Baby boom - Cash crunch

(Money Magazine) -- In the fall of 2003, Dennis and Beth Albiani had their future perfectly planned. They'd purchased 18 acres of rolling hills at the foot of California's Sierra Nevada near Sacramento, where they were preparing to build their 3,400-square-foot dream house.

It was to be a gentleman's farm with cows, pigs and sheep, plus plenty of space where their toddler son Nicolas could play with the other children they hoped to have.

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The bottom line Now that their immediate financial crunch is over, the Albianis are focusing on rebuilding their savings Incoming Dennis' salary and bonuses $170,500 Dennis' accrued leave from previous job 34,000 Total $204,500 Outgoing Income taxes $43,480 Mortgages (including HELOC) 34,812 Child care, preschool 23,497 Credit-card payments 21,000 Household expenses 18,828 Groceries 11,723 One-time HELOC payment 11,000 Charity, gifts 7,305 Auto (gas, maintenance, repairs) 5,652 Kids (clothes, furniture, classes) 5,191 College funds 5,000 Insurance (home, auto, life) 3,917 Miscellaneous 3,600 Utilities, phone 3,127 Entertainment 2,260 School-loan payments 2,208 Car payments 1,900 Total $204,500 Assets Home $800,000 Rental property 745,000 Proceeds from dream-property sale 380,000 Stocks, other investments 140,000 Retirement accounts 67,340 Minivan, truck 12,000 College funds 9,745 Checking, savings accounts 9,020 Total $2,163,105 Liabilities Home mortgage $470,000 Mortgages on rental property 224,371 Home-equity line 68,900 Loans (Dad, law school) 54,890 Credit cards 4,000 Total $822,161 Net worth $1,340,944

Financially they seemed set too. With $175,000 in savings, several solid real estate investments and a $90,000-a-year salary from Dennis' job as an aide to Gov. Arnold Schwarzenegger, the family seemed well poised to achieve their bucolic dream.

Then in early December, Beth found out that she was pregnant with triplets. The Albianis were stunned. True, Beth had been on fertility treatments for a couple of months, but her drug dosages were so low the doctor had assured them they had a less than 10 percent chance of having twins. "Are you sure you're not counting one of them twice?" Dennis asked.

Not a chance. And in that moment, the Albianis' well-ordered life was about to spin out of control although they didn't realize it until much later. Despite advances in the science of family planning, kids can still unravel the best-laid plans. And when the babies come three at a time, the complications are that much greater.

For the Albianis, those complications started with back-to-back health crises that first threatened the lives of two of the triplets, and then their mother. Fortunately, all three infants identical twins Isabella and Sophia, and fraternal triplet Samantha were born healthy, and Beth recovered fully from postpartum heart problems.

But then the family was almost immediately plunged into financial crisis: The cost of everything diapers, child care, a bigger house turned out to be more than they had anticipated, wiping out their savings and miring them in debt. To get by, they borrowed from a relative and sold their beloved dream-house property. Dennis had to give up a job he loved to take one with higher pay.

Today the Albianis, both 37, are back from the brink of financial disaster. But the family still faces a precarious future. Beth and Dennis have saved very little toward the whopping cost of four college educations and are so heavily invested in real estate that they have no cash for emergencies.

And with the triplets now three years old, they're about to get hit with a seemingly never-ending series of big-ticket child-rearing expenses from preschool to camp and orthodontics times three, at once. And that's not even counting Nicolas.

This is unfamiliar territory for Dennis and Beth, who have always been careful planners, firmly in control of their own destiny. "We had a really good plan and then three years of chaos," says Dennis. "Now we need to get back to having a plan." But with four small children demanding most of their attention and money their urgent question is, how?

Dennis and Beth began dating when both were agricultural business majors at California Polytechnic at San Luis Obispo. They married in 1996 shortly after Dennis got his law degree, and bought a three-bedroom house in Sacramento. Along the way they invested in five two-acre lots and three duplexes around town with various friends and family members.

Though they wanted a child, pregnancy eluded them. After 18 months of trying, including tests and treatments, they managed to jump-start the process with a low-dose fertility drug. Eventually Beth became pregnant with Nick.

The Albianis' next order of business was their dream house. They found a perfect plot of land in nearby Sloughhouse, which they bought for $180,000, raising the money by selling their first home and refinancing some of their rental properties. The pair also bought a small modular home for about $25,000 so they could live on the site while their five-bedroom house was being built.

They moved in just before Nick was born in October 2001 and spent the next two years saving and planning. A few months before construction was to begin in 2003, they decided to try for a second child, using the fertility treatment that had worked the first time.

Mother Nature, however, was not to be so easily manipulated. Beth did become pregnant, but an early ultrasound detected not one but three heartbeats. Along with the shock and joy came concern about the health of the triplets, two of whom shared an amniotic sac and had tangled umbilical cords.

Family and friends immediately pitched in, throwing three baby showers, deluging the couple with clothes, diapers and burp cloths. Included in the Albianis' total haul: a bassinet big enough for two, two borrowed cribs and an $800 three-baby stroller so big they had to tow it home behind their car.

To make room for their vastly upsized family, the Albianis put the dream house on hold and bought an A-frame in nearby Elk Grove for $425,000. They added a fourth bedroom, a playroom and a dining room for about $230,000, borrowing $50,000 from Dennis' dad and tapping into the equity in some properties.

At 32 weeks, Beth's doctors decided to deliver the babies by cesarean. Beating the odds, all three girls emerged in excellent condition, weighing between 3.5 and 3.9 pounds. It was Beth who went into a medical crisis, suffering cardiomyopathy, or weakening of the heart muscle, after delivery. Although the condition is life-threatening, Beth rallied almost immediately. The next day, she was well enough to hold her three squirming daughters.

Only 72 hours later, Dennis was back at work, putting in 12-hour days as a key adviser to Gov. Schwarzenegger on agricultural and environmental issues. The job has plenty of perks: trips on Schwarzenegger's private jet and an in on crafting historic global-warming legislation.

Ah-nold even sent a baby gift for the triplets a mint julep cup full of jelly beans with a card joking about his movie Twins: "I'm glad yours don't look anything like Danny DeVito." But when the Governator needs you in June, one of the busiest months of the legislative season, you had better be there, even if your wife just gave birth to triplets. "It's a sore subject," Beth says drily.

Once the triplets came home, the Albianis were forced to hire help. Beth's mom and aunt pitched in as well. To help them tell the girls apart, Beth color-coded their clothing yellow for Bella, pink for Sophie and purple for Sammie and painted one of Sophie's toenails red to avoid mixing her up with her twin sister Bella. Nick, none too pleased at seeing so much attention going to his sisters, began acting up.

Beth, who was getting only a few hours of sleep at a time, grew increasingly cranky and exhausted. Unable to get mad at the kids, she turned her frustrations on Dennis. After all, he got to shower and dress, converse with adults and dine in swanky restaurants while she was condemned to pajamas and leftovers.

Even on weekends, when the two were together, they grew too tired and grouchy to talk to each other. To ease the tension, they hired a weekend helper, even though they couldn't afford it. "Divorce is a lot more expensive than going into debt for a while," says Dennis.

In only a few months, however, the Albianis were on the financial brink. It wasn't just the cost of diapers, although the family went through more than 30 Huggies a day ($100 a week). Or the special preemie baby formula ($160 a week). Or even the three part-time caregivers (about $2,000 a month). Rents on their properties were falling short of their mortgage payments each month, once by as much as $800.

Last fall Beth and Dennis finally sat down to take stock of their financial situation, and it wasn't pretty: Over the previous two years, they'd burned through $175,000 in savings, borrowed $50,000 from Dennis' dad, tapped $80,000 of their home equity, racked up $25,000 in credit-card debt and were spending $4,000 more a month than Dennis earned. It was time to make serious changes.

Beth had been pressing Dennis to find a new job, one with saner hours and time for his family uninterrupted by his BlackBerry. Dennis initially resisted, but as the pair's financial pressures mounted, he gave in, realizing that a job change could also land him a much bigger paycheck. At year's end, he left Schwarzenegger to join a lobbying firm that keeps him in the political game while paying him $60,000 more a year and getting him home at a decent hour.

Though his paycheck now covered the couple's expenses, they still had $155,000 in debt hanging over their heads. So with heavy hearts, they decided to give up on their dream house, even though Dennis had wanted his kids to grow up on a farm, as he had. By selling the lot and the modular home for $585,000, they could wipe out many of their debts and start all over again. "Yeah, there's a sense of loss," Dennis admits. "But we're only 37. The dream house can wait."

The couple have taken other steps to stop the bleeding. At the beginning of the year, they refinanced a rental property which cut their monthly losses by $500. And by cashing out $34,000 in unused leave from Dennis' state jobs, they were able to pay down their line of credit by $11,000 and credit-card debt by $21,000.

And soon checks from the sale of their property should start to arrive. The buyer assumed their $186,000 mortgage and paid an extra $82,000 in cash before fees and is making interest payments of $2,320 a month on the $320,000 balance, due in March 2009.

With this infusion of cash, the Albianis are ready to plan for the future again. But how do they balance their short-term needs, like paying three preschool tuitions, with big goals like paying off debt and saving for four college tuitions?

Money turned to Jeffrey Lambert, a financial planner, and Elaine Webb, an enrolled agent, in Folsom, Calif., near Sacramento. Here is what they suggest:

Polish Off the Debt Despite their recent strides, the Albianis still owe a whopping $127,800, not counting mortgages. The planners urge them to use most of the $60,000 they'll net after fees from the first installment on the dream-property sale to retire some of that debt, starting (in the interest of family harmony) with the $50,000 they still owe Dennis' dad. Then they should use another $4,000 to wipe out the last of the credit-card debt.

Plump Up Your Cash Cushion To get back in the habit of saving, the advisers suggest that the Albianis use the last $6,000 of the initial dream-site payment to open an emergency fund. The goal is to build cash reserves of $60,000, or six months of essential expenses. Over the next year and a half the couple can add about $550 a month to that kitty from their monthly interest checks. Then they can contribute another $40,000 or so to get the account to full strength when they receive their final house payment.

Save for College (Times Four) Right now, Dennis and Beth put only $50 a month into each of the four college savings plans they opened for their kids. Lambert says that they will have to set aside nearly six times that much (about $1,100 a month) to send all four kids to the local state university and that estimate assumes they'll live at home while in school. As soon as the interest checks start coming in, the planner advises the Albianis to put an additional $700 a month into the savings plans, and possibly bump up their contributions later.

Cut Back on the Real Estate... Lambert believes that the couple have too much and suggested that Dennis sell one of his duplexes. He might not be able to do this even if he wanted to because his brother-in-law is a co-owner, and he may not want to sell. No hard feelings, though, because in today's sour real estate market, selling now might not make sense anyway. Better, says Webb, to hang on until the housing market improves.

...But Diversify, Diversify, Diversify Dennis' love of real estate deals has left the Albianis with an investment portfolio that's seriously out of whack: 80 percent of their net worth is tied up in property. To create a more balanced portfolio, Webb urges the two to invest the $240,000 they'll have left from the final dream-home payment. They should put 80 percent in stock, about 65 percent of that in U.S. issues and the rest in foreign stock. The other 20 percent should go into fixed-income assets, including bonds and CDs.

Doing that should give them steady growth over time and greater liquidity. Fortunately, the Albianis don't have to worry about retirement since Dennis' new employer contributes an amount equal to 12 percent of his salary to a retirement fund; he doesn't have to invest a penny.

Dennis says he agrees with the advisers that the couple should pay down their debt and create a cash reserve. But he's reluctant to diversify as much as they suggest and wants to keep enough free cash on hand to cut real estate deals. "I'd like to have $75,000 in my foxhole waiting for the next thing to jump up and buy," he says.

Beth, meanwhile, feels as though the hard part is over. Nick is learning to share his parents with his sisters, she and Dennis are able to spend more time alone together and she is starting to see that simultaneous and sometimes traumatic rites of passage like paying three college tuitions all at once have their positive side. "At least you get it over with quickly," she says. "I have four beautiful children, but I only have to go through potty training twice.