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Personal Finance
Getting by on $21K a year
May 30, 2000: 6:04 a.m. ET

The Byrds set aside what they can and curb expenses. Are they on course?
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.




Keith and Susan Byrd scrape to set aside a little cash for their kids' future. "We are in our mid-30s and realize we are a bit behind the power curve," writes Keith, 33, who lives in Norfolk, Va. "We need some ideas on creative ways to let our money grow into the future."

The couple manages a Public Storage self-storage facility, which means they make around $18,500 a year in salary. With a tax credit, their total income is $21,000 a year. They don't have much overhead, though -- the company gives them an on-site apartment and pays for their utilities. The only regular expenses they have are their phone, their car insurance and cable TV.

graphicKeith Byrd likes the fact that they don't have the stress of a commute and they can see their children -- Bradway, 4, and Stephanie, 3, -- during the day. "There are a lot of benefits you get that you can't put the dollars on," he says.

The Byrds applied for the job together. Since Susan, 35, works part-time at the moment, she figures she can pick up a few more hours this fall working at another storage property when the kids start school. The Byrds plan to send their children to Catholic school at their church.

"The area where we are, the public schools aren't the best they could be," Keith Byrd says. Plus as members of their church, they get a discount on the tuition. When both children are enrolled, the Byrds' bill will run around $3,000 a year.

The Byrds donate $10 to $20 a month to the church. Other than their living expenses and eating out twice a week, they set aside the rest of their paycheck.

College education and a house in the future


They met as pen pals. Susan, who is originally from the Philippines, moved to the United States in early 1995. The Byrds save her paycheck, around $300 a month, and any bonuses they get. They live off Keith's pay day-to-day.  "We would like to be responsible with our money, but we also want to enjoy it," Susan writes.

graphicThey have saved $5,000 and recently started a state-sponsored college savings trust for both children, putting $100 into each account. Their goal is to pay $100 into each account every two months or so. They have also bought a $7,400 college plan for their son through the state of Virginia. The plan guarantees to cover two years of college education for him. They would like to do the same for their daughter at some point.

They have a credit card but they pay it off every month and want to keep it that way. They pay for emergency repairs and any large purchases from their savings. They have a 1977 Midas motor home for camping vacations, which they save for like a regular expense. Otherwise they drive two cars they bought used, a 1990 Chrysler New Yorker and a 1993 Dodge Caravan.

"Our goals are to be able to save enough to send both kids to college and maintain a cash fund of around $10,000," Keith Byrd says. Eventually they would like to buy a house, too. "We have to wait and see if Mr. Greenspan brings the interest rates back down," he jokes. The Byrds figure they'll retire around 65 or 70.

They have a profit-sharing plan through Public Storage but no access to a 401(k) retirement plan. They also don't have health insurance because they think that their employer's plan is not particularly good and that private insurance is too expensive. "Our children are covered by Medicaid," Keith Byrd explains.

They like their jobs, which give them decent vacation, two days off a week and "a very relaxing work atmosphere," Keith Byrd says. After nine years of employment, they will be fully vested in the profit-sharing plan and will also started getting four weeks of vacation. They have two weeks right now.

"For right now, we're enjoying it, so we'll probably stay with the company," Keith says. "We can't complain."

But they would like to know if their financial planning is setting them on the right course. "We're trying the best we can to put a little aside," Keith Byrd says. "It takes time and you have to be patient when you're looking into the future."




What the planners say:


"They are certainly on the right track as it relates to financial planning," says Richard Busillo, a certified financial planner with RTD Financial Advisors in Philadelphia. Saving on a regular basis, paying off their credit cards and cutting down on unnecessary expenses "are the basic ingredients that go into a sound financial plan."

Busillo's main concern is that the Byrds lack health insurance. "An illness or injury to either of them can devastate their financial future," the planner explains.

It was also the first problem that jumped out to Will Hays, a certified financial planner in Collierville, Tenn. "It could take only one injury or illness to wipe out their entire savings, plus put them into serious debt," he agrees.

Experimental plan may be the best bet


Busillo suggests that the Byrds consider a Medical Savings Account plan. Such plans have a high deductible but would cover the Byrds if they had a catastrophic medical emergency. They offer a tax-deferred savings account to pay for nonreimbursed medical expenses.

"If they are fortunate enough to avoid high medical expenses, the account can be used as a retirement-plan supplement," Busillo says. Qualified medical expenses are tax-free, but other withdrawals are taxed like an Independent Retirement Account.

Because the government introduced the plans on an experimental basis, "they should act soon if they are interested," Busillo says.

Since health insurance is easiest to get through an employer, Hays suggests that Susan Byrd look for a job with another employer that does provide acceptable health care coverage. "For some people, the need for company benefits outweighs the need for the salary," Hays says, who thinks that is the case for the Byrds.

Life insurance also needs attention


Both financial planners also think the Byrds ought to get more life insurance. Though Public Storage offers them $50,000 or so each in coverage, extra coverage is necessary, the planners believe. The family is relying on Keith Byrd for salary and housing, and would badly need extra help if he were to die unexpectedly, Hays says.

Keith Byrd should buy another $100,000 of 20-year term life insurance through a "low-load" insurance carrier, Busillo says. "This will provide the maximum amount of coverage with the least amount of premium during their most critical years," he says.

As far as their emergency fund goes, three months' of income, or $5,250, is sufficient, Hays says. They need to keep that money liquid, in a savings or money-market account, he says.

Because of their tight budget, not all of the Byrds' plans are achievable, Hays says. He thinks that, rather than trying to set aside another $7,400 for a prepaid college plan for their daughter, they should instead pay $100 a month into her college savings trust.

If they continue that for another 14-1/2 years, until Stephanie heads to college, they will have invested $17,400. At a conservative 8 percent return, that will have grown to $32,665, Hays calculates. With a higher, 14 percent return, the fund will grow to $55,930. Either way, he thinks that is a more manageable way of paying for Stephanie's educational needs than trying to carve out $7,400 right now.

Savings for themselves, too


The Byrds should also start a Roth IRA for themselves, because they don't have access to a 401(k), Hays continues. If possible, they should contribute $100 a month to that, he says. With a 10 percent return, Hays figures that would give them $226,000, if they retire at 65.

If and when they bought their first home, they could use up to $10,000 of the Roth IRA money to fund the purchase, Hays explains. The flexibility of making regular Roth and savings trust payments would help the Byrds if they had a drastic lifestyle change, like a change of job that forced them to buy or rent a house, Hays says.

Busillo thinks the state-sponsored education funds that the Byrds have are excellent ways to save for their children's college educations. "I recommend that they continue funding these plans."

But their shorter-term plan to send their children to private school conflicts with their other goals. The $3,000 bill for their children's education means they have hardly any wiggle room in their budget in the near future, Busillo says. He figures they can save $4,000 a year. Unfortunately, since the tuition eats up most of that, they will probably have to put off buying a home, he says.

Both planners pointed out that the Byrds, remarkably, save more than 30 percent of their income. They have a tight budget but also have a tight control of their expenses, according to the planners.

The money to buy a home may have to come from raises or a change of job, though, they conclude.

"If they continue this same disciplined approach as their income increases, they will have an excellent chance of achieving all of their goals," Busillo says.

* Disclaimer




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. Back to top

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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.