Getting back on track - family financial planning - 1993 Money Management Guide - Cover Story

Black Enterprise, Oct, 1993 by Carolyn M. Brown

It was just 23 days after the 1989 San Francisco earthquake when Mary and Calvin Ransom moved into their first home on Oakland's east side. In fact, "we rushed over to the house a few weeks early to make sure there wasn't any extensive damage," Calvin recalls. Who could blame them, since their new neighborhood was roughly 15 miles from the Bay Bridge, whose collapsed upper deck, flashed on TV screens nationwide, had become a dramatic image of the earthquake's devastation.

The three-bedroom bungalow survived the quake, all right. But taking a look at the Ransom's finances, it's clear that their worries are hardly over: the house itself has them all shook up. Since they unpacked, it has been a virtual "money pit," eating up $15,000 in extensive renovations. Even so, the couple expects to spend another $8,000 on additional upgrades, including a new roof "We believe that the improvements will eventually make the home more salable," explains Mary.

Ordinarily, such home repairs might indeed be a smart move on the Ransoms' part, especially since both have backgrounds in architecture and home renovation. And if all

The ransom family must goes as planned, once they've fastened the last bolt, the Ransoms, both 40, estimate that the alterations will have vaulted the home's value to $169,000, nearly 50% more than their initial investment.

Play cacth-up in the race Frankly, though, the cost of remodeling has become a major financial strain. For one thing, the Ransoms and their two children are living off one paycheck. Calvin, who works in the Architectural Services Division of the City of Oakland's Office of Public Works,

For financial security. has a salary of $51,383. After the birth of the Ransoms' second child, Amadi, in 1989, Mary left her design position with the city to work full-time at ARC-3 Consultants, a drafting and design firm she set up in 1985. Unfortunately, business for her one-person practice, specializing in home remodeling and renovations, has earned only $5,000 to $13,000 annually.

Such circumstances make for a frugal lifestyle: Calvin spends modestly on his wardrobe; they can't afford to frequent pricey restaurants; and vacations outside the state are a rarity. Despite the sacrifices,the Ransoms are satisfied with their decision that Mary should stay at home, although it cut their comfortable $65,000 combined income (in 1987) by 15%. "I plan to spend as much time as I can with my children until they enter school full-time," explains Mary, who enjoys spending time with Asha, her five-year-old daughter, and three-year-old son, Amadi.

A close-knit bunch, the Ransoms eat dinner together every night - a true feat for today's modern family - precisely at six o'clock. Playtime is always a family affair, as are backyard cook-outs and camping trips. The downside to such parental bliss is that devoting most of her time to the kids has given Mary little time to nurture her business. ARC-draws 3 about 10 projects a year, so unless the Ransoms are willing to put more time into growing their fledgling firm,they will continue to be in a tight squeeze. At their age, and with two children, Calvin and Mary must play financial catch-up - and quickly.

They've already had one financial false start. Shortly after they were married back in 1985, the couple purchased two $100,000 variable life insurance policies from a relative. Four years later, with their second child on the way, they upped the values to $250,000. "But the policies never earned more than 8%," laments Calvin, even though that's a fairly typical rate for such products. Unfortunately, the Ransoms learned by trial and error: No one should buy insurance strictly as an investment or savings vehicle. Meanwhile, the family let Mary's policy lapse, since they were unable to afford the $100 monthly premium. Calvin's policy has been converted into a $250,000 term policy.

The couple, like most Americans, have bowed to the temptations of plastic. Right now, the Ransoms have decided to pay the minimum monthly balances on two Visas (at 15.7% and 14.7%, respectively). The result is a total tab of $4,062 - some of which went straight to the remodeling money pit. Other bills they can stay on top of include their $821 monthly mortgage payment, plus the $2,060 that Mary owes on loans from her graduate studies at the University of California at Berkeley (six years to go at 6%).

On the brighter side, their two cars are paid for (he has a 1985 GMC four-wheel drive truck; she drives a 1978 Datsun). Also working in their favor is the fact that the city of Oakland takes care of its own: Calvin's health benefits cover the entire family, with no deductions from his paycheck.

When it comes to investments and savings, however, the Ransoms come up painfully short. Calvin has a total of $225 deducted from each paycheck: he contributes $75 each pay period to his deferred compensation program at work, while another $75 gets deposited into his 4% employee credit union account. The other $75 goes toward paying off a $5,000 home improvement loan. The only retirement vehicles the couple has is an IRA (individual retirement accounts), into which they've placed just $344, as well as Calvin's city pension. Besides these minimal set-asides, the Ransom's sole investment is a handful of Series EE savings bonds, each valued at $219 (they won't reach their 3,000 face value for another 12 years, or when their first child enters college).