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And baby makes three
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January 25, 2002: 10:23 a.m. ET
With a new arrival, this Utah couple wants their finances in order.
By Annelena Lobb
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NEW YORK (CNN/Money) - It's been a week to remember for Jesse and Elizabeth Spackman. This young couple from Utah welcomed their first child into the world Tuesday evening, giving them a new source of joy and an added incentive to get their financial house in order.
Chandler, their baby boy, weighed in at exactly 8 pounds. "Elizabeth's maiden name is James, so I thought we could name him Jesse James Spackman, after both of us," the new dad said. "We decided on Chandler James Spackman -- named after Elizabeth's maiden name, and my mother's maiden name, which is Chandler."
Jesse, who works in retail, and Elizabeth, an online travel agent, may have some sleepless nights ahead -- but money worries won't keep them up if they follow the roadmap below.
The situation
Jesse, 23, and Elizabeth, 21, bring in about $2,000 each month combined after taxes. Elizabeth plans to continue working, and will only take about a week's maternity leave, Jesse said. They're paying the mortgage on their condo in Ogden, UT, valued at $87,000, and a car loan with a $2,000 balance. So far, they've managed to avoid credit card debt, and their monthly expenses add up to about $1,800.
Their monthly expenses include $700 a month on their condo, about $275 a month on the car (including the loan, insurance and gas), about $550 on expenses like groceries, utilities and out-of-pocket expenses, and $275 goes to the Church of Jesus Christ of Latter-Day Saints in tithing. "It's typical for Mormons to give a percentage of their income to the church," Jesse explained.
They have no assets outside of the condo and car, and would like to find a way to build their income. "I'd like to earn some residual income," Jesse said. "My idea is to save toward a down payment on a duplex or fourplex, and then I could rent the other units."
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Chandler James Spackman, born 8 lbs. on January 22, 2002 | |
They'd also like to go back to school. Elizabeth has an associate-level liberal arts degree and wants to continue studying; Jesse has completed one year of college, and says he'd consider going back as well.
What to do
First, some planning for the family
"Their first priority? Enjoy the baby," said Scott A. Leonard, a CFP at Leonard Wealth Management in Manhattan Beach, Calif. "The next steps for all new families are to set up a will and purchase life insurance."
Should anything happen to them, it's important that the child's guardian be clearly named, to avoid court battles over custody. "The custody issue can be compounded if they have life insurance. It never surprises me how many people want to raise a child when it comes with $1 million," Leonard said.
Leonard said a simple, hand-written will is satisfactory if legal fees are an issue. He also recommended level-term life insurance for both of them.
"A $500,000, 10-year, level-term policy on Jesse's life would cost less than $200 a year," Leonard said. "The same policy on Elizabeth's life would cost even less."
Next, build up some savings
To start saving, Leonard recommended setting up a money-market account through a discount, commission-free brokerage house, such as E*Trade, Schwab or TD Waterhouse.
"You can get a higher return on a money-market account at a brokerage firm than one at an ordinary bank," Leonard said. "These companies have all-in-one accounts that can serve as a savings account, an investment account and even an emergency checking account."
The Spackmans could have a set amount of money automatically transferred into the account on a monthly basis. Once the account had accumulated enough, they could consider options like purchasing a rental property or furthering their educations. For emergencies, they should hold about 3 to 6 months' worth of expenses in the account; savings beyond that could be directed to other goals.
Carrie Cole, a CFP at Cole Financial Advisors in Livonia, Mich., also recommended trying to save $50 a month into a Roth IRA. That money could be used for funding education later on or for their retirement. Contributions to Roth IRAs are not deductible, but the earnings in the account grow tax free.
Finally, take a look at the future
Both planners suggested they consider furthering their educations to increase their income potential -- maybe even prior to thinking about purchasing a rental home.
As for their idea of purchasing a rental property, Cole said it might be possible for them to purchase a duplex with no money down, depending on their credit rating and certain income limits. But a decision to purchase a rental property should be evaluated very carefully.
"There are pros and cons to being a landlord," Cole said. "They'd have to make sure that the income from the condo/duplex is enough to make it worthwhile. If they have bad tenants, it could be a nightmare."
Of course, it would be essential to keep emergency savings on hand before buying a rental property, Cole said.
"I'm a strong believer in emergency funds," Cole said. "If they owned a place and something went unexpectedly wrong -- say they had to replace the roof -- that could be $4,000 they needed right then and there." 
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