Also, refinancing would provide an opportunity to add Christopher’s name to the mortgage to increase his credit score. He says he hasn’t established much in the way of credit except for his student loans. “He would benefit from the timely payment of a debt that accounts for 35% of the FICO score,†says Johnson.
Get ready for an addition to the family. When they bust their budget now the ramifications are not that serious; however, when they have a family, the more they adhere to their budget the better off they will be. Johnson says they can use apps such as Check (formerly Pageonce) to keep a budget, or Mint.com. “Automate everything so the savings and debt payments happen before they see the money,†he advises.
Johnson estimates childcare costs in Indiana at $10,000 a year; having two children could mean they would need to tweak their goal of retiring between the ages of 60 and 65; living on one paycheck may not be feasible either. “Genevie said that family members may be available to watch their children. These arrangements should be discussed and cemented in advance of starting a family. Folks say one thing at the barbecue and change their minds later.†It also wouldn’t hurt to research alternatives, so they’ll know what to expect to pay should arrangements with family fall through.
Once they start a family they can reassess their budget and expenses. They can start saving for college with an account established under the Uniform Gift to Minors Act. Putting away $250 per child, per month should be affordable and would provide enough for them to subsidize their children’s education. The couple can transfer the money to an UGMA 529 plan before the child reaches the age of 17.
Manage risks. Genevie has disability coverage, but Christopher doesn’t. Because it costs less, he should ask about employer-sponsored disability insurance. If it’s not available, he should purchase a private policy.
The Joneses have sufficient life insurance, but Johnson says their whole life policies–they each have $150,000 at $155 a month–are expensive and unnecessary. They also have term polices. If they cancel their whole life policies, they will have to pay surrender charges that are in effect for about five years. However, Johnson recommends terminating the contract anyway unless the charges are exorbitant. They should also get an umbrella insurance policy in case they are sued. Johnson says umbrella insurance can be found for around $250 a year for a minimum $1 million policy.
Build a legacy. The couple is vulnerable in the area of estate planning. Johnson encourages them to draw up a will, a durable power of attorney, a healthcare power of attorney, and a living will.
“Christopher and Genevie aren’t the stereotypical young couple who buys first and asks questions later,†says Johnson. “They use debt responsibly and pay it back ahead of schedule. They are proof that the little things make the big things happen if you follow these five simple steps: go to school, work hard, live within your means, save money, and don’t do anything stupid.â€