It’s Time for Couple to Slow Down Goals

Kirstin Pesola, 22, and Brendan McEachern, 25, are in a big hurry.

While most people their age are still trying to figure out what to be when they grow up, this Los Angeles couple is in a race to see whether they can buy a house before they start a family--most probably within a year.

“I’ve always known family was going to be most important to me, not my job,” said Pesola, a graduate student in the English department at Loyola Marymount University. “Staying at home would be ideal.”

But Pesola’s teaching fellowship pays just $20,000 per year, $3,000 of which goes right back to the university to cover her tuition costs. McEachern (pronounced mc-ECK-ren) is an assistant manager of worldwide DVD menus at Columbia TriStar Home Entertainment--a division of Sony Pictures Entertainment--where he makes $45,000 a year.

That’s a good start, but their bottom line is bleak. Together they owe $33,000 in college loans, and the only resources available for a down payment are invested in the stock market--worth about half what they were when purchased as a wedding gift last year.

Charlie Zieky, a CPA and investment advisor at GLT Wealth Advisors in Encinitas, Calif., has two words of advice for this do-it-now couple: Slow down.

“You’re addressing this process early and that’s great,” she said, “but your resources are the most limited they’ll ever be for the rest of your married life.”

Couple Got an Early Start on Life Together

Pesola and McEachern have done everything early--including falling in love with each other. Pesola was a high school senior and McEachern a junior at Syracuse University in New York when they met at the Massachusetts ice cream parlor where they had summer jobs.

After two years of long-distance dating, Pesola transferred from Elon College in North Carolina to Loyola Marymount to be near McEachern, who was studying film at USC.

The move was costly for both. Pesola’s parents asked her to make up the difference between LMU and Elon’s costs, forcing her to borrow money. And McEachern quickly discovered that USC’s graduate program was a retread of his work at Syracuse’s S.I. Newhouse School of Public Communications. He dropped out, but not before adding $14,000 to his $10,000 in school loans.

Pesola and McEachern were married a year ago and immediately felt as though f they were falling behind in achieving their goals.

“We are sick of paying rent that goes nowhere,” said Pesola of their $1,100 two-bedroom apartment near Los Angeles International Airport. “I know that with our combined salaries we can afford a $200,000 house, but you can’t get that here.”

It doesn’t help that the $10,000 the couple received as a wedding gift is invested in tech-heavy mutual funds that have lost half their value. Although real estate prices have eased a bit where they’re hunting for a house in the Valley, a home there is still beyond their means, and the couple isn’t willing to commute any farther than that.

Reluctantly, Pesola and McEachern are considering moving back home to Massachusetts to find a community with affordable housing.

Zieky’s first order of business was to ask the couple to stop racing ahead and focus on a few basics.

“A financial plan is like a staircase, and each step helps to build a foundation that supports the next step,” she said.

The first of these steps is renters insurance to protect McEachern’s comic book and antique toy collections--together valued at $35,000.

And before the couple can begin to plan for a baby and a white picket fence, they need to amass an emergency fund--or, as Zieky prefers to call it, a contingency fund.

“This money means that if something happens you’re prepared, so it isn’t an emergency,” she said.

An emergency fund could be particularly useful for McEachern, considering the possibility of an actors strike, which could disrupt the flow of DVDs into his division. Still, he is unconcerned.

“We have [enough] workload to carry me for a year now,” he said.

A well-stocked contingency fund also is important for Pesola and McEachern because both of their goals--house and baby--are short-term, yet they have no cash in short-term investment vehicles such as a money market fund or certificate of deposit.

Aside from the decimated mutual funds, the couple recently put $2,700 in individual stocks, now worth $2,900.

“The stock market isn’t the place for money you’ll need in three to five years or less, but I wouldn’t recommend you sell now while the market is down,” the planner said.

To complicate matters, the mutual fund shares are so-called B shares that levy a deferred sales charge if the couple sells them in the next six years.

Because their individual stocks have recovered a bit recently, the couple might consider selling them to jump-start their contingency fund.

But the most Pesola and McEachern can do with the tech mutual funds is shift the money around within the current fund families, incurring losses but not triggering the surrender penalties.

“You need a portfolio that’s a whole lot more conservative than you’ve got,” Zieky said.

Pesola and McEachern should start putting any new savings into a money market fund. That will cover emergencies and eventually serve as money for the down payment on a home.

After allotting $1,100 a month in rent and $2,100 for expenses and entertainment, Zieky calculated that the couple can put aside $650 a month.

Need for Flexibility Outweighs Loans

While building their savings, McEachern and Pesola should try to retire their school loans early.

“Those loans are on your back in terms of qualifying for a home loan, and they make it harder for Kirstin to stay home when you have children,” Zieky said. “I’m treating the school loans as if they were credit card debt--once they’ve been paid off, you have the flexibility to live on one income sooner.”

Planners often recommend that cash-strapped couples not speed up repaying school loans because the financial advantages usually don’t outweigh the disadvantages.

However, Zieky said the strategy makes sense for this couple because Pesola may quit school once they start a family--and they need the financial flexibility that paying off the loans early would give them.

If Pesola and McEachern put any salary increases into savings, in four years the couple should have more than $40,000 for a 20% down payment on a $200,000 home and a mortgage that McEachern can handle on his own.

By then, the former Easterners could once again be Easterners, where it’s possible to find a nice house in that price range.

“That leaves you with mortgage expenses that are roughly the same as your current rent,” explained Zieky.

But characteristically, the idea of postponing one of their goals rankled the couple.

“People say that we’re doing well, so when a professional says four years is the earliest you can get a moderately priced home it’s somewhat unsettling,” McEachern said.

“I’ll be 26 and Brendan will be 30,” Pesola said. “I see the planner’s point that the more we have for a down payment and the less debt the better it’ll be, but I don’t like it.”

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Stephanie Losee is a regular contributor to The Times.

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(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

This Week’s Make-Over

* Subjects: Kirstin Pesola, 22, and Brendan McEachern, 25

* Gross annual income: $65,000

* Financial goals: To buy a home and start a family in the next year

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Current Portfolio

* Retirement account: $500 in Spartan U.S. Equity Index fund

* Mutual Funds: $5,500 in Federated Communications Technology, MFS Global Telecommunications, SunAmerica Focused TechNet, Fidelity Advisor Technology and Van Kampen Technology

* Other assets: $20,000 equity in a 2000 Toyota Echo and a 2000 Hyundai Elantra; comic book and antique toy collections valued at $35,000

* Debt: $33,000 in school loans

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Recommendations

* Open a money market account and direct $650 per month to emergency fund.

* Reduce emergency fund savings to $500 and increase school loan payments to $552 per month to retire loans in four years.

* Put pay raises in emergency fund. After it reaches $6,000 it will serve as a down payment for a home in four years or more.

* Pesola should continue to work after the first baby is born. After the couple buys a house, they can evaluate whether they can pay their bills without Pesola’s salary.

* Sell some of their technology mutual funds and diversify their portfolio by buying conservative funds in the same fund family to avoid surrender penalties.