Many of us fantasize about buying a house, getting married, having a baby, then retiring at 65—specifically in that order.
In fact, according to recent research by LearnVest, these are the things we define as the American Dream in 2013.
But the one thing that all four of these goals have in common is that they’re expensive. The cost of raising kids is rising fast; many of us are behind on saving for retirement—or considering taking on a part-time job once we have. So, if you have a major life event you’re saving up for, how do you get your finances in order to achieve it?
We asked four people what the next step is in achieving their American Dream. Then we asked David Blaylock, a Certified Financial Planner™ with LearnVest Planning Services, how they can each get one step closer to turning those dreams into reality.
“We’re having a baby.”
Hillary Sandbach, 26, married and expecting, works in hotel marketing in Kihei, Hawaii
My husband John and I are having a baby this April. We’re excited, but it was a surprise, so we weren’t saving for it. It gives me anxiety, because we already live close to the margin.
I have a great job with daytime hours and a $52,000 salary. John, 37, left his job as a hotel chef this past June to start a food truck business called Smoke & Spice. He cooks and sells Texas-style barbecue. He mainly caters events in the evenings. His income varies month-to-month. Childcare is expensive, so John will be the primary care provider.
John has a 3-year-old son from a prior relationship, and though we’re not entirely financially responsible for him, it’s more dollars out the door. We live in a four-bedroom home (mortgage is $2,000 a month), so there is room for my stepson and the baby. We don’t have any debt, but the cost of living is high in Hawaii.
I contribute 10% of my salary to my 401(k) and 5% to a savings account. I had to drain my savings, though, due to a surgery and car trouble. Now there is only $1,000 in my savings. John has a 401(k) and contributes a little to a savings account, but I’m not sure how much is in there.
We have jointly saved $5,000 that we were calling a “vacation fund,” but that will be renamed a “baby fund.” We were also hoping to remodel and redecorate our house, but that has to be put on hold.
After the baby is born, we want to start a college savings account. We also have to think about early education. The Hawaii public school system is bad. I’d love to send the baby to private school, but Montessori pre-K is $10,000 a year.
David says: What an exciting time! Many people never feel that they are financially prepared for a new baby, so this couple is not alone.
Hillary and John have made some great decisions here, with putting household renovations on hold and repurposing a travel fund. If the child’s learning is important, they could move to a place that has better public education options. They could also supplement with a private tutor, which could be less expensive than private school. After they are sure that they are contributing sufficient amounts to retirement savings and emergency savings, using a tool like a 529 account to save for post-secondary educational expenses could be beneficial.
“We’re planning a wedding.”
Timothy Castoro, 29, engaged, works as a hospital engineer and lives in Sayville, N.Y.
My fiancée, Marisa, and I got engaged in August and are getting married next August on Long Island. It’s great to find somebody you want to be with—we want to celebrate that by bringing our families together.
We live in a two-bedroom house that I bought in 2011, before we started dating. I’m a hospital engineer. Marisa, 28, is a teacher. We have a combined income of $160,000.
Marisa paid off her student loans and has $16,000 in savings. She wants to put all of that toward the wedding.
I used to have savings, but I spent that on the down payment and home renovations. I’m still paying $500 a month in credit card payments for Marisa’s engagement ring. I have a 4-year-old son from a prior relationship, so I pay for his expenses ($300 a month).
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Marisa’s parents are generously helping with some wedding stuff, like Marisa’s dress, hair and makeup.
In May, we set up a joint bank account and each of us has been putting $500 into it monthly. By August of 2014, we should have $15,000.
We should have a total of at least $31,000 saved by August of next year—plus whatever our parents contribute. But we have no idea what the total cost of the wedding will be.
Some costs have caught us by surprise. We thought we’d invite 150 people, but our guest list is now closer to 200. A good band will be another big-ticket item. Marisa wants the high, expensive flower centerpieces. We’re shipping in wine from California. But we’re cutting back in some areas, like we decided not to hire a videographer.
If we end up wanting to spend more money than we’ve saved, I have two credit cards. Plus, if we get money from guests as gifts, we might pay off any extra costs with that.
David says: Timothy and Marisa have made some great decisions regarding saving and planning for their future as a couple, but all of that hard work can be undone with this one event. It’s time to tap the brakes and make sure that the wedding is not going to put this couple into financial difficulty. Dipping into the $16,000 that was saved for emergency purposes is dangerous, and they should not use a credit card to finance their wedding.
This party needs a budget, and then they must look for ways to save. Trimming the guest list and selecting a less expensive band or DJ are options. Long Island, where they live, has many wineries. They won’t get everything that they want, but they can still have a memorable day. I would suggest limiting the event to the $15,000 that they are saving, plus the contribution from her parents.