Creative Agent Has Made Gains, but Must Curb Spending to Cut Losses

By JEANETTE MARANTOS

Oct. 3, 2000 12 AM PT

SPECIAL TO THE TIMES

At 31, Traci Miller is finally learning to be a big girl. Of course, it’s taken two children, a divorce and foreclosure, $35,000 in credit card debt and a college degree to get there.

“I guess I always have to take the hard road,” said Miller, who lives in Upland with her sons, Mitchell, 10, and Jacob, 8.

Miller’s hard road has paid off. After years of working dead-end jobs earning $20,000 to $30,000 a year and saving virtually nothing in the process, her college degree in organizational management helped her land a new job in January that doubled her annual salary to $60,000. Now, as a creative agent who finds jobs for print and Web artists, she can afford to put $460 a month in her 401(k) and $120 a month into passbook savings. Her goals are to buy a house and build a college fund for her sons.

But her increased salary allowed her ex-husband to cut his monthly child support payments from $700 to $200 this summer, about the same time Miller had to start paying nearly $600 a month on her $50,000 in student loans.

That double whammy has made her final hurdle toward full-fledged adulthood--living within a budget--all the more difficult. Her spending now exceeds her income by $500 a month and she’s filling the gap by regularly raiding her savings and pulling out her credit cards.

“I really hate money,” she said. “I love to spend it, but I hate looking at what goes out.”

Unfortunately, said financial planner Ann Egan, the best way for Miller to achieve her goals is to get serious about cutting her spending.

“It’s good that you’re saving, but right now, your future looks better than your present,” said Egan, who works with Vision Capital Advisors in Fountain Valley. “You have to focus on needs. And when it comes to wants, ask yourself, ‘Do I want this more than I want a college education for my kids?’ ”

After Marriage, Financial Problems

Miller’s financial problems began after she got married at the age of 20. Her husband always had plenty of cash in his pocket when they were dating, she said, but after marriage and two children within three years, money became a source of friction.

When they separated in 1994, they had $35,000 in credit card debt and neither could afford the $1,200-a-month mortgage on their home.

The bank foreclosed and the two considered bankruptcy, but decided to pay off their debts. They worked out a five-year payment plan with Consumer Credit Services in Upland. The final payment was made in August.

She moved in with her mother to save expenses, started weekend college courses and found a job that paid $30,000 a year. She was supposed to pay her mother $500 a month for living expenses, “but I honestly never did,” she says.

“I look at my bills and all I pay now, and I wonder, ‘Where did all that money go?’ ” she said. “I was making $30,000 a year, and buying clothes and shoes and going out to lunch all the time with my friends, and it just sort of sifted through my fingers.”

It took 14 months, but Miller finally woke up to the fact that she and her boys needed a place of their own. “I was reverting to being the child and not the mom,” she said. “It was time for me to stand on my own two feet. I needed to be a big girl.”

Egan said Miller has taken a big step toward securing her future by putting about 10% of her salary into a 401(k) every month. If she can continue that rate of saving, she’ll have about $1.7 million by the time she’s 65, assuming a conservative 8% growth on her money. Miller also was wise to put her 401(k) into two growth funds, Fidelity Blue Chip (ticker symbol: FBGRX) and Spartan U.S. Equity Index (FUSEX), which have averaged 23% and 19% returns respectively over the last 10 years.

Miller is also putting $25 a month into Oppenheimer’s Main Street Growth fund (OMSBX), which averaged about 17% growth over five years. Egan said Miller could leave her money there. But if she wants to avoid the fund’s 5% sales fee, she could switch to a no-load fund and probably find one with a higher return, such as Janus Growth & Income (JAGIX), which had an average five-year return of nearly 29%.

When her financial situation improves, Miller can increase her savings in that account. But before she does that, the planner said Miller needs to buy at least $250,000 in level term life insurance, to make sure her children’s expenses are covered in case she dies. At her age, it would cost her about $20 to $30 a month for 20 years.

Refinancing Loans Can Cut Expenses

But the most pressing issue for Miller is how to cut her spending. Egan recommended that Miller look at refinancing her student loans. Miller discovered she can pay the loans off over 25 years instead of five, thus reducing her biggest monthly payment from $500 to $320.

That was a nice start, but Miller is still overspending by more than $300 a month, Egan said. Right now, there’s no way she could afford even a modestly priced house--around $130,000--because the payments would exceed what she’s paying for rent right now.

Miller also owes a total of $1,700 on her three high-interest credit cards. She pays $50 a month on each card, and has just $80 remaining on one, which she plans to tear up once it’s paid off. Egan applauded that plan, but when Miller is down to two cards, she should still put $150 a month into paying off her debt--$100 on one and $50 on the other--until she’s down to one card. Then she can devote the entire $150 to paying it off.

Continue Putting Into 401(k), Evaluate Budget

In some situations, Egan said, she would recommend that people reduce or temporarily stop their 401(k) contributions until they have paid off high-interest debt such as credit cards, which often exceed the interest they’re receiving on their savings.

But in this case, Egan strongly believes that Miller should continue her $460-a-month 401(k) contributions because they reduce her taxes and because she can borrow from her 401(k) in the future to provide a down payment for a home.

Miller can borrow up to 50% of the money in her 401(k) for a down payment, and repay it over five years. Once she pays off her credit cards, Egan recommended that Miller put the $150 a month into her mutual fund to save for a house and college.

Miller’s most difficult task will be evaluating her budget, and deciding where she can cut back. Miller pays $750 a month for a two-bedroom townhouse in a nice part of Upland. Each month, her other mandatory expenses include $309 for a 1999 Honda Passport, $95 for car insurance, $350 for groceries and $400 for day care. But she’s also averaging about $180 a month for a housekeeper, $70 to get haircuts for herself and her boys, $150 for gifts, $150 for entertainment and $65 for craft supplies.

Miller agreed she can cut her spending in several areas, but she was adamant about hiring someone to clean her house. “I’d literally be working 24-7 if I didn’t have her,” Miller says. “I’ve gotten a lot of grief for having a housekeeper and I just have to say, ‘Sorry, but she’s the best money I spend every month.’ ”

“I hear you,” Egan responded. “This is a quality-of-life issue. You have to live with a certain amount of peace to make saving for the future something you even want to do.”

Difficult to defend was Miller’s decision to lease a 1999 Honda Passport. Egan recommended that Miller try to get a loan to do an early buyout of her car, and never get involved in a lease again. “I honestly feel people get trapped in the whole lease concept because they go from three-year lease to three-year lease and never own a car,” the planner said. “She’d have to buy a used car, but at least after three years she would have some equity.”

Finally, Miller needs to keep track of her spending and really cut back. She loves to give gifts, especially to family. For instance, she recently spent $200 on a birthday party for one son, and an additional $150 for presents. But to achieve her goals, Egan said Miller will have to be less generous and more careful about her spending.

“I suggest you take a picture of your kids in a mortar board and graduation gown and put it on your refrigerator. It will help you think in those terms. . . . ‘If I buy this now, what won’t I get later?’ ”

Jeanette Marantos is a regular contributor to The Times.

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This Week’s Make-Over

* Investor: Traci Miller, 31

* Profession: Creative agent for artists; works out of her home

* Annual income: $60,000

* Goals: Buy a house; save for her two children’s college education; curb her spending, which now exceeds her income.

Assets

* About $4,800 in a 401(k) invested in Fidelity Blue Chip (FBGRX) and Spartan U.S. Equity Index (FUSEX).

* About $580 invested in Oppenheimer Main Street Growth fund (OMSBX).

* About $300 in a savings account.

Liabilities

* About $50,000 in student loans