NEW YORK (MONEY Magazine) - Michael Erickson thought he'd lead the breezy life of a Windy City bachelor forever. His government job paid the rent with more than enough left for golf trips, and he could retire at 50 with a generous pension, never having deliberately saved a dime.

Then he met Jaime Arndt on the shores of Lake Michigan. Eight years and three kids later, his perspective on life has changed.

The Ericksons need to pay off some debts and save more. If they do, Michael or Jaime can quit working in five years.

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"I'm cautiously optimistic we'll still have some nice golden years," Michael says, "but the experience of raising our kids together is a reward presently."

For Michael and Jaime, the ideal experience includes something they can't yet afford but hope to soon: one parent staying home with Emily, 7, Michael, 5, and baby Matthew. It also means saving for three college educations.

The Ericksons' lifestyle costs them all of their joint income of $130,000, and more. They recently refinanced their mortgage to pay off a $36,000 home-equity loan and $10,000 in credit-card debt. Jaime still has a $23,000 loan on her 401(k). Their emergency fund is a paltry $1,000.

While cash flow is tight today, tomorrow looks considerably brighter. Michael, 47, will indeed be eligible for a $60,000 pension in three years. Jaime, 40, also has a small pension plan. The administrator of her firm's 401(k) plan, she's turned Michael into a good long-term saver.

Together their retirement accounts hold about $178,000.

Their investments, however, are more of a mess than a mix. Jaime holds 32 mutual funds, including single-country and regional funds from Japan to Canada to Latin America. Michael has another 10. Why so many?

"Every quarter, I circle all the funds with decent returns," Jaime says. "Then I go back to my account and see, do I have money in them?" Yikes!

Leisa Aiken, a certified financial planner in Chicago, suggests a two-track approach to putting the Ericksons' financial house in order so one of them can eventually stay home.

First, and easier, is to streamline and rebalance their portfolio. Aiken suggests a leaner mix of 11 funds, relying on broad-based stalwarts including Dodge & Cox Stock (DODGX (Research) and the MONEY 65's American Funds EuroPacific Growth (AEPGX (Research), plus the high-quality fixed-income fund offered through Michael's government retirement account.

The couple should get out of their junk bond and single-country funds. "I wanted them to have more regular bonds," Aiken says. "High-yield bond funds act like stocks," rising and falling in step with the economy. Regular bonds tend to do the opposite, offsetting some of the stock market's risks.

She recommends the MONEY 65's Dodge & Cox Income (DODIX (Research). As for single-country funds, she adds, "You're making a bet that you don't have enough information to make." Aiken also wants the couple to substitute small and midcap U.S. funds such as American Century Small Company (ASQIX (Research).

More important than fixing their portfolio is addressing their savings and debt levels. "Before anyone leaves their job, the family needs to save at least three months of living expenses," Aiken says. That's at least $15,000.

Second, they must pay off Jaime's 401(k) loan. If she were to leave and not pay it back immediately, she would be subject to taxes and a 10 percent penalty.

Third, they should take stock of their health-care expenses. The family is covered under Jaime's generous policy. Should she be the one who stays home, they'll need to budget for the expenses Michael's plan won't cover. If they do all of this, the Ericksons will be able to live on Michael's pension and one salary in about five years, Aiken estimates.

"I can't believe Emily's already seven," Jaime says. "The next five years will fly by too."

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