September 2000 marked the marriage of Arlene Matthews and Angelo Talley. Yet, as with most couples, the newlyweds failed to discuss one important matter before tying the knot: money management. Arlene jests that her initial thought was: “Oh boy, we have added income (mine and his). But I didn’t think or realize that meant also added debt. I didn’t take into consideration [what he owed].”
From Arlene’s perspective, there was a $5,000 car note, a $46,000 mortgage, $8,000 in credit card debt, and $3,000 a year in tuition for nursing school. (She recently entered a three-year program.) Angelo, in addition to the costs associated with raising his 14-year-old daughter, Ashli, who attends private school, owes the IRS $6,000 as a result of taking earned income tax credits (that were recently deemed ineligible) over the past five years. A good portion of the couple’s discretionary income goes toward accelerated debt payments. For instance, the Talleys are overpaying their mortgage and credit card balances. There’s also money they can’t account for because of wasteful spending, especially on food and miscellaneous items. “We are now trying to arrange our finances together,” says Arlene, 39.
The couple tapped out most of their savings, roughly $6,000, to fund their wedding and honeymoon. Angelo, 40, even worked for FedEx part-time for six months to save extra money for the nuptials. The Talleys have only begun, within the last two years, to contribute to employer-sponsored plans. Angelo, who works in facilities management for the University of Pennsylvania, in Philadelphia, has a 403(b) account valued at $600. Arlene, who recently changed jobs, now works as an administrative assistant at a university hospital in Philadelphia. Her new employer offers a 401(k), whereas previously she had a 403(b) account worth $1,682.22. Her pension from her previous employer is valued at a little more than $15,000.
Given an alarming shortage of nurses in the United States, Arlene anticipates her current $31,000 annual salary will jump to $40,000 or more once she graduates. Angelo is considering working part-time again to supplement his current $30,000 salary. In addition to funding their retirement, the couple’s biggest financial concern is Ashli, who will be college bound in four years.
Before saying “I do,” every couple ought to count the costs of marriage (see BE Guide to Family Finances, this issue). Much like attorneys preparing for a trial, couples who are engaged, or considering it, need to go through a discovery process–asking themselves what assets and liabilities will each bring into the marriage. BLACK ENTERPRISE had the Talleys present their case to Mark A. Mitchell, a registered advisor with AXA Financial Advisors in San Juan Capistrano, California.
Create a college savings plan. Although Ashli is a likely candidate for a merit scholarship, her parents should beef up contributions to their investment plans, which they can borrow against in the future for educational purposes. With a combination of plan contributions, company match, compounded interest, and earnings, they could accrue between $25,000 and $30,000 in savings in four years.
Set up a