Mind Your Money: Experts Help This Texas Bound Couple Create A Plan For Retirement
Name: Gary P. and Stella-Amaka O.
Status: Married
Her occupation: Academic Dean
Her salary: $89,000
His occupation: Wedding photographer
His salary: $40,000
His age: 33
Her age: 35
Kids: 6 and 8-years old
Newlyweds Gary P. and Stella-Amaka O. are all about geeks and games. The Connecticut couple, who wed last month in a courthouse, is planning a more “formal” wedding ceremony in a Florida mansion with rooms dedicated to Scrabble, human bowling, and Pac-Man.
However, when it comes to their finances, Gary, owner of Live Long and Prosper (the name is a nod to Star Trek) wedding photography, and Stella-Amaka, an academic dean at a high school, say they are ready to stop playing around.
"We think of the big picture (when it comes to money) but the in-between details, no," Gary said. "We are very forgetful."
A bit of a bleeding heart, Stella-Amaka only wants to spend $200 per month buying food for hungry students and other supplies, but it's more like $300 per month. "I get paid every two weeks, (but) when I get to the end of that second week," said Stella-Amaka, who earns $89,000 a year. "It seems like my money disappears."
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Gary makes $40,000 after earning $100,000 in sales, but Stella-Amaka is handling most of the financial load. Gary is currently focused on investing and growing his wedding photography business, and he projects that it can earn $400,000 by 2024.
Stella-Amaka supports Gary's business decision. "It's part of our agreement," said Stella-Amaka, who pays the roughly $1,236 mortgage. In his past life, Gary worked in information technology, sometimes working two jobs, earning up to $150,000.
The couple wants to move to Austin, Texas, to be closer to her family and enjoy the area's social scene and robust real estate market. In addition, a lot of Gary's core clientele, couples who love themed weddings, are abundant. Stella-Amaka often shops at Goodwill for her clothes but splurged on a $900-wedding dress found at a sale at a bridal store that Gary discovered on Facebook for her.
Retirement planning is not the couple's strength. Stella-Amaka has a pension of about $19,000, and she hasn't enrolled in her school's 401(k). She is also considering using her pension funds to help purchase a property when they move to Texas, something that Gary doesn't want Stella-Amaka to do.
She has no credit card debt but she has student loans of about $60,000 to $65,000. Gary has about $5,000 in credit card debt and $30,000 to $40,000 in student loans. His emergency savings account has $4,000.
Given the expense, he's not pushing college on the kids, ages six and eight, but Stella-Amaka is a bit more college-friendly. However, she worries about meeting her financial goals. "We have this big plan, 'What are the steps that we can take... to make us stronger?'" she asked.
Couples, cash, and convos
Nicole Brown-Griffin, founder of Late Bloom Advising, says the couple has a lot of planning to do in Connecticut before moving to Texas.
Brown-Griffin said that married couples need to have a monthly "couples cash convo," Brown-Griffin said. If the couple are heavy spenders, meeting once a week may be in order, Brown-Griffin said.
"Take a Sunday afternoon, have a date night in with whatever beverage they like, wine, beer, hot chocolate, tea, and just hash it out," Brown-Griffin.
"Sometimes these conversations can get really heated, but we have to understand that the foundation is with love. We have to talk to each other slowly, calmly, and (we can't) let our emotions take control of us," Brown-Griffin said. "It's really us against the world, and we are working together to achieve our dreams."
Brown-Griffin also thinks that Gary shouldn't discard his IT career background. "He needs to make sure that he has his footprint somewhere on the industry's heartbeat still," Brown-Griffin said. Brown-Griffin advises that Stella-Amaka takes advantage of the retirement savings programs at her employer. Saving for college for the kids is good but saving for retirement is a priority.
"Students can borrow for college education, but we can't borrow for retirement," Brown-Griffin said.
In addition, not all children want to go to college. If money is put away in a 529 college savings plan and it is not used for qualified education expenses, any money withdrawn may face a 10-percent penalty, Brown-Griffin said.
Curtis Diaz, president of Great Blue Financial in Tampa, Fla., says a five-point-plan using the 70-20-10 rule may work for helping the big-picture couple focus on the details of a much-needed budget.
Seventy percent of income goes to everyday living expenses, 20 percent goes to investing, and 10 percent of their income goes to debt reduction, Diaz says.
For instance, if the couple earned $120,000 a year:
1. Evaluate their budget using 70-20-10 rule
a. 70% of income: everyday living expenses
i. $120,000 x 70% = $84,000 annually or $7,000 monthly
b. 20% of income: investing
i. $120,000 x 20% = $24,000 annually or $2,000 monthly
c. 10% of income: debt reduction
i. $120,000 x 10% = $12,000 annually or $1,000 monthly
2. Keep between 3-6 months worth of expenses saved in money market account
a. $7,000 x 3 = $21,000 kept in savings
b. $7,000 x 6 = $42,000 kept in savings
3. Save 15% of income in tax-advantaged retirement vehicles
a. $120,000 x 15% = $18,000 annually or $1,500 monthly
b. A financial advisor can help determine which of the following are most advantageous
i. 401(k) / 403(b)
ii. Individual Retirement Account, IRA, or Roth IRA
4. Save 5% of income in College Savings vehicles
a. $120,000 x 5% = $6,000 annually or $500 monthly
i. 529 college savings plan
1. If moving to Texas
a. Texas College Savings Plan
b. Lonestar 529 plan
5. Pay off debts using one of these two methods:
a. Snowball payment strategy: pay off lowest balances first, then larger balances
i. Typically more emotionally rewarding, as debt line items on the balance sheet will be removed more quickly
b. Avalanche payment strategy: pay off highest interest rate loans first, then lower interest rates
i. Typically an overall faster payoff method
