Personal Finance Case #12

Bob and Pina Ing, 31 and 28, are in the midst of a financial crisis. They freely admit that they have lived "paycheck to paycheck" for years and it has caught up with them. Pina was recently laid off from her employer, a New York-based dot-com, which has made their situation even more precarious. For the first time, they are scrambling to make minimum payments on their credit cards.

The Ings have had a negative net worth since they were both single and in college. This means that they owe more than they own. On the asset side, they have $1,000 in checking, $10,000 in a 2.5% savings account (from wedding presents a year ago), $3,000 in Bob's 401(k) plan (his employer automatically enrolled him), two cars worth $18,000, and $8,000 of personal property for a total of $40,000 of assets.

On the debt side of the ledger, the Ings owe $12,800 on nine credit cards, $21,000 in student loans, and $14,000 on car payments for a total of $47,800. They are very interested in exploring ways to accelerate the repayment of debt and reduce monthly payments.

Bob earns $42,000 ($3,500 monthly) in a sales position and Pina had been earning $27,500 at the dot-com, or 40 percent of the family's income, before she was "dot-canned." The Ings admit that they are clueless about how much they actually spend each month. "We know our big bills, like car payments and rent, but we have never added up things like gas and food," explains Pina.

The Ings call their savings account "no-touch money." They are hesitant to spend it because it is all they have and because they would like to have something to "show" wedding gift donors, such as the downpayment for a home. They also plan to continue contributing 3% of Bob's salary to his 401(k).

Neither spouse has life or disability insurance, nor do they have a renter's insurance policy to cover their possessions. They carry 100/300/50 liability on their cars and have health insurance provided through Bob's employer.

Pina is tired of a four-hour daily commute to New York City and is exploring New Jersey based career opportunities. She is also wondering whether she should get out of the volatile high tech industry sector and work for a "safer" employer such as a Fortune 500 company or government. "My skills are in computer use and editing," she explains.

Bob and Pina could only guess at a retirement date: in 36 years when Bob is 67. This is the age required for a full (unreduced) Social Security benefit for persons born in 1960 and later. More immediate concerns are paying off debt and buying a new car in 2004. The Ings would also like to buy a house and have a baby within the next decade.

Instructor: Dr. Barbara O'Neill, CFP®, Extension Specialist in Financial Resource Management and Professor II
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