Maj. Frank Davis of Stockbridge, Georgia, knows what it’s like to sit in an airplane and see a missile soar by. He spent a year, from July 2003 to July 2004, in the Middle East, serving mostly in Kuwait with sporadic duty in Iraq.
Although the logistics staff officer is well aware of how much precision counts on the battlefield, he’s just learning how much tactical maneuvering is required to get his family’s finances together. There’s also a sense of urgency: Davis, 35, is scheduled to return to Iraq any time between February and April for six months or possibly a year.
“Everything is considered combat. It’s dangerous there,” says Davis, a bomb squad pro who disposes of explosives and figures out the logistics for getting troops their ammunition. “You never know what will happen. It’s hard to know who’s a good guy and who isn’t. You’re driving on the road and a vehicle pulls up–you don’t know their intent.”
The constant exposure to life threatening danger has changed Davis’ priorities. “I have a new appreciation for life and for my family,” he says.
The No. 1 priority for Davis is making sure his wife, Priscilla, 33, and daughters Jordyn, 9, and Xaria, 3, are taken care of should he not return home. The couple especially wants to ensure that their daughters have enough money to pay for college.
Reaching those goals will be a challenge. Davis is the sole breadwinner, earning roughly $84,000 a year. Priscilla is a stay-at-home mother who plans to attend Georgia Medical Institute, to study as a pharmacy technician, later this year. She will work part time and hopes to add $900 to $1,000 monthly to the family coffers. Perhaps the biggest obstacle is the couple’s debt. They owe $80,000 in car loans, credit card debt, and a personal loan. Though they have saved more than $5,000 for their children’s education and nearly $15,000 for retirement, they realize that’s not going to get the job done.
Clearly, the family’s debt load has hampered their ability to save. Davis lost a lot of financial ground during his divorce from his first wife; much of the $20,000 in credit card debt he carries is from his previous marriage, which includes bills from an extravagant wedding.
In recent years, the couple, who’ve been married five years, have nearly weaned themselves from credit cards, using them sparingly. Part of Davis’ $30,000 personal loan was used to pay off some of Priscilla’s car loan debt, her student loan, and home furnishings.
Davis says he isn’t feeling anxious about returning to Iraq, but he knows he’ll be in danger when he ships out again. He has a will in place, and there is a $250,000 life insurance policy on him and a $200,000 policy on Priscilla. Davis is only six years away from retiring with 20 years of service in the military, so he just wants to make it back home from Iraq, make it to retirement, and then launch his own security business.
When he returned to his four-bedroom home from Iraq last year, Davis explains, “We all had to do a reset, to get readjusted to each other.” There was some rough terrain, but he believes the family is back on track and they’re making amends financially, trying to work down debt and increase savings by accelerating payments on their mortgage and by cutting back on excessive toys and clothes for the girls, as well as CDs and movies.
As for the future, says Davis, “I’m optimistic. We’re not in a crisis; we pay our bills. We just want to do better.”
The Advice
To help the Davises map out their financial strategy, we paired them with David Hinson, president of Wealth Management Network in New York City. Here, he outlines a plan for them.
Cut spending and increase savings. According to Hinson, the Davises need to find a way to save at least an additional $1,100 a month. He says they should consider eliminating the $500 a month Priscilla receives as an allowance, cutting their cable and Internet bill by at least $30 a month, and reducing their mortgage payment acceleration. The family will be better able to reach that goal when Priscilla completes her pharmacy technician program and is working part time. All of her income, minus what she needs for traveling and other expenses associated with working, should go toward their savings. The $2,000 contest winnings should be applied to existing savings as well.
Given the couple’s investment time horizon and their need to build assets, they should have a well- diversified portfolio: 80% in stocks and 20% in bonds.
Sell the extra car. Currently the Davises own three cars. The ’97 Mitsubishi 3000 GT is mostly idle. Instead of letting it collect dust, they should sell the car and take the $10,000 they would likely get for it and apply it to their investments. “There’s no reason to keep unproductive assets,” says Hinson.
Maintain debt reduction level. With more than $80,000 in credit card and automobile debt, they are paying more than $14,000 a year to service that debt. However, Hinson is more concerned about asset growth.
“I would prefer a near-term debt repayment slowdown to more aggressively build assets,” advises Hinson. “Since the Davises are comfortable with paying debt as they have, they can maintain their level of reduction. Going forward, I recommend no new purchases outside of [their budgeted purchases] for three years. All excess cash flow should then go toward building assets.”
Increase life insurance coverage. Frank should increase his life insurance by $400,000. Doing so would only cost him $36 a month. Additionally, says Hinson, Davis should look into obtaining a rider on the family’s homeowner’s insurance policy to pay the full mortgage amount in the event of his death. “Such protection will be important to secure the family’s financial future if Frank is lost,” says Hinson.
Explore college assistance opportunities. The family is far behind in preparing for the children’s college expenses. As a member of the Armed Services and a combat veteran, Davis has access to loan and scholarship opportunities that are only available to those in the military. Prior to leaving for Iraq, Davis should work with his wife to build a file of information that outlines all the available education funding options through the military so she has the information at her fingertips. His daughters should borrow the maximum amount available to fund their education and their parents should agree to fund three to four years of principal and interest payments on the debt for the girls.
“This way, the couple will have an additional four years to build
assets while the girls are in college,” says Hinson. If they save $1,100 a month over the next 10 years and achieve a net 8% return on that money, they will have enough to cover 100% of in-state education for one child, says Hinson.Strive to earn more stripes before retirement. Based on a conservative analysis of retirement income, if Davis retires as a lieutenant colonel, his annual retirement income will be approximately $57,000, or approximately 67% of his current base income. This compares favorably to retiring as a major, where his expected retirement income is 59% of his current base income. To achieve this senior-level rank, Davis needs to develop a plan composed of relationship development/management and work performance.
“Frank should determine who the key two or three people are that will impact his confirmation as lieutenant colonel. He should assess his relationships with them and work to enhance those relationships, look at the performance and credentials of those confirmed as lieutenant colonel, and figure out what he needs to do to compete,” suggests Hinson.
Plan for future business now. It will take time to prepare for the launch of Davis’ security company. He should begin to study business with a focus on understanding how other companies in his industry became
successful. He should study the Pentagon procurement system and minority programs such as 8A and begin crafting a business plan.
“The Davises will do well because Frank is a disciplined man,” says Hinson. “His military training and discipline will propel them forward and help them reach their goals.”
Financial Snapshot: Frank & Priscilla Davis
|
HOUSEHOLD INCOME |
|
| Gross Income | $84,000 |
|
ASSETS |
|
| Market value of home | $175,000 |
| Checking account | 1,200 |
| Savings account | 5,200 |
| ShareBuilder account | 550 |
| Mutual funds | 8,200 |
| Mutual funds for children | 3,200 |
| Savings account for children | 700 |
| Education IRA | 1,700 |
| IRA (Priscilla) | 2,800 |
| IRA (Frank) | 2,717 |
| 1997 Mitsubishi 3000 GT* | 10,000 |
| 1998 Chevy Tahoe* | 12,000 |
| 2004 Jeep Grand Cherokee* | 33,000 |
| Total | $256,267 |
|
LIABILITIES |
|
| Mortgage | $168,500 |
| 98 Chevy Tahoe | 10,100 |
| 2004 Jeep Grand Cherokee | 20,900 |
| Frank’s personal loan | 30,000 |
| Credit cards | 20,000 |
| Total | $249,500 |
| NET WORTH | $6,767 |
*According to Kelley Blue Book.