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Monday, Sep. 28, 1998
Couple needs to change spending habits to achieve goals
Adviser says income, job stability are solid, but budget is needed
By JEFFREY TOMICH
Staff WriterCraig and Leslie Shaffer want to save money for their children's college education and build a new home, but first they have to find room in their budget.
The Shaffers (not their real name) collectively earn $95,000 as teachers. Craig, 43, and Leslie, 37, live in Corpus Christi with their four children, including two from a previous marriage.
The Shaffers' only assets include two new automobiles, which aren't completely paid for, $5,000 in personal property and $200 in a checking account.
Their monthly automobile payments and rent gobble up about one-third of their take-home pay and they have no money left over for savings or investments.
Their financial goals are to be able to save $300 to $400 a month for their children's education and build a home. They want a financial planner's help with short-term and long-range planning.
W. Joe Wilson of Corpus Christi Financial Group analyzed their case. He is a certified financial planner, chartered life underwriter and chartered financial consultant.
Wilson says the Shaffers first need to take a close look at their budget and spending habits so they can find the money to make future plans. They currently consume most of their take-home pay, he said, ``So they have two choices: to make more money or spend less.''
Because the Shaffers have good jobs and probably make enough money to achieve their goals, they need to cut spending, Wilson said.
Examining the family's budget, he found several areas where the Shaffers could save money, including auto expenses, their telephone bill and dining out.
The Shaffers now spend $1,520 per month on two new automobiles plus the expenses to run them. Because these are after-tax expenses, Wilson said, the couple must earn $2,338 per month to pay income and payroll taxes and have the $1,520 left for the auto expenses.
``This amount is equal to 30 percent of their gross income,'' he said. ``They cannot afford to continue putting this much into auto expenses.''
Wilson suggests that the Shaffers look for an opportunity to trade in one of their large sport utility vehicles for a more fuel-efficient minivan.
Next, he said, they should cut down on their $400-per-month phone expense and the $100 per week the family spends eating out.
Wilson calculated that the Shaffers spend 16 percent of gross income on making phone calls and dining out. He estimates they could save $600 to $800 per month by cutting back on these expenses and putting the money toward their children's college education or building a home.
``(They) should still take their family out to eat, but maybe twice a month as a special treat instead of two or three times a week,'' Wilson said. ``They should still visit with family and friends on the phone, but cut that bill down to $200 per month instead of $400.
``These are small steps that require a bit of habit-changing, but can, when put together, make a big difference in their financial future.''
With their new monthly budget, Wilson advises that the Shaffers open a money market mutual fund and accumulate some cash reserves. This will keep them from borrowing to handle unforeseen expenses, he said.
They should also start 403(b) tax-sheltered accounts at their schools. The 403(b) plan allows the couple to put money into an investment/retirement account on a pre-tax basis.
Because they are in the 28 percent marginal tax bracket, it will only cost the Shaffers $432 per month out-of-pocket to save $600 a month in these plans, Wilson said. This is because they now report $600 per month less taxable income so they can reduce their tax withholding by 28 percent, or $168, per month.
Wilson said the Shaffers should look for a plan on their schools' approved list that is based on mutual funds with good loan administration. The loan provisions may be important as a way to help with college expenses, and then the loans can be paid back with additional payroll deductions, he said.
Once they have $3,000 to $4,000 in their money market account, they should re-evaluate the 403(b) plans' funding and consider either increasing those contributions or starting a regular investment account to complement the money market, he said.
Another investment account could be considered as a home down payment account or college funding account. At an 8 percent net rate of return, $200 per month will grow to about $15,000 in five years, he said.
The couple should also begin researching opportunities for scholarships and grants for their children's college education.
Wilson said the Shaffers shouldn't put money in their children's names, but should concentrate on building assets that will not count against college aid eligibility formulas. There are several good workbooks available to help with college fund planning and they should check the library to start their research, he said.
``(The Shaffers) have good incomes, job stability and a desire to be financially successful,'' Wilson said. ``With a little planning and budgeting, they can be well on their way to achieving their goals.''
He said they should consult a financial professional regarding other areas that make up a financial plan, such as insurance protection, status of their estate plan, employee benefit options and further guidance about budgeting and investing.
The Caller-Times is seeking people to share their financial situation with the newspaper's readers. Your name will not be used in a story and the financial planner's advice is free. Call Caller-Times business writer Jeffrey Tomich at 886-4316, e-mail him at tomichj@scripps.com or write him at P.O. Box 9136, Corpus Christi, Texas 78469.Post your comments about local news eventsFront Page || Main Index || News || Business || Texas || South Texas Outdoors || Birdwatching || Sports || Entertainment || Selena || Education || South Texas Attractions || World Wide Web