NEW YORK (CNNfn) - They'd stopped their paddling trip on Sparks Lake for something to eat. So Rose Kapps thought Doug Jones was offering her a granola bar when he reached into his hip pack.|
Then she saw the box. "Rose Kapps, will you marry me?" he asked.
That Sunday, Oct. 8, she said yes. Only not immediately.
"I was crying, so I didn't say yes right away," Kapps recalled. "I kind of stuttered, like, 'Oh my god.' I am totally in love with him."
Kapps and Jones met in Bend, Ore., where they both still live.
Jones, 36, got a promotion last year that meant his salary went up 60 percent. "Yahoo!" he says. He supervises the vocational-educational programs for the Bend school district.
As soon as he got his raise, he doubled his 403(b) retirement contribution to $500 a month. "Is this enough?" he asks. He is putting all his new money in the American Funds' New Perspective fund (ANWPX) and has the balance in two big-cap funds.
Looking for a career move
Kapps, 26, has been working in the front office of a condo resort that rents out weekend places. But she only makes $8 an hour. On Nov. 1, she'll take a new job as a headhunter for a technology-recruiting company.
"At this current job, I can't make all my payments and my rent every month," she said. She has a roommate who lets her $350 rent slide but she'll repay that debt when she has a new job. She expects headhunting to pay $40,000, with commissions.
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Kapps was working with a friend to get a dot.com off the ground. The idea seemed good - managing Web sites for construction projects, so contractors could share schemes and data. But the business struggled.
After putting in $15,000 for an equity stake, Kapps left. She's still friends with the founder, but she wasn't getting paid and had to move on.
Jones wants to make sure they get off to the right start as a couple. He had a previous marriage that ended in divorce, and finances were an issue.
More than anything, though, he figures a lot is in flux. He has a raise, she has a new job - and they both have a wedding coming up.
"We are both in a state of change with our income and finances," Jones says.
What the planners say:
Money is often the cause of marital discord, Jon Duncan, a certified financial planner in Tacoma, Wash., points out. Building a sound foundation would help with the stressful issues likely to arise if they start a family.
Duncan refers them to the book The Millionaire Next Door, by Thomas J. Stanley and William D. Danko. The authors have a rule of thumb. Take your age. Multiply by your pretax annual household income. Divide by 10. That's what your net worth should be.
Jones and Kapps are far behind. Duncan estimates they'll have a net worth of $50,000 when they marry. Using Jones' income alone, he should be at $170,000, Duncan says.
Deal with expensive debt first
Both Duncan and Janet Tyler Johnson, a certified financial planner with Clifton Gunderson Financial Services in Madison, Wis., say Jones should use his raise to pay off the couple's more-expensive debt such as their $29,000 credit card balance.
Jones bought a house two years ago. He has a home equity loan of $13,000. Johnson likes that strategy to consolidate debt.
After Kapps and Jones marry, she encourages him to pay off all their credit cards that way. Home-equity loan interest will be tax-deductible, she notes, unlike credit-card debt.
If there's enough equity available, they should also use that to fund the truck Jones wants, Johnson says.
Duncan encourages the couple to "invest" $50 in software like Quicken or Microsoft Money to help them track spending.
"Then, when Doug and Rose settle into their new home together, they will be in a good position to adopt a realistic budget," he said.
His brokerage account is effectively margin
Jones opened an online brokerage account this year. He has around $3,500 split between Medtronic (MDT: Research, Estimates), PC Connection (PCCC: Research, Estimates) and SBC Communications (SBC: Research, Estimates). He wants to add to it.
"Don't do it," Duncan said. By continuing with credit-card debt while buying stock, Jones has effectively created his own margin account, the planner said. That's very expensive - credit-card rates are higher than margin rates. Margin - borrowing money to invest -- is a high-risk strategy that may not suit Jones either, Duncan continued.
"It makes no sense to take an after-tax dollar and buy stocks with it when the same dollar can be used to pay off credit-card debt," Duncan said.
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Kapps may want to bite the bullet and write off the loss in her friend's company, according to Duncan.
"While losses are never fun to take, they do have some tax benefits," the planner noted. She can offset the loss against capital gains and, if she nets a loss, could claim $3,000 in losses against regular income. She can roll other losses forward to future years.
But Duncan cautions that Kapps needs to have documentation of a genuine equity stake, rather than merely having paid her friend over time.
She should check with her lawyer or accountant and the tax law on writing off small-business losses, Duncan says.
The planners think Jones needs to address his fund allocation. He has almost all his retirement-plan money in large-cap stocks, they note.
"He may want to add some small-company growth and value exposure," Johnson says.
Some funds to consider
For small-cap growth, she likes the Reserve Small-Cap Growth fund (REGAX) and the RS Diversified Growth fund (RSDGX). For small-cap value, she picks the Third Avenue Value (TAVFX) and the Royce Low Priced Stock fund (RYLPX). Jones could consider Janus Enterprise (JAENX) for mid-cap growth, she said.
Duncan recommends the Managers Special Equity fund (MGSEX) for small-cap exposure. He thinks Jones should put 15 percent of his 403(b) there.
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Jones' choices are too conservative for Duncan. Duncan says large-cap exposure should be only 60 percent of his portfolio. The planner advises he split that 60-40 between the Growth Fund of America (AGTHX) and the Investment Company of America (AIVSX) funds, if he sticks with that family.
Duncan encourages Jones to roll over $23,500 he has in a plan with a prior employer into an IRA. He would get more flexibility with where to invest.
"Before doing so, however, he will want to make sure to check into custodial fees and other expenses, as not all IRAs are created equal," Duncan said.
Reviewing medical care
The planners think the couple needs to work on their other benefits. Kapps does not have health insurance in her condo job. Johnson suggests she talk to a health-insurance agent to get temporary coverage until her new employer covers her.
Once they're married, they need to review which spouse has the better medical plan, Duncan goes on. In particular, they need to examine the maternity and child benefits, he said.
Normally, it is cheaper for each spouse to use their own employer's plan. But maternal benefits, particularly, vary. Both spouses being on one plan may be worth it, Duncan says.
Stitches in time
Since Jones was married before, he should check the beneficiaries on his benefits. "It is not uncommon to find the former spouse still designated," Duncan said.
When they get married, Johnson recommends they overhaul their auto insurance and homeowner's insurance. They may qualify for discounts as a couple.
Because they're depending on Jones, he needs to make sure he has disability insurance and term life insurance, Johnson said.
"Often, a little tweaking in one's current financial picture can save thousands and thousands of dollars over time," Johnson concluded.
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