A money manager helps paint a family financial portrait

August 28, 1993|By Sandra Crockett | Sandra Crockett,Staff Writer

Nick and Cheryl Bonacci own a home in a Maryland county where they are raising their two young children, Cole, 6, and Katie, 2 (they preferred not to disclose their city of residence because they are sharing sensitive information with The Sun). Nick does computer drafting and designing, and Cheryl is an acquisition specialist for the federal government.

They have a total household income of $54,656 (which includes the $2,100 Nick receives annually from the Navy Reserve and a $1,340 increase Cheryl received just weeks ago).

The Bonaccis have been paying a mortgage for about three years, have two car loans, are paying on charge accounts and spend almost $3,000 a year on medical care and insurance.

Mrs. Bonacci echoes the feelings of millions of Americans when she says, "It feels like we don't have any money left after paying the bills."

Recently, they sat down with financial planner Lee W. Warner, head of the the Warner Companies and president of the Baltimore Association for Financial Planning to work out a budget and agreed to let The Sun publish the results of his analysis of their expenditures.

Mr. Warner's suggestions for increasing their discretionary money included refinancing their mortgage. "By refinancing the mortgage and borrowing enough extra money to pay off the car loans you will be turning high-interest-rate car loans that are non-deductible items into lower interest-rate loans that are deductible. This will free up $400 each month that could be used for savings."

The couple should also pay off their credit cards and consider getting overdraft protection or a credit line on their checking account. The result would be ". . . peace of mind of having an emergency fund if you needed it without keeping excessive amounts of money in a 2 percent or 3 percent bank account in the event you might need it," Mr. Warner tells them.

They should consider increasing the deductible on homeowners and automobile insurance, he says.

By taking these steps and others, he says, the couple could dramatically increase their surplus cash. The couple's discretionary income should steadily increase over the five-year period. "By implementing these various suggestions, you should able to save almost $10,000 a year," Mr. Warner says using the amount they might be able to save after five years.

Even if you are not homeowners like the Bonaccis, there are two important lessons everyone can learn, Mr. Warner says. The first is to sit down and get a clear picture of where all your money is going. The second -- pay off the credit cards. "Credit card debt will kill you financially," he says.

Most of the extra surplus cash over the five years for the Bonaccis will come from refinancing the house and paying off credit cards and loans. The budget assumes that the couple will both work until retirement and assumes a cost-of-living salary increase of about 3 percent.

For instance, paying off credit cards and loans will free up $3,282 in 1994. Increases in salary for that year will add $2,187. That's $5,469 or $4,799 more in surplus cash than in the year 1993.

(But some of the added money is used to save for the children's college education and "normal" increases such as for food, utilities and clothing.)

The Bonaccis discovered there are no easy solutions. Mrs. Bonacci says that although the budget worked out for them assumed small salary increases "nothing is guaranteed these days."

However, meeting with the financial planner was a good beginning, she says.

"It was great that both of us sat down together and went over everything," she says after meeting with Mr. Warner.

And, she says with caution, she and her husband need more time to discuss Mr. Warner's recommendations before feeling confident that they are on the road toward accruing more discretionary income.

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