The San Diego Union-Tribune Money Makeover column [The San Diego Union-Tribune]

Oct. 09--Jeremy and Gisenyi Wansor have competing financial goals that they'll be facing over the next few years.

Specifically, the young Encinitas couple is focused on paying off their student debts, saving for a down payment for a home, establishing retirement savings and maintaining an emergency fund -- all while accruing additional student loans as they take turns attending nursing school.

The Wansors, who have been married for a year, are responsible with their money. Although they're currently supporting themselves from Jeremy's income as a vacation rental manager, the couple lives comfortably within their means, has no consumer debt and a little more than $20,000 set aside as an emergency fund. They've also already gone through the process of consolidating their student loans to keep monthly payments manageable and interest rates low.

Gisenyi will graduate from nursing school at the end of this year, giving the couple more than a year with two incomes until Jeremy begins his nursing school program in the fall of 2012. They are thinking about what they can start now to ensure that they are on the right track to pay off debt quickly and efficiently -- their student loans currently total $28,000 and they will be taking out approximately $50,000 when Jeremy returns to school -- at the same time that they are saving for goals further in the future.

"Jeremy is working full time and I'm in grad school, so that means he's making money and I'm continually accruing debt," said Gisenyi, 27. "We keep talking about saving for retirement and for a home, but it's confusing to know when and where to begin."

Specifically, the couple wanted to know if they should be paying more than the minimum payment on their student loans. How much should they be setting aside for retirement? And, is it wise to begin saving to buy a home when they've still got so many loans to pay off?

To get some help with establishing a financial road map, the Wansors volunteered for a San Diego Union-Tribune Money Makeover, sponsored by the U-T and the San Diego chapter of the Financial Planning Association. The association chose Danielle Luster, a certified financial planner with MetLife in San Diego, to work with the couple and to make recommendations. In exchange for sharing their story, the Wansors received a comprehensive plan at no charge.

After a review of the their finances, Luster identified that the couple actually has a small cash surplus every month due to the commissions Jeremy receives as part of his job's compensation package. Rather than use it to increase their student loan payments, she instead advised them to fund a Roth IRA for each of them.

"Jeremy and Gisenyi are really aware of the benefit of saving for retirement early, and they are very disciplined about living within their means," Luster said. "With only one income right now and fully-funded emergency savings, it really didn't make much sense to accelerate paying down their student debt at this point in time."

Luster explained to the couple that the medical field often has programs that help professionals in the industry pay off a good portion of their student debt. In combination with a benefit like this, they could look into accelerating payments on the student loan with the highest interest rate (8.5 percent) once they are both working and out of school in 2015.

"We went over the loans we have and our instinct was to go crazy and pay them down as fast as possible," said Jeremy, 29.

"After talking this through with Danielle, we agreed that it would be best to hold off on that and use the money where it could collect some interest."

The financial planner recommended that they hold off on putting money toward a home purchase for the remainder of 2010. They should pull $1,850 from their emergency savings, leaving them with $20,000 to fall back on, and combine it with Jeremy's commission checks to fund $5,000 each to Roth IRA accounts. They should do the same in 2011.

"With their estimated future incomes, after Jeremy completes school, they may not be eligible to contribute to Roth IRAs because they'll be making too much money," Luster said. "I thought they should take advantage of the years they're eligible to participate, so they could build up some potentially, tax-free retirement funds."

Since the Wansors will have two incomes in 2011, Luster recommended that they put $10,000 away toward their home purchase, with the goal in mind to save a total $60,000 for a sufficient down payment. She advised that they follow up in 2012 by putting away $20,000 toward their home purchase. When Jeremy is a full-time nursing student in 2013, they should hold off on saving for the home but resume in 2014 and 2015 by saving $15,000 each year.

Anticipating that unexpected expenses are likely to arise, Luster told them that if needed they can also pull money from their Roth IRA accounts to make up any difference for their down payment.

By 2016, Luster projected that the couple could make a combined annual income of about $163,000. They will no longer be saving for their down payment and will also be covered under their employer's health care plan, which will save them some extra money to use toward a mortgage payment and/or to put in an employer-sponsored retirement plan.

"I'm essentially self-employed, so we don't have a retirement fund through my job or health care coverage," Jeremy said. "Telling us to max out Roth IRA plans seems like something we can benefit from now until we're both employed as nurses. The whole conversation was eye-opening. We didn't understand until now what different options there were for us."

The couple also was concerned about protecting themselves against the unexpected.

Under most circumstances, Luster said she would have advised a young, healthy couple like the Wansors -- who don't have considerable assets, such as a home, or children -- to hold off on life insurance. But with the couple dependent upon only one income to support their livelihood, she recommended that they look into a 20-year term life policy with $700,000 coverage for each of them.

Luster didn't think the Wansors should buy disability insurance and recommended they wait until they are covered under an employer's group policy.

Once the couple purchases a home, they will need to look into establishing a trust. For the time being, though, the Wansors should at least establish simple wills with durable powers of attorney for health care directives.

"With the emergency savings they have, and their desire to focus on debt management and retirement savings, Jeremy and Gisenyi are really above average than most other young couples," Luster said.

"They will want children in the future, and as a result their financial goals are going to shift quite a bit. What we talked about will get them on the right track for the next five years and I have no doubt that they'll stick to the plan and make it happen."

If you're interested, send us your name, age, address, phone and e-mail as well as your annual income and a description of the financial issues you'd like addressed. You can e-mail us at [email protected] or mail the information to: Money Makeover, The San Diego Union-Tribune, P.O. Box 120191, San Diego, CA 92112-0191.

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