Money Makeover: Planning ahead to deal with hard times

Planning ahead helps make even a totally unforeseen recession run a little more smoothly.

Take that survival fodder from two families who’ve participated in The Kansas City Star Money Makeover series.

Neither Joel and Michelle Mathews of Grain Valley nor Steven and Angie Cortez of Olathe ever imagined when they met with financial planners that the economy would change so much so fast.

The Mathews’, when they met financial planner Todd Minear, early in 2006, were making wedding plans and looking for a good way to blend two distinctly different money histories and personalities into one household. Now they are preparing for the birth of their first child, a daughter, Reagan, in March.

Reagan’s imminent arrival already has created one change in the couple’s finances. They recently went shopping for a good second –hand four-door vehicle to better accommodate a baby carrier.

Amid all the economic changes going on around them, the Mathews expect the new car may be just one of many financial surprises that will happen in their lifetimes. They do not seem especially worried.

“Having a written budget really makes this all a lot easier,” Joel Mathews said.

The Cortezes were contemplating an entirely different set of questions when they talked with Kristine McKinley of Beacon Financial Advisors LLC, of Lee’s Summit in the autumn of 2007. The Cortezes wondered how soon realistically they could achieve the level of financial independence they wanted in order to retire while they were still young.

They thought putting their twins, Kennedy and Carson, through college would be the biggest hurdle. Neither they nor anyone knew when they were exploring their alternatives that stock markets and housing prices were near their peaks and about to start on a painful slide.

Now, like many families, some of their investments have taken hits and their plans for early retirement are more of a long shot. They remain confident they’ll reach independence someday.

“We know we’re in it for the long haul,” Steven Cortez said.

Clicking financially
Joel and Michelle Mathews were already working on a financial jigsaw puzzle when they met with Minear almost three years ago.
Joel, a high school coach and teacher, had been a spender.
Michelle, who works for a Blue Springs chemical company, was a saver when they met as students on the campus of Northwest Missouri State University in Maryville.

He had nearly $29,000 in student debts. She went to school on scholarships. He spent much of the year before their marriage aggressively paying down $7,000 in credit card debt. She inherited $8,600 more to pay on a car loan that her parents helped with while she was in school.

The couple and Minear calculated that once they pledged this financial mish-mash in a common troth, the couple’s combined debt would outweigh their pooled assets by about $9,100.

Minear, now with Blue Ridge Bank & Trust Co. in Independence, proposed that they cut through the tangle by using their then-current spending patterns to form a basis for projecting their future expenses 12 months into the future.

At the same time, they were encouraged to use those projections to write a realistic spending plan, and to tweak the plan as needed.
For more than a year after that, almost none of those things happened, Joel Mathews said.
“It took us awhile to get used to having our money combined,” he said.

Things finally clicked financially as the couple adjusted to their new circumstances.
The Mathews found that by making some small economies, such as eating out less often, and a few big ones – such as when Michelle left a downtown Kansas City job for another one just minutes from their Grain Valley home – they were able to carve enough extra money from their combined cash flow to pay off her auto loan two years sooner than they originally expected.

Even with the new baby and other expenses that they know will change, the Mathews say they are confident they can begin putting enough extra money into retirement plans while they are still in their mid-20s to achieve a secure retirement decades from now.
“The plan did a good job starting us out,” Michelle Mathews said.

No magic shortcuts
Steven and Angie Cortez already knew they faced a formidable savings challenge when they met in 2007 with McKinley, the financial planner.

The Cortezes, who are both teachers not yet in their 40s, wondered what it might take for them to retire when Steven turned 53 and reached the combination of age and years in service to qualify for Kansas Public Employees Retirement System teachers’ benefits.

There was one complication they knew about plus another that almost no one saw coming as McKinley worked out some possible answers.

The couple and the planner thought one of their biggest challenges would be coming up with about $200,000 or more in college funding that twins Carson and Kennedy, now 7, will need about a decade from now. Plus there was nearly $2 million in additional retirement savings the Cortezes would need to supplement his KPERS benefits to retire comfortably at his age 60.

What they didn’t know as they started absorbing those mind-boggling numbers is that the stock market had just touched its peak and was about to join the housing market and the economy on a downward slide.

McKinley’s recommendation to focus on retirement savings, and particularly, the couple’s Roth IRAs, has been particularly helpful, Steven Cortez said.

The two teachers feel they can tap the Roths years from now to help with college costs if necessary. Meantime, they believe that the increased number of mutual fund shares that their investment money buys at current low market prices will provide them even more money when markets rise again.

“We are going to be a little aggressive because we’ve got a lot of catching up to do,” Steven Cortez said.

Meantime, their plan helped them pay off more than $10,000 of credit card debt. They’ve been free of plastic debt since last autumn.

Next up, they plan to refinance their 6.49 percent mortgage to free additional money — funds that will be divided between college savings for the twins, home remodeling, and a bigger down payment for a new car when they need to replace one.

There are no magic shortcuts to getting these things done, Steven Cortez calculates.
“You just have to eat the elephant — one bite at a time,” he said.

Want a free makeover?
Looking for expert personal finance advice on everything from managing your credit card debt, planning for retirement, or saving for college? Join the more than 300 households that have received free financial help through The Star’s Money Makeover program. Interested readers should email Dollars & Sense editor Steve Rosen at srosen@kcstar.com, or call 816-234-4879. Include your name, mailing address, and phone number, and we’ll send you a packet of forms to fill out. The Star promises to work with everyone who returns the paperwork. The Makeover program is a cooperative effort between The Star and the Financial Planning Association of Greater Kansas City.