With three children ages 12 to 17, Ross and Michelle Meador are thinking about student debt.
They're worried not only about how to fund some 12 years' worth of college classes but also the $450,000 in loans that piled up while Michelle was training to be a dentist.
All of that wouldn't be such a concern for the Fullerton couple if Ross were still pulling down the salary of an attorney at a big law firm. But these days, he works for a small law firm helping new businesses get on their feet, work that disappeared fast in the latest downturn.
"For the last four or five years, we've really been living month to month," Ross said. "With my kind of job, it's not paycheck to paycheck, it's when the client decides to pay you and the next time they decide to pay you, and some of them do and some of them don't."
Carol Somoano, a fee-only financial planner, described the Meadors as "a household that is still recovering from the last recession."
"Criminal law and divorce law might be recession proof, but not the kind of law Ross practices," said Somoano, vice president of Asset Planning Inc. in Cypress, who reviewed the Meadors' finances.
Ross, 59, and Michelle, 44, have assets of nearly $1.4 million. But their debts top $1 million, including the student debt, a mortgage on a Berkeley home, a home equity line of credit and some credit card debt.
Ross Meador, who earned a law degree from the UC Berkeley in 1986, saw his income plummet from more than $123,000 in 2008 to less than $52,000 in 2009.
His practice has since recovered somewhat — he made $87,000 last year — but still trails the pre-recession days. The earnings also vary widely month to month.
"There are some good months where I will make over $20,000," he said, "and then some not so good when it can go down to $7,000. Many months, we've been behind."
Michelle was a dental hygienist in her native South Korea, and they met when Ross came in for a teeth-cleaning while he was working there for a U.S. law firm.
Ross jokingly says Michelle immediately met four of his most important criteria: "She was very cute, very smart. She flossed and she knew how to read a road map."
Michelle remembers that his command of the Korean language was about as bad as her English, yet they were able to communicate from the start.
"It was like we were able to read each other's minds," Michelle said.
Michelle has been eager to contribute to the household income now that the children are older and she has earned her dentistry degree. She has started working two days a week at a clinic where she is earning $500 a day.
"I would like to work for a nonprofit or for a community health clinic to hopefully qualify for loan forgiveness," Michelle said, referring to the Public Service Loan Forgiveness Program that is designed to reward those who keep their debt payments current and devote their time to public service.
Those seeking loan forgiveness must have made 120 monthly payments before they are eligible, according to the Education Department.
Another problem for the Meadors: Their efforts to whittle down debt have left them unable to build up savings for an emergency fund, which should equal three to six months of expenses.
There is considerable good news in the form of a windfall most people can only dream of, and making the most of it was one catalyst for seeking the aid of a financial advisor.
In 2012, exploratory drilling on Texas scrubland that had been in the Meador family for years, mainly used for camping and hunting, tapped into natural gas, Ross said. The first royalty check arrived in December of that year.
"It's been a godsend," he said.
The Meadors' monthly royalty check fluctuates but has been at least $4,700 and as high as $20,000. No one knows how long the natural gas will flow, but the family assumes it won't last forever.
With careful planning, Somoano said, and by using the natural gas royalties judiciously, "the Meadors can have a cash surplus of about $500 a month."
In Somoano's conservative plan, the royalty income averages about $10,000 a month through the end of 2019, then falls to $5,000 a month before ending in 2024.
Debt reduction should remain the immediate focus, Somoano said. The Meadors have already used the royalty money to reduce credit card debt to less than $25,000 from about $80,000. That should continue. "I want them paying off those credit cards by 2015," she said.
The family has maxed out a home equity line of credit — at about $240,000 — by using it as a kind of emergency fund. Changing that situation is an important next step.
"Once the credit cards are paid off," the planner said, "the Meadors should concentrate on two goals: reducing their HELOC debt and setting aside money to build a three-month to six-month emergency fund."
The Meadors need to look for ways to boost their income in case the natural gas peters out sooner than expected and to prepare for retirement, she said.
Somoano told Michelle to add to her work hours as soon as possible and advised Ross to consider returning to work for a larger law firm.
"Let other people handle the work of collecting on the legal debts owed to him," Somoano said. "He would also have more steady income, and his health insurance costs would be a lot cheaper. Right now, he is paying $2,000 a month out of pocket to cover his family."
Ross said he would be willing to consider such a change "if the right opportunity came along. It's nice having the freedom I have now, but there's a difference when you work for a big law firm, and that difference is at least $100,000 a year."
Michelle, who is 15 years younger than her husband, needs to start making contributions to a retirement account, beginning this year.
Ross said he considers his $345,000 in retirement savings inadequate, adding, "I haven't paid very much attention to where the money is invested."
Somoano agreed. She urged the couple to make the maximum contributions allowable to their individual retirement accounts to reduce their tax burden and ensure that they aren't completely reliant on Social Security in their later years.
Although their credit card bills and home equity loan suggest otherwise, Somoano said the Meadors don't appear to have an extravagant lifestyle. Family entertainment, for example, is frequently just a backyard cookout with Ross grilling some fish for dinner.
"We usually have dinner together, but it's very informal," Michelle said.
Somoano wants the Meadors to start logging their monthly spending as a way to make sure that they aren't spending in ways they don't recognize.
"This can be in Microsoft Excel, Quicken or something like an online service like Mint.com," Somoano said.
"If their spending is understated," she warned, "they may not be able to meet their retirement goals."
The Meadors would like to travel when they retire. "I haven't been back to Korea in eight years," Michelle said.
But the Meadors are concerned enough about their finances that retirement activities are a distant concern.
"Basically, I'm going to be paying for college from as early as next year until the day I die," Ross quipped.
The Meadors should have a trust drawn up by an attorney that includes a will with guardianship nominations for the children, Somoano said. The trust would help minimize taxes and efficiently transfer assets to beneficiaries.
Ross and Michelle should also get term life insurance policies of about $350,000 each, she said.
Another important asset for the family is a house in Berkeley that has been valued at about $1.1 million. The Meadors have been renting that house out at roughly the same amount as their mortgage. Meanwhile, they are living in a rented home in Fullerton. They moved to Southern California in 2010 so that Michelle could get her dental degree from Western University of Health Sciences in Pomona.
"Should we sell the house in Berkeley? Should we use that to buy a house here? Should we move back there?" Ross asked.
Not every issue in a financial plan can be solved quickly. Deciding what to do about the Berkeley house will require some soul-searching by the Meadors.
Selling is an option, for example, but the family would have to move back in and live there for two years at least, Somoano said, "to reestablish the house as a primary residence to avoid a big capital-gains tax when they sell it."
As for college, which is coming up fast for Amy, Leah and Daniel Meador, the parents should encourage their children to consider starting at community colleges and then transferring to four-year universities to finish their degrees.
"It's a relatively inexpensive way to allow them to figure out what they want to do with their lives," Somoano said, "while the family continues to get its finances back in order."