Joan and Tom Remick* have a wish list: dining room furniture, adult furniture for the living room (it's now a makeshift playroom), a personal computer and a newer car (their 1986 Ford Mustang has little life left in it). Extravagant? Not by a long shot, and yet, like so many other families, they don't know how they're going to get the money together to turn that wish list into reality.

While Joan and Tom are miles ahead of other couples (they are mortgage-free at the age of 31!), it is an achievement that has cost them in many ways, they say. “I have aged a lot to come to this point,” says Joan. “We have exhausted all our resources and are starting from scratch.” Achieving the amazing goal of paying off their mortgage early has left them in a financial crunch: they have a lot of priorities and little cash. More importantly, perhaps, Joan wants to “start living.”

She and Tom have two children – Annie, 5, and Ryan, 3 – a home in Mississauga, Ont., and two cars. Married six years, they were able to take their first-ever vacation this past summer after the mortgage was paid: they rented a cottage for a week in Muskoka, Ont. But, like most people, they don't really keep track of where their money goes. “I always know how much we have in our chequing account,” says Tom, “so I can head Joan off before her debit card gets rejected at the checkout line.” Still, says Joan, “Even though we're both very good with our money, I don't want to live my life like a stickler, having to count every penny.”

When Joan says she and Tom are very good with their money, she isn't kidding. They met as teenagers working at a local grocery store and, unlike so many of their friends, both tucked away their money, put themselves through school and built up a healthy down payment for their first home, which they bought at age 25.

In fact, their first mortgage was just $80,000. They recently paid off the $50,000 mortgage they took out on their second home, thanks in part to Tom, who works in the transportation industry, taking on extra shifts at work – and some good luck. While all of the sacrifices they made over the years helped them get where they are – making do with no living room or dining room furniture, no major outings, no eating out with friends and no shiny new cars – they also happened to be in the right house at the right time. “We were able to sell our first home at a huge profit, pocket $65,000 and put that toward this house,” says Tom. “The market was hot, and we came out ahead.”

Although they have leapt over a huge hurdle, Joan and Tom feel that their finances are strained. “We have a car that's on its last legs, so it will have to be replaced,” says a frustrated Joan. “I just spent $1,000 on root canals. I want to put the kids into different activities. It all adds up.” Tom is now the sole provider for the family, pulling in $54,000 a year.

The first year they were married, both worked full time and earned a combined income of more than $100,000. Once Annie was born, however, Joan made the decision to stay home – a decision that was not in the game plan. “I planned to go back and had booked my nursing shifts, but the night before I broke down and called in to say I wouldn't be returning,” says Joan. That meant they had to make do on one income. “I took every shift I could get,” says Tom. While Joan plans to return to the workforce within the next three years, she doesn't want to go back to nursing. “I'm not sure what I want to do yet but, whatever it is, I know I will have to go to school for some sort of training,” she says. Cha-ching, cha-ching.

But Joan and Tom got a nice surprise this year when they filed their income tax. Due to a clerical error, Tom had been taxed as a single individual rather than as someone who supported a family; this has been adjusted, and this year his income
tax will drop, so they will get about $200 extra to keep each month. As well, he'll have a sizable tax refund when he files his income tax return next year.

Joan and Tom have very specific goals, but they're not quite sure how to achieve them, so we asked two financial advisers who deal with these situations every day for their expert advice on how to turn their wish list into reality.

* Names have been changed

The Debt -Free Solution

Wow!” says Lenore Davis, a certified registered financial planner and senior partner with Dixon, Davis & Co. Chartered Financial Planners in Victoria. “Owning a clear title home at the age of 31 is a great accomplishment! However, as Joan admits, it was tough, and neither of them is prepared for Tom to continue putting in those long hours at work anymore. But what this couple clearly demonstrate is that they are very averse to carrying debt. They could have everything on their short-term wish list with a $50,000 line of credit – which any bank would be happy to give them – but that would just negate the effect of being mortgage-free.

“To achieve this family's goals without going into debt requires vigorous prioritization. Joan and Tom need to rate the items on their wish list and start ticking them off one by one. But the most important item on that first list has to be preparing for Joan to re-enter the workforce. Paying for the right courses to help her move smoothly back into the workforce when the family is ready will do more for this couple's bottom line than all the penny-pinching in the world. The big tax refund that Tom will receive this year and the increased cash flow on his paycheque each month should go toward Joan's courses. They will have to consider the cost of day care while Joan takes her courses, but there may be subsidized day care available through her educational institution.

“As for the rest of the wish list, Joan and Tom are going to have to get creative if they don't want to take on any debt or have Tom working 60-hour weeks. They should do the three-month exercise of recording all their purchases and analysing where they might save small amounts of money. When couples do this, they often find that as much as 30 per cent of their expenses are discretionary. Joan and Tom might prefer to spend less on gifts or holidays, for example, and more on a new sofa.

“This couple can also get creative in other ways. For example, they want to replace one of their cars, but they live in an area that's served by one of the new car-borrowing organizations, which are cheaper than renting a car and certainly cheaper than owning. This might work for the next few years. Can they use the library for their computer needs? If neither of them is handy, do they know someone who will lay the front walkway for them at cost in exchange for a service that they can provide? In other words, perhaps they can beg or borrow (but not steal!) some items on their list without big cash outlays.

“It's important to start saving for the kids' education, but that should come after Joan's education needs are taken care of; then that money can be redirected toward RESPs. As for retirement savings, they've made a start with a commitment of $2,000 a year, and the company pension is in place. Again, once Joan is making an income in a few years, they can ratchet up the retirement savings.

“Even though this couple hates having debt, they should at least have a line of credit, say $25,000, as an emergency fund in case of a setback, such as Tom losing his job. They've shown that they won't abuse it, and it's something they should apply for while they're in good financial shape. No one will give them a loan if they're in trouble.”

The Smart-Credit Solution

This couple is doing so many things right that it's hard to find areas where Joan and Tom can improve,” says Rosemary MacDonald, a credit counsellor with Family Services of Hamilton-Wentworth in Ontario. “The problem is, the money just isn't there. Tom's $54,000 gross annual income means that they have $2,583 coming in each month. That's not a lot.

“Joan and Tom have done an amazing job of not spending more than what's coming in, which is the only way to accumulate wealth, after all. If Joan wants to ‘start living,' as she puts it, she has some tough decisions to make. Is she willing to go back into the workforce earlier – even for one day a week? Can she do something from home right now so that she won't incur any day-care costs? If this isn't an option, then the couple will have to choose between a vacation and a new walkway.

“With their excellent track record of repaying debt, I'm not sure why they won't take out a home-equity loan to pay for the renovations they want. A $25,000 five-year loan will require payments of $500 a month. The tax savings Tom will realize next year will cover almost half of that monthly payment, and they'll have to find another $300 a month. Perhaps Tom can do an extra shift or two at work along with whatever Joan can contribute.

“For the smaller items on their wish list, they're going to have to free up money from other discretionary funds. Can they cut the clothing budget and pay for dance classes? This kind of budgeting takes stamina and attention to detail, so I suggest that they monitor their cash flow on a weekly basis and set up a weekly allowance system for each of them.

“Saving for both the kids' education and for retirement is a long-term goal that may have to wait until their income increases.”

The Remick's Financial Snapshot

Annual Income
Salary and profit sharing: $54,000

Yearly Expenses
Property tax $3,000
Home insurance $300
Auto maintenance $800
Gas $2,500
Auto insurance $1,500
Utilities $2,500
Cable $500
Groceries $6,500
Restaurants/entertainment $1,500
Clothing $2,500
Household goods $700
Home improvements $2,000
Gifts $2,500
Income tax $20,000
Pension and deductions $3,000
Union dues $600
Charitable donations $100
Savings $2,000
Children's activities $500
Vacation $1,000

Total $54,000

Short-Term Goals
(Within three to five years)
1. Furnish the house.
2. Renovate the basement.
3. Put patterned concrete along the front walkway.
4. Enrol the kids in various activities, such as swimming, gymnastics, skating and ballet.
5. Replace one of the cars.
6. Purchase a personal computer.
7. Take a trip to Europe or the Caribbean with the kids.
8. Prepare for Joan to re-enter the workforce.

Long-Term Goals
1. Save for the children's education.
2. Build up RRSPs and a retirement fund.
3. Replenish the family savings.