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Florida family looks ahead
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December 3, 2001: 11:56 a.m. ET
Scott and Tina Russell want a balanced financial plan.
By Annelena Lobb
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NEW YORK (CNN/Money) - Scott and Tina Russell are already familiar with juggling commitments. Scott has his own business appraising real estate, and Tina is a nurse. They try to alternate the days they work. In addition, both give lots of time to their church and other local ministries, not to mention taking care of their three kids. Dax, 13, is a computer guru; Blake, 12, is the family's biggest sports fan; and Shelby, 10, loves to read.
In their spare time, this Spring Hill, FL couple likes to read and tinker around the house - and if the kids aren't around, they have Tina's poodle, Shadow, for company.
The situation
Scott and Tina, both 37, plan their finances by using financial Web sites and participating in an investment club, but say they are still searching for the right balance to give their family "a chance at debt-free living."
Together, they bring in about $60,000 a year - Tina's annual salary is $20,000, and Scott's business brings in about $40,000 a year. Scott has life insurance valued at $100,000, and both contribute to retirement accounts. Scott's is a SIMPLE IRA (a special type of retirement plan for small business owners), to which he has contributed the maximum - $6,000 - each year. Tina's plan is a 401(k) through the hospital, to which she contributes $2,000 annually, also the maximum based on her salary.
They've avoided credit card debt entirely, but owe $188,000 on their house, valued at $200,000, financed with a VA loan at an 8 percent rate for 30 years; and $22,000 on one truck, financed at 0 percent for 5 years. Their monthly bills now total about $4,000.
Their goal? Figuring out how to best allocate their income - so they can feel confident they're saving enough for retirement, are prepared for emergencies and won't fall into debt.
If you'd like to be considered for our Money Makeover column, in which a team of experts develop a financial road map, write to us at moneymakeover@cnnfn.com with the following information: full name, age, location, occupation, income, assets, debt, expenses and financial goals. Please include specifics about your portfolio, namely which mutual funds, stocks and other securities you own. Also include a daytime phone number, which will be kept confidential.
The plan
Get adequate insurance. The Russells originally decided against buying health insurance when they saw it would cost $690 a month. Instead, they decided to put $1,000 a month into a Vanguard money market fund, to "create" their own insurance. The fund now has about $18,000.
But Janet Tyler Johnson, a CFP in Madison, WI, and Steve Carter, a CFP in La Jolla, CA, strongly urged them to rethink that decision. "The top priority in creating any sound financial plan is ensuring that you have the appropriate insurance," Johnson explained.
Carter suggested that by going through Tina's work and using a high deductible, they can get the cost down to a figure that is more reasonable.
"As individuals, they can make the decision to self-insure, but as an advisor, it is unthinkable," said Carter. "They should purchase health insurance before they do anything else."
He also estimated that Scott needed an additional $250,000 in life insurance and Tina needed approximately $100,000 worth. This could be done by purchasing inexpensive term insurance.
"The cost could be under $200 a year for Scott's additional life insurance coverage, assuming he's in good health," Carter said.
Prepare for emergencies. According to Johnson, preparing for emergencies is a two-step process: getting disability coverage and ensuring they have emergency cash reserves.
She explained that disability insurance is as vital as health insurance. "Disabilities occur far more often than people think," Johnson said. As for the emergency fund, it needs three to six months' worth of expenses, depending on the quality of disability coverage they have in place.
"Insurance policies can be reasonably obtained to ensure continuation of income due to accident or illness. With the rising costs of health care, one major hospital stay could wipe them out," Johnson added.
Carter said that provided they bought the necessary insurance, their Vanguard fund could serve as their emergency cash fund. He notes $18,000 is close to a conservative 6 months' worth of living expenses for the Russells, but said that was a good amount for them - given that Scott has the larger of the two incomes, but a less stable job.
Save for retirement. While he recommends they continue to contribute the same amounts to the SIMPLE IRA and 401(k), Carter said retirement contributions were slightly less of a priority than insurance needs.
"If they use half of the $1,000 they invest monthly in the money market fund to pay for health insurance, invest the other half, and continue to contribute the same amounts to the SIMPLE IRA and 401(k), they'll be on track for an age 65 retirement," he explained.
As far as allocating their retirement investments, Johnson recommended - based on age - that about 25 percent of their investments be made in international mutual funds, 25 percent in small company mutual funds, and the remaining 50 percent in mid- to large-size company mutual funds.
"If they are less risk-tolerant, they can consider bonds. But they need to remember that these assets will be invested for the rest of their lives, and people live longer and longer these days," she added.
Carter suggested they invest in Vanguard International Growth Fund and Vanguard Small Cap Value Index Fund. "These make sense, given their current investments," he said. "They could also consider putting some of this money into IRA accounts, but I would be careful to leave enough liquid if they want to help with the children's educations." 
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