Two-Part Harmony
Jenny Oppenheimer and Dan Seta have been a couple for seven years. That’s long enough to discover each other’s idiosyncrasies. It’s long enough to finish each other’s sentences. But not quite long enough to learn how to master their finances.
With their wedding less than a month away, the couple decided it was time they sat down with a professional financial advisor.
“We aren’t doing well in our current track,” Seta said.
“We need help,” Oppenheimer agreed with a nod.
Although Judith Martindale, a fee-only certified financial planner based in San Luis Obispo, agreed that the couple needed a financial tuneup, she said that in general, she was pleasantly surprised by the state of their financial health.
Martindale said it’s particularly encouraging that Oppenheimer, 28, and Seta, 32, who grossed a combined $62,000 last year, recently began contributing to their firms’ 401(k) plans, which are tax-favored retirement savings programs offered by most major employers.
Oppenheimer, a musician manager with Bill Graham Management, is investing 5% of her pretax income in her 401(k). Seta, a part-time musician, is investing 7% of the salary from his day job as a computer network consultant.
Moreover, the couple are not burdened by debt. They pay off their credit card bills in full every month and do not have any outstanding student loans.
They say their secret is living within their means, along with a little value-minded shopping.
“I don’t mind spending money on really good things that will last forever,” Oppenheimer said. With clothes, for instance, “I don’t like to go to cheap stores and buy a bunch of trendy stuff, but you’re not going to find me at Prada, either.”
“This is all music to my ears,” Martindale said.
Nonetheless, the planner expressed some concerns.
Oppenheimer has $35,000 stashed in two money market funds. The money, a family gift from some years ago, has sat almost untouched because Oppenheimer has been wary of stock market risk. But having this much money parked in a low-returning, albeit safe, investment is robbing the couple of a chance at real long-term growth.
Ironically, though, Oppenheimer removed several thousand dollars from the account recently to invest in a new restaurant, Fred 62, in the trendy Los Feliz neighborhood of Los Angeles, where the couple now rent an apartment. Investing in a restaurant is far riskier than investing in stocks, Martindale told them.
Complicating matters is the fact that the couple have not seriously discussed how they will manage their finances once they’re married. Currently, they try to split expenses evenly, but they admit it’s not an exact science.
In fact, they don’t even have a joint checking account. Early in their relationship, Oppenheimer objected to combining their finances because of Seta’s admittedly haphazard approach to bookkeeping. But Seta finally changed his ways a few years back after a frantic attempt to cancel a lost check was stymied by his habit of not keeping anything approaching accurate checking account records. Since then, though, the two acknowledge that simple procrastination has kept them from making the move.
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Over time, they’ve both become more conscientious about the way they handle their money. Two years ago, they hired an accountant who pointed out some things they could be doing to save themselves some money. Now Seta takes the trouble to save his receipts and fill out a Schedule C form--to claim self-employment business expenses--on his federal income tax returns. The reason: He runs up considerable expenses for equipment and travel related to his job as a guitarist for his band Idaho. Last year, these expenditures allowed him to declare a deductible loss of $5,000.
This year, Seta has been spending less time on his music and more on computer consulting, from which he expects to gross $40,000 by year’s end. However, he’s beginning to investigate the possibility of freelancing in music full time, playing with other bands as a hired hand in studio sessions and on tours.
“It’s just a very recent development, and it’s kind of daunting,” Seta said. “I’m just sticking my toe in the water.”
But, Seta said, he won’t sign on as session guitarist unless he can earn at least as much as he’s grossing from his computer work. Oppenheimer, meanwhile, is also attempting to begin a second career as a music supervisor, selecting songs for film soundtracks.
Eventually, the couple said, they would like to leave Los Angeles and buy a home in the southeastern United States, using Oppenheimer’s savings as a down payment.
Still, they have not seriously contemplated the implications of one partner--Oppenheimer--coming into the marriage with significantly more resources than the other. What’s more, they’ve yet to even consider whether the money should remain in Oppenheimer’s name or if they should begin investing it jointly.
“I guess we’re weird because we never really think about these kind of things,” Oppenheimer said.
Seta said he was more concerned the money be invested advantageously than he was in whose name the funds were in. “I’m comfortable with it either way,” he said.
Victoria Collins, an Irvine-based financial planner and specialist in divorce issues, said that given that almost half of all marriages are legally dissolved, the couple would do well to come to an agreement about the money before their wedding day.
California is a community-property state. In a divorce, all assets acquired during the marriage are split equally. If Oppenheimer continues to keep the money in her own name, it would more than likely be considered her sole property, because it was acquired before the marriage. However, if she places it in both their names, it may be considered joint property and thus subject to division in the event of a divorce, Collins said.
“These are very difficult areas to address,” Collins said. “It’s easier to discuss what goes on in the bedroom than the bankbook.”
Not surprisingly, this isn’t an issue the couple care to contemplate.
“I really don’t foresee this ending any time. I mean, we’ve been together so long, and we really have a lot of respect for each other,” Oppenheimer said.
“And once you plan a wedding and go through all the effort, you certainly don’t want it to end,” Seta said with a laugh.
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Regardless of what the couple decide to do with their savings, Martindale said, she urged them to set up a joint checking account for daily household expenses and to keep separate small checking or savings accounts. This will allow the couple to begin to manage their money jointly yet still maintain some financial independence.
“This way, if you’re buying a gift or a trinket for the other one, it can really be out of your own money rather than the house’s money,” Martindale pointed out.
A word of caution: Many couples who attempt this strategy forget to keep minimum amounts in each account and so end up paying excessive banking fees.
Martindale also suggested that, after they start merging their money, Oppenheimer and Seta earmark 10% of their available cash as emergency savings and keep it in a money market account, where they will have access to it quickly if needed.
In addition, the planner suggested that in the future, the couple might want to steer clear of investing in restaurants.
Oppenheimer said she chose to place money in Fred 62 because she believed Los Feliz badly needed a 24-hour restaurant. It wasn’t so much an investment decision as a vote of confidence in the neighborhood she loves. And, she said proudly, “it’s so refreshing when I drive by every day and see a line out the door.”
The planner reminded her, however, that half of all new restaurants fail within three years and that Oppenheimer should consider her culinary investment on a par with a hobby such as collecting stamps. “This just isn’t for the purpose of increasing your net worth,” Martindale told her.
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As for most of the money now in the two money market accounts, the planner recommended that Oppenheimer put $10,000 in Vanguard Index Trust 500 Portfolio (five-year average annual return: 19.3%) and $7,500 in Vanguard Index Trust Total Stock Market Portfolio (five-year average annual return: 18.6%). Both are mutual funds that invest in large-capitalization companies and offer a blend of growth and value stocks.
An additional $10,000 should be placed in Vanguard Index Trust Extended Market Portfolio (five-year average annual return: 18.4%), a fund that seeks to replicate the performance of the Wilshire 4,500 index, a list of the stocks of more than 5,000 small and medium-sized U.S. companies.
The remainder should be placed in Vanguard International Equity Index Fund European Portfolio (five-year average annual return: 16.7%), which is tied to the Morgan Stanley Capital International Europe index of more than 600 stocks in 13 European countries.
Index funds are what is known as passively managed. That is, instead of having a portfolio of stocks actively selected by a fund manager, they are structured to replicate the performance of an index--be it a standard blue-chip benchmark such as the Standard & Poor’s 500 or some other gauge, even a proprietary one. Index funds are particularly well-suited for novice investors who have neither the inclination nor the expertise to keep tabs on the many things that can affect an actively managed fund’s performance, such as investment strategy or management changes. In addition, index funds hold stocks for long periods of time, so they are tax-efficient, rarely passing through taxable capital gains to shareholders.
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As the couple approach the time to purchase a home, Martindale said, they should begin switching their money into more secure investments such as bond funds.
Because the couple are currently putting a nice chunk of their income into work-sponsored retirement investment plans that allow them to invest in aggressive-growth mutual funds--where Martindale suggests they direct all their 401(k) savings--she sees no reason for them to step up their retirement-savings rate given their current circumstances.
But it may be that they’ll want to start saving money outside their 401(k)s.
Oppenheimer and Seta are thinking that when they are ready to buy a house, they’ll be able to get one for less than $150,000 in North or South Carolina, where they hope to settle. If they do indeed keep to this plan, Oppenheimer’s savings will make for an adequate down payment. If, however, they decide to purchase a home in the high-cost Los Angeles region instead, it’s likely they would have to have significantly more money.
Beth Kobliner, author of “Get a Financial Life: Personal Finance in Your Twenties and Thirties,” suggests that couples like Oppenheimer and Seta meet with a bank lending officer to determine what kind of mortgage they could expect if they bought a house now.
“It gives you a realistic sense of what you can afford on your income and what your goal could be,” Kobliner said.
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Helaine Olen is a Los Angeles-based freelance writer. She can be reached on the Internet at holen@AOL.com. To participate in Money Make-Over, send your name, age, phone number, income, assets and financial goals to Money Make-Over, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053.
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Meet the Planner
Judith Martindale is a certified financial planner and a registered financial advisor in San Luis Obispo. She is co-author of “52 Simple Ways to Manage Your Money” and “A Woman’s Guide to Retirement Planning.” She specializes in advising middle-income families and in divorce planning.
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This Week’s Make-Over
* Investors: Jenny Oppenheimer and Dan Seta
* Ages: 28 and 32
* Occupations: Oppenheimer is an artist manager in the music industry; Seta is a computer network consultant and rock musician.
* Gross annual incomes: Oppenheimer grosses $34,500; Seta last year grossed $27,500 and expects to earn $40,000 this year.
* Financial goals: Organize finances
Current Portfolio
* Oppenheimer: $35,000 divided between two money market funds; $1,000 in a 401(k) invested in a mutual fund; $1,100 in an individual retirement account invested in Oppenheimer Main Street Income and Growth Fund; a few thousand dollars invested in a restaurant.
* Seta: $5,000 in checking and savings accounts; $3,000 in a 401(k) invested in a mix of mutual funds.
Recommendations
* Consider setting up a joint checking account and keeping separate checking or savings accounts.
* Keep 10% of available cash in a money market account as an emergency reserve.
* Put rest of money that is now in Oppenheimer’s two money market accounts into a diversified mix of mutual funds. 401(k) money should be invested in aggressive-growth mutual funds.
Recommended Mutual Fund Purchases
* Vanguard Index Trust 500 Portfolio (800) 662-7447
* Vanguard Index Trust Extended Market Portfolio
* Vanguard Index Trust Total Stock Market Portfolio
* Vanguard International Equity Index Fund European Portfolio
