In today’s episode, we meet Tiffany, a 34-year-old therapist who works with the military and their families in St. Marys, Georgia. Tiffany is married with two children, and she is working toward her doctorate in counseling. She wants to build up emergency savings and save for a down payment on a home, but she’s not sure how to get there.
Tiffany has been working for years to make up for some financial missteps in early adulthood, including a bankruptcy. She’s diligently paid down her credit card debt to a low balance, but she is racking up student loan debt as she earns her degree. And she also has rent, a car payment and some back medical bills to pay each month.
Tiffany admits she and her husband at times are “uncommitted and inconsistent with saving money.” New York-based certified financial planner Stephanie Genkin says she shouldn’t worry about the student loan debt until she finishes her degree. Until then, she should prioritize repaying her other debt and start building savings.
Dialing Back on Spending
Tiffany considers herself cost-conscious when it comes to shopping. “If it isn’t on sale or I don’t have a coupon,” she says, “I am not buying it.”
However, one guilty pleasure gets in the way: Her love of travel. “We love putting our toes in sand of faraway beaches,” she says. “I want my kids to see the world just like I did as a child.”
Travel is not something Tiffany and her husband factor into their budget though, and she admits airfare and accommodations can get pricey.
She’s not alone. According to the 2017 LearnVest Money Habits and Confessions Survey, Americans on average spend 10% of their annual income on vacations. And yet 55% of Americans don’t factor vacation expenses into their family budgets.
Genkin says Tiffany is going to have to dial back the travel if she wants to build savings and buy a home. “It’s difficult to save for a down payment and have some cash in the bank to cover whatever life throws you and travel the world,” Genkin says.
The Game Plan
In order to start saving up for a down payment and an emergency fund, Genkin recommends that Tiffany hang on to at least 20% of her and her husband’s combined after-tax monthly income. They should use it first for debt repayment, she advises.
“The first priority is to pay off any lingering credit card debt, since [credit card] interest rates tend to be much higher than any other interest rates,” Genkin says.
Tiffany should continue paying off any other debt she has, too. For her car loan, Genkin says to set up auto payments so she is never late. She says Tiffany should do the same with any medical bills or back taxes.
The remaining cash should go directly into savings, preferably an account with an online bank, says Genkin. Online banks tend to have higher interest rates, and their accounts are more difficult to access and therefore are less tempting to withdraw from.
In Tiffany’s case, Genkin suggests opening separate accounts for her two financial goals: one called “House Savings” and the other called “Emergency Savings.”
“Naming these accounts may add an additional motivation not to spend the money on trips and vacations,” she says.
Once she has prioritized debt repayment and savings, Genkin says, Tiffany hopefully can make some headway on her two big goals.
Want to be a part of this new series? We are looking for people in their 20s and 30s who need a money makeover. Apply here.