A plan to reduce debt, save for son's college

Helping a single mom align financial goals with her values

Your Money

May 07, 2006|By JANET KIDD STEWART | JANET KIDD STEWART,TRIBUNE MEDIA SERVICES

As a single mom working 60-hour weeks, Gloria Rocha is feeling the heat.

A recent promotion came with added work but no added salary, boosting her stress levels but doing nothing for the family budget. That budget already is badly stretched, as she carries more than $4,000 in credit-card debt and estimates she spends more than she makes in a year.

She wants to make sure her 14-year-old son, Joshua Septoski, can play hockey - a $2,800-a- season sport. And footing the bill for his college in a few years is a huge priority.

Add to that her desire to volunteer with more civic causes, and you have a pretty big set of challenges.

To help, Money Makeover reached out to certified financial planners George Miller and Deborah Wiggin of Miller, Wiggin & Associates Inc. in Fort Lauderdale, Fla. Miller and Wiggin are trained as life planners, a relatively new field in which the goal is to help clients align their financial goals with their beliefs and priorities.

The planners took 38-year-old Rocha of Aurora, Ill., through a series of questions and discussion points about the money stress in her life, then helped craft a financial plan to take her through Joshua's college years and toward retirement.

`Meaningful'

"I would like to show [Joshua] there is more to life than just working and worrying about what you don't have and want but can't have. I want to keep life simple but meaningful," Rocha told the team.

What emerged from those early discussions were two main priorities: providing for Joshua and advancing her career, possibly allowing her to move into a nonprofit organization in the future. For now, Rocha enjoys the challenges and the skills she's picking up on the new job, even though the hours are difficult.

She has volunteered for several community groups, including the Naperville, Ill., Jaycees.

To get a handle on her future earning potential, Wiggin reached out to a few colleagues in the nonprofit world.

"We talked to some nonprofits to get a sense of what's reasonable to expect in terms of salary if you made a move," Wiggin said.

The consensus was that Rocha could move into a nonprofit organization at a salary comparable to what she's making now as a project manager for an information technology consulting company.

Her annual job income is $57,000 and she receives interest and child-support payments for Joshua that brings the household income to a projected $64,435. Her projected expenses, though, are almost $5,000 more than that.

Even by cutting back on her clothing, gifts, miscellaneous and vacation expenses, however, Rocha's income won't be enough to knock out her credit-card debt of nearly $4,300, the planners said.

Low-interest account

They suggested Rocha look to replace her low-interest savings account with a money market account, possibly with an online banking institution. Those accounts are paying well above 3 percent these days, compared with her current rate of less than 1 percent.

To pay off the debt within a couple of years, they suggested she take $3,821 from savings this year to boost cash flow, which includes paying down $2,488 of the card debt this year.

They also recommended slashing company retirement plan contributions in half, to 3 percent of pay. This move and the dip into savings was something nobody, especially Rocha, relished.

"I really didn't want to lower the amount [contributed to the retirement plan], but they really emphasized getting rid of the debt," she said.

"I know she didn't want to touch her savings, but we have to eliminate that debt because the long-range negative potential of it is significant," Miller said.

Another big consideration is her new home, a single-family residence worth $266,287. On her own and in conversations with the planners, Rocha has been considering downsizing in a few years to help pay college costs.

`Peace of mind'

"We took Gloria's priorities to heart in creating this plan, including the idea of moving from a house to a condo," Wiggin said. "We came out with a plan that reflects somewhat less than the top colleges because that would complicate their lives and take away from Gloria's financial security. This isn't about spending the most money - it's more about peace of mind."

The planners factored a couple of years of community college into her financial plan, followed by a state public institution. They also encouraged mother and son to start researching grants, loans and scholarships, a process Rocha said she has begun.

They also planned for her to sell her home in 2010, using the proceeds to help pay for Joshua's college and to buy a condo for about $160,000 in today's dollars.

"We're making some tough short-term adjustments," Wiggin said, adding that the discomfort now will help ensure a more comfortable retirement down the road.

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