I tell all of our clients that they are unique and special; however, Steve and Donna’s situation is one that we’re seeing so frequently in the gym lately, that I feel as though they are more the norm than a one-off scenario.
Steve is a retired cop who works part-time in a few jobs and Donna works for a school district here in NY. With all of their salaries, the combined annual household income is a little over $200,000. When you first hear this, you will probably wonder how they could have any financial challenges, after all, they earn significantly more than the national average annual salary for a couple which is about $140,000. However, they had a number of problems that continued to build over their ten years together that led them to reaching out to the Financial Gym for help.
Problem Number One – Children
As a mother of an 11-year-old son, I can attest that children are a blessing from God, but they are also what my dad likes to say “the death of your net worth.” Steve and Donna have three of these little net worth drainers and while I know they are beautiful and special and bring Steve and Donna great joy, I also know that it’s difficult to make rational decisions where money and kids are concerned.
Over the past eight years, the children have drained the family net worth through childcare, eating out when schedules are crazy, classes and other extracurricular interests, vacations and general maintenance needs like healthcare, clothing and supplie. The net worth drain is bad; however, what’s worse is the fact that Donna and Steve need to exert so much energy to work and take care of their kids that their focus on their money took a backseat.
We’ve seen many couples succeed financially while they’re still DINK’s; however, once kids come into the scenario, the finances start to go sideways and with each year and each kid, they just get worse if you don’t focus on them.
Problem Number Two – Credit Card Debt
While Steve and Donna were focusing on the family and just trying to get through a day, credit card debt began to amass. When we first met, they had around $39,000 in credit card debt with the average interest rate of 14%. The monthly payments alone on these made it difficult for them to save and get ahead.
Problem Number Three – Separate Bank Accounts
I understand why couples come into a relationship and want separate bank accounts; however, the most financially and personally satisfying relationships I see are the couples who have 100% joint finances. When you combine your money, you are truly committing to the team and a natural camaraderie forms.
When couples have separate accounts, especially when they have a number of household expenses and children, resentments begin to build. One person will think they contribute too much to the finances or another person will wonder where all of the other person’s money goes. When you have a joint account system, financial decisions are not only easier to make, but less questions will arise as far as how money is being managed.
Problem Number Four – Poor Previous Financial Advice
Thankfully when I asked Steve and Donna about life insurance, they both had it; however, Steve had the wrong kind. A few years back, Steve had been sold on the idea of a whole life insurance policy. There is a time and place for whole life policies; however, if you need a large death benefit as Steve does because he has a wife, three kids and a home, you won’t get it from whole life. He was paying $300 a month for only $300,000 in a death benefit.
This policy was not only eating into their monthly budget, but it also wasn’t giving them what they primarily needed from life insurance: a high death benefit.
Problem Number Five – Lack of Perspective
At the Financial Gym, we love working with couples like Steve and Donna because we have the opportunity to take puzzle pieces that make no sense and put them together into an actionable plan. As Steve and Donna shared all of their financial information, I could see the growing sense of fear and dread in them as they wondered if they would ever get out of the mess they created and achieve the financial goals they laid out.
Truthfully, while I heard all of the information, I began to panic a little myself. When you throw out puzzle pieces like that, it’s daunting to think about putting them together; however, once I sat down and started to organize the pieces as only a true outsider with perspective could do, I began to see the beauty of their puzzle.
The plan that I put together for Steve and Donna has them paying down their credit card debt in two months, lowering their monthly bills by close to $2,000 a month and shows them achieving their dream of adding onto their home in two years; and all it took was a little perspective.
If you feel stuck in your financial situation and can’t seem to figure out your puzzle pieces, I hope that you’ll reach out to someone or reach out to us. Sometimes an investment in the financial help and guidance you need will save you thousands of dollars and unnecessary stress from your life. Don’t let the problems continue to build, follow Steve and Donna’s lead and tackle them as soon as you can!