Struggling with less

Your Money

November 04, 2007|By Janet Kidd Stewart | Janet Kidd Stewart,TRIBUNE MEDIA SERVICES

Layoffs and subsequent lower-paying jobs have taken a toll on Terri and Kevin Beirne of Orlando, Fla.

Four years ago, they both were laid off briefly within a few weeks of each other. They missed fewer than a month of paychecks, but their income took a big hit.

Her new job with another employer paid just 5 cents more per hour than what she would have received in unemployment benefits. His pay has progressively returned to his old rate, but several jobs later she makes about $8,300 less per year than she did before the layoff.

Now the couple has $16,791 in credit-card debt and combined car payments that nearly equal their $800 mortgage bill each month.

All told, their net worth, $70,969, is just a little more than one year's income for the couple, not a healthy number considering that he is just six years away from traditional retirement age.

"Because of the layoffs and some bad choices, we have huge debt," Terri Beirne wrote in a letter requesting a Money Makeover. "I feel like we are living on the edge. If either one of us becomes incapacitated, it will be financially devastating."

Like a lot of couples, they found it difficult to cut living expenses when their income fell, and they took refuge in credit cards. Then they compounded the problem last year by taking on two new cars with six-year loans, justifying the expense by reasoning that they both need reliable transportation for their commutes.

"I knew [the car purchase] was a bad deal walking out of the dealership," she said. But her 33-mile work and school commute convinced her to make the deal. She's an apprentice who is training to be a mechanic in the engineering department of a large company. When she finishes training in two years, she expects a 40 percent bump in pay.

In the meantime, the car purchases are the "elephant in the living room" of the couple's finances, said Phil Dyer, a financial planner with Dyer Financial Advisory in Towson, Md.

"The cars are depreciating faster than they are paying them off, so it's unlikely they'd be able to sell them for more than the loan amounts," he said.

Although their house payment as a percentage of this year's projected income is comfortably below the recommended 28 percent (it is under 15 percent), their other debt throws them into uncomfortable territory. After figuring in the two car payments and the amounts they have been paying on the credit-card bills, the couple's total debt service accounts for 40 percent of gross pay.

Even if they made minimum payments on their credit cards, the amount would account for just under 36 percent of gross pay, too high to make a budget work long term, Dyer said.

And those figures assume they each continue to work 40 hours per week the rest of this year to gross $64,800. Both are hourly workers, and Kevin Beirne, a production manager who builds displays for conventions and other events, said he sometimes sees work slow down in the final quarter of the year. She has more opportunities for picking up overtime hours, though her school schedule limits how much she can take on.

That means the couple is going to have to cut spending, work additional hours for the next couple of years until she graduates to a higher-paying job or both, said Dyer, who also serves as deputy director of financial education for the Military Officers Association of America.

"I realize you have already cut most extra spending, and that your financial problems are related more to dual job loss than financial irresponsibility, but redouble your efforts to find any extra money you can. Even $50 to $75 per month can be critical at this juncture," Dyer said.

"Review each and every expenditure and think about small things, like packing a lunch to work rather than buying one, avoiding expensive treats such as gourmet coffee and even switching to 2-liter bottles of soda instead of using cans or smaller bottles. While none of the individual savings will make or break you, sweating the little things can make a big difference."

The budget doesn't include much wiggle room for hobbies, such as Kevin Beirne's love of fixing up old cars. And for the past year, she's had extensive dental work, a portion of which isn't covered by insurance. Those expenses are mostly behind her, she said, but even small unexpected costs in the next couple of years would wreak havoc on their plan.

Seeking to help them get a handle on the task ahead, Dyer had the couple answer a series of questions about their life goals, their feelings about debt and their financial desires.

The exercise revealed her strong fears about the damage another financial setback would cause. It also sparked a discussion of the age difference between the two and how that complicates priorities.

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