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Personal Finance
Couple finds itself in bind
May 15, 2000: 8:14 a.m. ET

Education pitted against family planning as the Ransoms juggle two goals
By Staff Writer Alex Frew McMillan
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NEW YORK (CNNfn) - Checks & Balances runs weekly on CNNfn.com. People with questions about financial planning are invited to write in explaining their financial picture and short- and long-term goals. See the bottom of this article for specifics. For those selected, financial planners will review the details and suggest ways to meet those goals.




When Sean and Elena Ransom got married, they figured they'd have kids within two years. But with Sean studying for a master's in journalism at the University of Missouri in Columbia, the newlyweds are struggling to get by.

They survive on student loans and Elena's salary of around $13,000 as a file clerk at the college's admissions office. So 10 months after their wedding, planning for a family financially looks like a tough proposition. What's more, Sean Ransom, 27, probably won't be finished with his schooling if and when he graduates next summer.

graphicHe studied psychology as an undergrad at Brigham Young University's campus in Oahu, Hawaii. Though Sean got into journalism working at the student paper and interning at the Honolulu Advertiser, he discovered a biopsychology class near the end of his degree.

"I started reconsidering my career plans, but by then it was too late," he writes. Missouri had already accepted him, and applications to medical schools were closed. "I was stuck with journalism."

Now he wants to go on to get a doctorate in clinical neuropsychology, which will mean another five years at school. "I figure this route will condemn my family to another half-decade of poverty," he said.

Any neuropsychology job he lands will likely pay decently, he imagines, and the journalism degree won't go wasted if he free-lances in between. But until he finishes his schooling, the couple will be struggling on a tight budget.

"We are asking ourselves a lot of questions," he writes. "These are questions that make a young husband into an old husband. We want to take care of our family and invite children into our home, but we want to do it with wisdom, and with an eye to the future."

Lots of questions, difficult answers


Should they have children while Elena is working at Missouri and has a health plan? That would devastate their income and derail Elena's education -- they met as undergrads in Hawaii, but Elena moved with Sean to Missouri before she finished her linguistics degree. She plans to start school part-time this June, working around her job.

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Should they wait to have kids? They don't want to wait six years. After Sean graduates from Missouri in 2001, they'll move wherever he gets accepted for his doctorate. Will Elena get another job? She still wants to finish her degree.

Right now, she has a health-maintenance organization plan. To save money, Sean isn't on the plan and goes to the free student clinic if he gets sick. But If Elena has kids, "will we be able to have the insurance we need to provide her with quality care?" Sean asked.

Elena, 21, is originally from Ukraine. Sean's parents live in Texas, though he considers Hawaii home and they figure they'll move back there some day.

Eventually they would like to buy a house in Hawaii, and Sean would work there. But that's a long way off.

Setting as much as they can aside


Right now, they set aside $250 of Elena's $900 a month take-home pay to invest in two mutual funds, the Strong Blue Chip 100 fund (SBCHX) and the Strong Growth fund (SGROX).

They have already saved $1,100, and if they stick with their strategy for the next six years, they figure they'll build up a nest egg of $20,000 or more toward a down payment on a house, depending on their returns.

They've both caught a bit of an investing bug. Their investments have declined a bit recently, but Sean is not too worried. "We kind of look at it as a game because we're looking six years down the road," he said.

Tithing, and a tight budget


Because they are both Mormons, the Ransoms tithe 10 percent of their income to their church. They view that as essential. With rent of $335 a month, utilities, groceries and fuel, their total costs run $1,250 a month, including the mutual fund investments. That's besides the car they just bought.

Sean also makes $400 and gets a tuition waiver working as a graduate assistant. Elena gets a tuition cut for working at the college. But they still only take home $1,300. "Heaven help us if either of us needs our hair cut," he joked.

They recently bought a used Ford Taurus, so monthly payments of around $200 just started. Sean got a part-time job at a costume shop in Columbia, Mo., to make ends meet. They owe $8,000 on the car, but they plan to take out student loans to pay that off, to avoid the 9.9 percent interest.

Sean has already run up $24,000 in student loans, almost all of it with deferred interest. But the loans will kick in six months after he graduates. The loans could skyrocket once he starts his doctorate, too, though many neuropsychology programs subsidize the tuition. Some even cover it all.

The loans are a sticking point, Sean said. "They're growing, we don't like that, but we don't know what we can do to make them stop."

Not much left for fun


Over the summer, Sean will make a little extra money working at Missouri for a couple of university-run magazines. As a result, they may be able to squirrel away $600, they figure. They hope to take a trip to Chicago with the money, to visit friends, for Sean to interview with schools and to catch a Cubs game.

Entertainment-wise, their options are limited right now. They occasionally make the trip to Kansas City or St. Louis to watch a baseball game, but otherwise they rent movies at the grocery store and scrimp. They would like to go out more, but they figure they don't have the money.

Elena budgets furiously, using Quicken software. She controls the purse strings, and thinks they should wait until Sean gets accepted to a doctoral program before they start a family.

"I'd feel much more comfortable if we start having children after we move," she said. Sean might be able to start a job his second year of studying, too, so she could afford to stay home. They don't have any savings right now, and they need to start before they have kids, she said.

Knowing they're in a tight spot, the Ransoms have been trying to prioritize their goals. It's not like they feel empty without kids at their young age, Sean said, but they would like to start a family. And they both want to continue school.

There's the rub. "Me getting my education and having children are tied. And that's what is giving us problems," Sean said.




What the planners say:


"Considering the sacrifices both of you are making to obtain Sean's advanced degree, you are to be commended for really living on a shoestring budget," said Greg Zandlo, president of North East Asset Management in Coon Rapids, Minn., and a certified financial planner.

With changes coming at a dizzying pace, the Ransoms financial situation "will be in a constant state of flux," Zandlo continued. But it's just as well to identify main goals and stick to them.

Sean's education cannot be completed without a combination of student loans, grants and scholarships, according to the planner. "Going into debt is never easy and, in your case, going deeper into debt is a necessary evil," Zandlo said.

The piper may charge a lot when he gets paid


But the Ransoms should beware running up the loans too far. If they rack up as much as $100,000 in debt, for instance, the payments will be $1,213 every month at seven percent interest. That's if they're spread over 10 years. Over 15 years, the payments would be $899 a month.

So, despite Sean's prospective higher earnings, how much they can reasonably afford in loans is "something they should think long and hard about," Zandlo said.

Ransom estimates a neuropsychology job might start at $50,000. But he could be paying $15,000 or more in loans a year. "Unless Sean is at ease with that course of action, it's quite an albatross for upwards of two decades," Zandlo said.

As a result, it's vital to investigate grants and subsidies, said Robert Tull, a certified financial planner with R.W. Tull & Associates in Chesapeake, Va. Though that will depend on the program, the Ransoms should be at an income level to qualify. There are programs based on the state or country you're from, too, Tull pointed out.

Tull commended the Ransoms for planning together. He thinks they need to keep talking about their finances.

"When you're in this tight a budget, it becomes very difficult as a family," Tull said. "Finances are one of the major disagreements among couples, and especially young couples, today."

Reconsider investments


Both the planners say the Strong mutual funds that the Ransoms have selected are fine choices for a young couple. But both planners also think the Ransoms would be better off waiting to invest. They should be putting their money into a savings account instead, they say.

Zandlo pointed out they could start a money-market account through Strong. Instead of paying $250 a month into mutual funds, they could be putting $150 a month into a money-market account. They could then put $50 into an "everyday" account.

"Both of you have done a great job to this point, but a little breathing room might be welcomed," Zandlo said. They could still put $50 a month into their blue-chip fund if they wanted, but otherwise "future gains in the stock market can wait."

Tull agreed. "They're trying to do too much," he said. Instead of stock-market investments, they need savings that are liquid and don't fluctuate.

"A savings program is going to help them when the car breaks down or the washer isn't working," he said. Otherwise, "the first time they're going to want to take money out, it's going to be after a market correction. It's just not worth the risk."

Then the bad news


Both planners said the Ransoms should steer clear of their credit card. The Ransoms pay it off immediately if they ever use it, and should continue to do so.

"That piece of plastic has interrupted the best-laid college plans for many a student," Tull said. Having some savings will mean they don't have to resort to the credit card in emergencies, he pointed out.

Both planners also agree that education is the primary goal. Before they expand their family with kids, "I would prefer both of you ... to finish school," Zandlo said, even if it's just Sean's master's and Elena's undergrad degree.

Studies have shown that raising a child will cost at least $100,000 to $150,000, he explained, without post-secondary education. So at this point, the Ransoms should enjoy each other's company and put off having kids, he said.

Tull is uncomfortable as a financial planner to tell a couple what to do about family planning. "It's tough for me to tell them they can't have kids," he said. But the financial impact of having children would be devastating. Elena is their main breadwinner right now. If she stops to have children, they lose their income, he observed.

They can't do it all


Education and family are indeed in a tug of war. "I'm not sure that you can do both," Tull said. Having children "may be something to be delayed for down the road."

At the moment, the Ransoms have some disability and life insurance through Elena's job. Even now, and particularly with whatever jobs they get in the future, they need to make sure they have enough disability insurance if Elena fell sick and had to stop working, the planners say.

Life insurance is not a major worry right now. But they would need to bulk up their coverage if they had children, Tull pointed out, which would be another cost.

Their health insurance would also be vital if they were to have children, the planners say. The Ransoms cannot afford a plan with a high deductible, Tull pointed out, and should look for a plan with maternity care and "healthy-baby" care.

The Ransoms should maximize their budget in a number of ways. While getting a tax refund is great for some families, it is not a good course for families living on a tight budget, Tull said. Elena should check that she is not having any more tax withheld than absolutely necessary.

He also encouraged the couple to figure more entertainment in their budget, such as a night out every two weeks or once a month. "Don't wait until you have some 'extra' funds. Plan it," he said.

Despite the Ransoms' obvious budgeting prowess, they literally need to set aside some funds for fun. Otherwise they won't stick to their plans, Tull said. "They have got to budget that in, or it [their budget] will become a ball and chain down the road."

For now, the planners have bad news on the family front. The Ransoms need to tackle the education goal first. With the master's degree, Sean could get a little more flexibility in the budget by free-lancing, Zandlo agreed. Tull pointed out Elena would likely earn more with an undergrad degree, too.

Then they can build financially toward having children, the planners think. "Get yourselves focused, build a financial base, then go for it," Zandlo said.




Got questions about financial planning? Need some advice? CNNfn.com has organized a panel of outside experts to answer your questions. If you want to be considered for the "Checks & Balances" column, where professional planners suggest ways you can manage your money, send us an e-mail at checksandbalances@cnnfn.com. Include information about your age, occupation, income, assets and monthly expenses -- imagine you're providing a full income statement and balance sheet. Also, share with us any short-term and long-term financial goals you may have. And don't forget to leave your phone number.

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.