Beyond consumer 'cash burn,' a need to foot life's biggest bills

The backdrop of consumer spending for most Americans remains big, unavoidable, cost-of-life items.

While the Powells' day-to-day spending seems about right, they need to jigger daily expenses to free up cash for much larger, regular outlays - like a $1,166 per-month mortgage, says Alan Wardyga, a certified financial planner in Lincoln, R.I., who reviewed the family's finances for this Monitor case study.

"Every little bit counts," says Mr. Wardyga, who laid out for the Powell family their current financial status and flagged places where help is needed.

One major problem: The Powells haven't set aside anything for their two children's college education - a bill Wardyga figures will be $151,480 when eight-year-old Kelcee hits college in 10 years.

Where the money is going to come from is a subject the Powells approach with caution and apprehension. A mix of priorities, a limited supply of money, and procrastination has left them at the savings starting line.

Wardyga says the Powells need to invest about $2,000 a year in order to have enough to pay the bill when Kelcee and five-year-old Spenser get to college.

Howard Powell's head drops into his hands and he rubs his neck. He's had a long day filming and working with a difficult producer. His mind is not into this. He counts on his wife, Kathy, to go back to work full-time and himself getting a raise in order to fund the kids' education.

He also hopes Spenser and Kelcee get scholarships, a dream, he thinks, every parent shares. If all that happens, expenses might be covered.

Wardyga says they should take $2,000, "put it in an investment that earns 9 percent, and you'd have it all done."

Easier said than done.

"I don't know where the money is going to come from," says Howard, his voice tinged with worry. "Is there anything we can do?"

They toss around ideas about using their income-tax refund, or Kathy getting a higher-paying job. But the concern never leaves Howard's face.

Kathy is stabbing at an article she has torn out of a magazine. It's an advertisement for a particular education-savings plan. Wardyga cautions them about such plans: "You don't want to put the money in the your kids' name anymore. It's better to put it in your own name because you control it."

And, he warns, talk to an educational planner, not bankers, as they often work for commissions and tend not to be as knowledgeable about the colleges and universities.

Wardyga soon moves on to the Powells' retirement plan. It is progressing nicely, he says. Aside from one low-return IRA, and an old 403(b) account that is dozing away and performing miserably, Howard is taking advantage of his latest employer's matching retirement plan. He also has money invested in a Fleet Bank IRA account, a TIAA-CREFF pension plan, and a 401(k).

"Your long-range plan is pretty much in shape," Wardyga says.

He does, however, recommend putting away 10 percent of their income toward retirement, as opposed to the 5 percent they currently are saving.

Among Wardyga's other recommendations:

*Costs associated with long-term care for either Kathy's or Howard's parents can unexpectedly creep into the budget. "Baby boomers are the sandwich generation," says Wardyga. "It's become a financial burden."

*Howard needs about $500,000 worth of disability insurance, since Kathy's current income is minimal.

*Like most of Wardyga's clients, the Powell's haven't given a though to inflation when planning long term. "That's where most people fail in their planning," he says. "They don't consider the fact that things are going to continue to get more expensive - and what costs $20,000 today, could be $80,000 when they retire 30 years from now."

*They also need a will. Wardyga's mantra: If you don't take care of yourself first, you can't take care of the kids.

(c) Copyright 2000. The Christian Science Publishing Society