
The couple should examine the policy to make sure it doesn’t duplicate existing medical coverage. If his medical insurance has low limits or if the cancer policy comes with income replacement, it might be worth keeping.
“Otherwise,” she said, “it doesn’t seem to me that the risk merits the coverage.”
Mark got the added insurance thinking that all of his grandparents had died of cancer. But after he met with Collins, he learned that none had. Still, he’s loath to drop the coverage.
Looking at the couple’s retirement accounts, Collins asked why some of them were with an insurance company.
“Because some lady [from Primerica] stopped us at Costco . . . “ Mark said.
” . . . and we’d just been talking about it,” Jessica said, finishing the thought.
Collins commended them on starting a plan. “Sometimes we need someone to present an option to get us to start.”
But now, they should move that money to a regular investment company; insurance companies add an unnecessary layer of expense to investments, she said.
When their kids are older, Jessica told Collins, she’d like to open a small dance school to work and be with her kids.
“I think you could be very, very successful at that,” Collins said. “This is such a great activity for a new mom, and there is such a need for that.”
The Stones, in the meantime, are teaching their children the financial skills they wish they’d had at a younger age. Scotty and Cora each own three plastic cube containers into which they divvy up their $6 monthly allowances.
One container pays for short-term purchases like bubble gum. Another pays for mid-term purchases like video games. The third container saves for college.
If the Stones can continue to display the same prudence they are teaching their children, they might be able to achieve their goals, Collins said. “It’s rare to meet a couple like you.”
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(BEGIN TEXT OF INFOBOX)
This month’s makeover
Who: Mark and Jessica Stone
Income: $68,000, plus $300 a month in occasional supplemental income
Goals: Buy a home. Pay for college for three children. Save for retirement.
Assets: $23,700 in savings, including $15,000 in retirement accounts. Anticipated pension for Mark Stone of $5,000 a month at age 63. Car paid off.
Liabilities: $34,500 student loan. $2,000 in credit card debt
Recommendations: Buy a home for $250,000 to $350,000. For a new home, look for builders offering incentives to buyers. Jessica should increase her monthly income from teaching dance from $300 to $1,000. Consider canceling $83-a-month “dreaded disease” insurance policy for cancer. Open college savings accounts for each child. Move retirement savings away from insurance company and into a regular investment firm. Put $2,000 in credit card debt onto a new no-interest card.
About the planner: Victoria Collins is a certified financial planner with Keller Group in Irvine. For five consecutive years, Worth magazine has named her one of the top 250 planners in the country.
