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Originally published March 1, 2014 at 8:02 PM | Page modified March 2, 2014 at 11:26 AM

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It’s a balancing act for a one-income family

Financial planner recommends cutting back on using credit cards and getting long-term planning documents together.


Special to The Seattle Times

Gillian Murphy, 42, and her wife, Anne Graham, 53, are the proud Shoreline parents of girls ages 2 and 4. Since becoming mothers, they’ve adapted their work lives to accommodate family.

To forgo high day-care costs, former sociology professor Gillian has stayed home with the kids and retrained as a technical writer while Anne has worked full time in the University of Washington library system.

To make things work on Anne’s $63,000 salary, they’ve been thrifty — shopping consignment and bulk stores for deals, driving older cars and having no cable. But as the years have ticked by, they’ve found themselves dipping into lines of credit to bolster their temporary single-income setup.

Their monthly expenses outpace Anne’s income by 50 percent, and as a result they now have $31,000 outstanding in a low-interest credit account. They’re also carrying a low-interest home-equity line of credit of $17,000, incurred during a budget remodel before becoming parents.

In the future, the couple know their fortunes will reverse once Gillian resumes working. But the duo has hesitated about the timing of her re-entry: With day care about $1,800 per month, and Gillian’s initial post-tax earnings estimated at only about $2,500, should she resume work now for such a minor financial gain or wait until the kids are in school? And how are they doing financially anyway?

To get a pro’s opinion on these and other financial questions, Gillian and Anne completed an online survey to apply for a free financial assessment from the Puget Sound Chapter of the Financial Planning Association. They were paired with Kate Holmes, a certified financial planner and founder of Belmore Financial in Bellevue.

“It’s very common for one spouse who’s stayed at home to weigh the pros and cons of when to return to work,” Holmes says of the couple. “Gillian has found herself in a position that a lot of stay-at-home parents find themselves facing.”

Both women have thought ahead regarding their futures: They’ve collectively socked away $389,000 for retirement with Anne putting 10 percent of her income into her 401(k). They owe less than $175,000 on their home mortgage and have carefully considered how best to invest future inheritances they’ve been told they’ll receive. Yet, they’d never sat down with a planner for a checkup.

“We didn’t talk about money that much,” Anne says. “But to see things as a combined picture was something we needed to do.”

Holmes advised Gillian to resume work sooner rather than later. By waiting for Gillian to return to work, the couple would face an annual $23,000 shortfall over the next few years; by her resuming work sooner, they’d still come up short by about $7,000 annually.

But as Gillian gains experience and the girls enter school that loss would reverse and become a gain.

Holmes also suggested the couple begin budgeting, taking a periodic snapshot of their combined household spending. She proposed applying financial advocate and Massachusetts Sen. Elizabeth Warren’s 50/30/20 budgeting rules — applying 50 percent toward needs (mortgage, food, transport), 30 percent toward wants (entertainment, retail, travel) and 20 percent toward savings and debt.

Holmes would like to see the couple stop using their credit cards to make up for their shortfall, and to see Gillian’s income eventually contribute enough such that their combined income is about $100,000 annually.

Because they have strong equity in their home, which is valued at about $325,000, she recommends that in the coming months they refinance from their adjustable-rate mortgage into a 30-year fixed, pulling cash out and paying down credit-card debt — as long as they promise not to run that debt up again.

Estimates from lenders indicate they are eligible to do this but will incur a slightly higher monthly payment of $1,400.

Right now, Holmes isn’t making major recommendations about Anne’s portfolio. For Gillian, she’s recommending moving funds from her current brokerage — which charges 1.5 percent in administrative fees — into a lower-fee brokerage such as Vanguard.

While Gillian has chosen funds that are socially responsible, she’s also placed slightly too much emphasis on bonds (40 percent) versus stocks (60 percent) and Holmes recommends that since she has more than two decades to retirement that they rework the portfolio to represent an 80/20 split of stocks and bonds.

Of greater importance than tweaking portfolios, Holmes says, is that both women need to update their long-term planning documents.

“Sometimes doing too many things at once is counterproductive,” she notes.

Holmes wants to see Anne draft a will, and for Gillian to update hers, both with an eye toward guardianship planning for their daughters. In addition, while Anne has life insurance, Gillian needs a policy — one with coverage up to $250,000. She can expect to pay $30 to $50 per month for it.

While the couple will need to make some major changes to shift from treading water to forward momentum mode, Holmes is encouraging them to begin budgeting for vacations ($100/month) and also recommending that a surprise $7,000 Anne inherited from a relative be used for a family vacation or cultural experience, perhaps for a longer, culturally immersive trip with the children.

Holmes is also encouraging Anne to pursue a three-month paid sabbatical. This would allow her to work from home and absorb more parenting duties while Gillian jump-starts work, but without having to incur child-care expenses.

“I don’t think either of us had a lot of financial savvy,” Gillian says of their new directives. “But I see this all as a challenge.”

“It was a really intense three weeks,” Anne says. “But it was empowering.”



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