Dashiell and Marya Talbot thought that their most pressing financial problem was the five-figure student loan debt that seemed to make home buying an impossibility. Then they learned that Marya was pregnant.
The Los Angeles couple, both in their 30s, suddenly had a lot more doubt about their plans. Should they dip into savings to get rid of their debt? And were there things the Talbots — he's a lawyer, she's a costumer — hadn't considered yet?
"It seems like the student loan debt is going to be with you for life," said Dashiell Talbot, who prefers the name Dash. "We don't think of ourselves as financially savvy. We're not sure what to do."
Marya, who is also a fashion stylist, is concerned that she may have to go back to work sooner than she wants once the baby arrives in August.
"In a perfect world, I would love the option of staying home," she said, "but I don't think that is the world we are living in with our generation. I don't think that's reality."
Fee-only certified financial planner Donald Hance said the uncertain feeling was common among healthy thirtysomething clients who can be so focused on a debt that they don't consider the broad picture.
"Now that they have another person coming along who is going to be depending on their income, there is a lot they need to do," said Hance, president of Glenmore Financial Inc. in Pacific Palisades.
"They're young. They're healthy, so they're not thinking about the things they need to have in place in the unlikely event that something happens to one or both of them."
Hance said that the good news was the couple didn't seem to have bad money habits. Aside from the $80,000 they owe on Dash's law school loans, for example, they have no debt.
They've also managed to eliminate $20,000 of Dash's student loan debt and all of the $15,000 Marya owed on her student loans.
"We had the letter saying we had a zero balance on the refrigerator for a while," Marya said. "We were pretty proud of it."
The Talbots have been frugal. When Dash, 33, needed a new car, he bought a Mercedes-Benz, but it was 13 years old and he paid $11,000 in cash for it.
A fun day of shopping for Marya, 35, is hunting for bargains at estate sales and high-end thrift shops. The mother-to-be has a talented eye from her work as a costumer primarily for music videos and commercials.
After growing up in San Francisco and finishing high school, Dash opened up his own business, Redwood Coast Painting, to help defray the cost of attending UC Santa Cruz and the University of San Francisco law school.
He worked days, with five to 10 employees, painting San Francisco's signature Victorian homes, then attended law school at night. Sometimes, there wasn't time to change clothes.
"I'd show up in class with paint on my pants," Dash recalled. "I enjoyed it. I like the physical stuff."
Marya attended college at the New School for Social Research in New York, but she was familiar with the legal crowd from work with the district attorney's office in San Francisco.
She met Dash at a friend's birthday party. The two married five years ago and moved to Los Angeles to lower their living expenses.
Dash uses his legal training on behalf of some of Los Angeles County's neediest and most vulnerable as an attorney for the nonprofit Children's Law Center of Los Angeles. He represents foster care children who have been abused, neglected or abandoned.
It's difficult, stressful work, but there have been moments of joy, such as the time he helped seven siblings get adopted by the same family rather than be scattered among several households.
"Ideally I would stay in this line of work forever," Dash said. "I enjoy it that much. You get to apply many different aspects of the law. It's never boring."
Dash makes about $58,500, including a $600 annual stipend for his health insurance. Marya has averaged about $25,000 a year.
Until recently, the Talbots had resolved to live off of Dash's salary and throw whatever Marya made into savings or debt payments.
The couple have created a decent nest egg with $35,000 in savings, $5,000 in a mutual fund and $11,000 in Dash's 403(b) retirement account.
But Dash has been paying off his eight student loans at such a fast rate — $800 to $1,000 a month — that there is little left over for additional savings, much less a down payment for a home.
"We're basically breaking even every month," Dash said.
The catalyst for the Talbots' current concern is the coming baby. Getting Marya and the baby on his health insurance policy during the next open enrollment, in June, will raise his premium from $360 a month to more than $1,200 a month.
Hance suggested staying with the policy through the child's birth since it covers everything.
Afterward, Hance said, the Talbots should search for less expensive, and separate, health insurance for Marya and the baby through the Covered California health exchange, created under the Affordable Care Act, also known as Obamacare.
On the debt front, Dash is hoping to benefit down the line from the federal Public Service Loan Forgiveness Program, designed to zero out loan amounts in exchange for work with the disadvantaged. He needs to make several more months of payments to qualify.
Hance suggested the Talbots focus on paying off the two student loans with the highest interest rates: one $7,000 loan and another for $13,000, both at 6.8%.
After that, Hance said the Talbots should work with their lenders to re-amortize the remaining loans, which have interest rates of around 4.5%, over 20 years.
That would cut monthly payments to less than $400 a month, leaving room to accumulate more savings and pay for higher healthcare costs.
"Bringing your student loan payment down is important," Hance said, "because it will make it easier to qualify for a home loan."
Once Dash manages to lower his loan payments, Hance wants the couple to save more to build up a down payment and to bolster their retirement cushion. Saving for the baby's college fund can wait a few years, he said, and then they should investigate tax-advantaged 529 plans.
Hance said it was also time to protect the Talbots' new family.
Hance suggested Dash take advantage of the $40,000 in life insurance and disability coverage available through his job.
"Life insurance is definitely something to add," Hance said. "A minimum of $500,000 of term life insurance for Dash, but ideally $1 million would be best because that would cover more of his earnings capacity over the next several years."
Hance said Marya should also have life insurance of about $250,000 for at least 10 years.
Liability insurance and an umbrella coverage policy would also be a good idea, Hance said, to "avoid the kind of problem that can trip up all of your financial plans."
Hance added, "If some freak accident happens and the person goes after you, the lawyers for the insurance company will fight that battle for you instead of you having to."
Hance said the Talbots also needed to set up estate plans, including simple wills and durable and medical powers of attorney.
"You want to have that so that you can talk to the doctor on the other person's behalf if they are unable to speak for themselves," Hance said.
The Talbots were also advised to start thinking about who their child's guardian would be if something happened to both of them.
"Give some careful thought to it, let the person or persons know," Hance said. "You probably should put that in writing and give the people you have chosen as guardians a copy of it. A will can do that."
Lastly, Hance wanted the Talbots to consider ways that they can earn more money in the future to maximize what he called "their human capital" — in essence, their ability to earn more.
Hance said it might involve more education, on-the-job training, coaching or taking a second job.
"Increasing your human capital by 1% is far better than increasing by 1% the return on your investments," he said.
Hance also praised the young couple's restrained spending habits.
"Other people want the fancy car now, are living well beyond their means," Hance said. "You're doing it exactly the right way. You have a lot of potential to be very successful financially."
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