When one, plus one, makes one: Michael and Regina Haney are working together on their finances for the first time - Family Finances

Black Enterprise, Oct, 2003 by Carolyn M. Brown

THIRTY-ONE-YEAR-OLD MICHAEL HANEY KNOWS WHAT he wants--to be a millionaire by age 60. He has looked at various ratios in meeting his goal to become debt free at age 40 and to amass half a million dollars by age 50. However, Haney's goals may be a little ambitious. Even with the potential appreciation on a home in Reading, Pennsylvania (appraised market value of $186,000), Haney would need to invest $1,000 a month to reach $570,000 in 20 years and $1.4 million in 30 years (calculations assume an 8% return compounded monthly). At the rate he's going, investing a little over $250 a month, he can expect to accumulate roughly $352,000 by the time he is ready for retirement.

Haney, an analyst for an industrial battery firm, pulls down an annual gross salary of $40,000, while his wife, Regina, earns $35,000 working as a hair stylist at a local salon. After four years of marriage, the Haneys, who have two sons (Javar Colon, 10, and Christian, 3), have only recently begun to work together to save for their retirement and their sons' college education. Michael has a 401(k) plan at work worth about $5,000, to which he is contributing 7% of his pay, and Regina has a profit-sharing plan worth about $8,500, to which she kicks in about $80 a month. The couple also set aside $50 biweekly in a 529 college savings plan, valued at about $2,000.

Alter giving birth to their second child, the Haneys realized they needed extra space. So, they sold their home and had a four-bedroom home built from the ground up. "We enrolled in a credit monitoring program where we received advice on our personal credit scores, who's looking at them, and how we could improve our scores," Michael says. (Mortgage lenders look at credit or FICA scores. which range from 300 to 900 points with anything trader 620 considered a poor credit risk). The couple worked hard to save up the down payment, 15%, on the new home. To help with the down payment and pay down some debts, Michael borrowed money from his 401(k) plan. Michael used the proceeds from the sale of his first home to accelerate some debt payments, putting $5,000 toward his student loan and $3,000 toward the car note on his 1996 Lexus.

The Haneys segregate their finances, meaning they have separate checking and savings accounts. Part of the reason is that Regina, 29, has bad memories of the financial challenges during her first marriage. Now the couple is learning to work on setting a reachable goal for their retirement, together, not apart.

THE ADVICE

The Haneys need to be very conscious of their spending habits in order to meet their 10-, 20-, and 30-year financial goals and to expedite the process of accumulating wealth. Otherwise, they will have a cash shortfall come time to retire, cautions Walt Clark, president and CEO, Clark Capital Management in Baltimore. We had Clark consult with the Haneys.

"After discussing the projections he's using, and, taking the appreciation of their home, out of the equation, it would be somewhat difficult to reach his goal at his Current rate of investing, says Clark. There are things, however, that the Haneys can do to improve their economic outlook.

The couple should establish a five or even three-year time frame as to how long they will cut back on outside expenses. They need to make some lifestyle changes, such as going from leasing a car to owning a car. Every three years, Regina leases a new car, which costs $1,000 each time she makes the swap. She is paying $440 a month on a 2003 Toyota 4Runner, but Clark says she would save money in the long run if she eliminated the leasing option and bought a car outright.

* PAY OFF DEBT

The Haneys need to do some consolidating. The couple refinanced their $141,000 30-year mortgage, from 6.75% to 5.38% interest. It would behoove the couple to get a home equity loan. Any interest they incur will be tax deductible. Rates are currently around 4.5%, but after the tax deduction it is really 2.8%. Taking the money from the home equity loan, the couple should consolidate his $6,000 car loan at 10% interest and $339 monthly payment, his $,4,700 credit, card debt at 9% (after the 0% introductory APR expires), his $6,000 student loan at 8% and her $8,000 in debt on three credit cards averaging 12% interest. This way, they could reduce their debt from roughly $500 to $300 in total monthly payments.

* MAXIMIZE INCOME

Clark suggests Michael take the savings and begin investing $150 in his mutual fund, the T. Rowe Price Capital Appreciation, Fund, and $150 in the 529 college savings plan. Moreover, Michael should bump up his 401(k) contribution to 15% of his salary(or the max). Roughly half of the money in his 401(k) is invested in an S&P 500 index fund and the other half is in a balanced hind. Clark recommends keeping the S&P 500 fund but switching the other to a mid cap or large cap growth fund, a more aggressive option that's appropriate for his age and the number of years he has left before retirement, Regina currently is investing in a growth and income fund. Since she is relatively young, she should be more growth oriented and get out of the fixed-income end. Clark recommends she switch to a large cap growth fund, because of the upside potential in growth mutual funds.