Life and Debt on Willow Lane
by Stephen Gandel

October 8, 2007

[Continued, page 3]

Earlier this year, a local boutique had a private shopping night for the mothers at Jillian's school. On the way there, Miriam, 39, promised herself she wouldn't buy anything. But after watching some of the women drop $600, she ended up spending $150 herself.

Still, by Willow Lane standards, the Wrights' spending isn't over the top. They're the only family on the block with one car, and haven't taken a real vacation in years. "We'd love to travel like the Mendells," says Miriam. "I don't know how they afford it."

Even without vacations, though, the Wrights, who make a combined $85,000 a year, are coming up a few hundred dollars short every month, sometimes nearly a thousand. Ernest is a budget analyst at the University of Pennsylvania (where Marni Stein also works), and he knew they'd be spending more than they earned to live in Wallingford. But he thought the shortfall would be temporary since Miriam, a former corporate recruiter who quit after the kids were born, planned to go back to work. But she's had problems finding a job that pays close to her former $65,000 salary (to bring in extra cash in the meantime she works part time as a supervisor for ticket collectors at Philadelphia Eagles games). Some interviewers tell her she is overqualified; others balk at the fact that she hasn't worked in three years.

The result: In two years, the Wrights have blown through $60,000 of the money they banked from the sale of the house in Philly ($40,000 is left) and have $7,000 in balances on their credit cards.

What they haven't done: They haven't stopped saving. "I don't want to be 80 years old and poor," says Ernie. He routinely puts 5% of his salary into his 403(b) plan, which earns the university's highest match. Miriam too has nearly $80,000 in retirement savings accounts from past jobs. And both plan on working until they're 70. All told, the family has just over $200,000 in retirement savings, which puts them well on track to meet their retirement goal—and when it comes to long-term financial security, puts them ahead of both the Steins and the Mendells, despite their lower income.

On a recent weekend in August the three families met at a barbecue on Willow Lane. Over pulled pork and macaroni and cheese, they talked about their careers and their lives, and their similarities seemed more striking than their differences. Dave, the schoolteacher, and Marni, the college administrator, talked about education. Stuart and Miriam talked about their desire to earn more money. All the families admitted they make most of their financial decisions on the fly and cross their fingers that it will work out in the long run. But their greatest common bond, despite the differences in how much they make and what they spend money on, is that all three families have made choices that, unless corrected, jeopardize their financial futures.

The Advice

To help the Steins, Mendells and Wrights get their finances on track, MONEY turned to financial planners Neil Kauffman of Kauffman & Drebing in Philadelphia and Chris Cordaro of Regent Atlantic Capital in Chatham, N.J., as well as career coach Nancy Collamer, who runs Jobsandmoms.com. Here are their recommendations for the families on Willow Lane.

THE STEINS: Pay Off the Plastic

The planners united behind an urgent message for the Steins: Stop being so blasé about that $39,000 in credit-card debt and start paying it off. While Stuart likes having $17,000 in a savings account for emergencies, Cordaro says that money would be better used to help pay off their balances. "You're just giving money to the financial services industry," he says. Cordaro suggests the couple then take out a $30,000 home-equity line of credit, part of which should be used to erase the remaining card debt; at recent rates of 8.25%, that will lower their monthly interest payments by $300. The remainder of the credit line can serve as a temporary emergency fund until the Steins can pay off the HELOC and rebuild their bank account.

Next, Kauffman urges the couple to get serious about saving for retirement. Marni should contribute at least 5% of her salary to her 403(b) plan to get the full match her employer offers. But both planners suggest the Steins postpone saving for college until they've paid off their debt—especially since one of the perks of Marni's job is that the university will pay at least 40% of her kids' college costs.

THE MENDELLS: Boost Savings

Both Kauffman and Cordaro say the Mendells need to boost their retirement savings and fast. That means cutting back on dinners out and reining in some of their purchases. That's especially true since both Dave and Emily want to retire early. Based on their current savings, the Mendells will have only enough set aside by the time they're 60 to fund nine years of retirement, even with Dave's pension. Kauffman suggests that they sock away at least 10% of their income, up from 5% now. And they should shift most of the money out of the cash investments they have in their retirement accounts and into a diversified mix of stock funds. Even though they're admittedly averse to risk, cash investments won't provide the kind of growth they need in their portfolio to beat inflation over time. As for the kids' 529 college accounts, Cordaro recommends contributing an additional $520 a month.

THE WRIGHTS: Get Back to Work

To close the gap between their income and their living expenses, Miriam needs to land a full-time job quickly, the planners say. To increase her chances of landing a suitable position, Collamer, the career coach, advises Miriam to update her résumé, emphasizing her skills rather than her recent work experience. "Don't shy away from being a mother," says Collamer. "Just don't put it at the top of a résumé or cover letter." Then expand the job search online to include industry-specific job boards, as well as mega-job-listing sites like Monster.com, and professional networking sites like LinkedIn. If interviewers ask about the three-year hiatus in her career, she should draw attention to her real-world experience during that time. For example, Miriam, who is looking for work as a professional recruiter, should point out how she was able to recruit volunteers for the nonprofits she worked with while she's been at home with the kids.

Lastly, Kauffman recommends that the Wrights give up the idea of sending their children to private school. "I don't know where the money would come from," the planner says. And given the quality of the schools in Wallingford, that expense at least seems entirely avoidable.

BACK AT THE BARBECUE, the three couples talk about what they've learned from the planners and how they plan to proceed. The Steins are going to use most of their savings to pay down credit-card debt (they're keeping $5,000 in the bank for emergencies). But they haven't sworn off borrowing. They plan to apply for a $42,000 home-equity loan—that's 40% more than the planners suggested—to wipe out their remaining credit-card balances and to pay for Stuart's career training and a new fence around their yard.

The Mendells have pledged to boost their retirement savings. "I thought we were on the right path," says Emily. "But we've got a lot more saving to do than I thought." They say that they are also committed to cutting back on their spending but haven't decided how. Meanwhile, Emily is still shopping for a Mercedes.

The Wrights, who had a sinking feeling about their finances before talking to the planners, say they were pleasantly surprised at the planners' assessment. "We're in better shape than we thought," says Ernest. Miriam is sending out her newly revamped résumé and has already landed one job interview.

In the end, all three families say that taking a closer look at their own finances, rather than using others as a gauge, has given them a clearer picture of where they stand when it comes to money. The Joneses they now want to live up to are not their next-door neighbors but rather their own expectations. Their financial security is up to them, they realize. And it's none of their neighbors' business.

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