Torrie and Jason make six-figures, but they need financial help.
Torrie: It’s sometimes difficult to get ahead. You know, we’re able to pay our bills, but it’s difficult to knock down the debts like we want to and just try to build a cushion.
They have $30,000 in consumer debt. And no emergency savings.
Torrie: One year, we both needed tires.
Two sets of tires: $1,600.
Torrie: We live in Michigan, so when you need winter tires you have to get them. And then Jason’s had some injuries. Twice he’s been injured.
Jason’s medical bills were put on credit cards.
Torrie: We did have to dip into a credit card. Through my job I do have a 403(b) account that I’ve been contributing about $50 a month, which I know is not enough, but that’s all I can really afford at this time.
Torrie is a high school English teacher.
She has $17,500 in a 403(b) plan.
Jason is a photographer, and has no retirement savings.
Greg McBride: Even though Torrie and Jason bring in a combined six-figure income, they’re in a serious financial rut due to consumer debt, frivolous spending and a lack of any type of emergency fund.
Their monthly spending is a big problem.
They are spending over $100 a week on restaurants.
That’s money that can be put toward their debt.
Greg: One thing that’s killing them right now is their monthly spending. They’re simply living beyond their means and need to tighten the reins by cutting back on dining out and other pricey entertainment. This is a hole they can climb out of though. They will need to just stick to the plan I’m giving them very closely.
Greg: Hey Torrie, how are you today?
Torrie: Hi Greg, I’m doing well!
Set up an automatic direct deposit from your paycheck into a dedicated online savings account.
Greg: The first thing is, setting up a direct deposit from your paycheck into a dedicated savings account. And I recommend that Jason do the same thing. The savings for that rainy day, for unplanned expenses; it happens automatically. It happens before you roll out of bed on payday morning.
Greg: The debt pay down, you’re in a position where you can have these knocked out in a couple of years.
Pay down high interest rate debts first. Then roll that money into the next debt.
Greg: You know, as long as you’re very disciplined about putting money towards these debts and then every time you get one paid off, take that amount that you had been putting towards that, roll it up, and put it towards the next one.
Torrie: I’m definitely committed to doing that. And then you mentioned the Roth IRA. What’s the benefit of that over my 403(b)?
Greg: You certainly want to do both of these.
Open and fun a Roth IRA. This money can be accessed tax-free in retirement.
Greg: But the benefit of the Roth IRA is that you’re going to build a pool of assets that you can access tax-free in retirement. So, it’s diversifying from a tax perspective.
Torrie: I look forward to, like in two or three years saying, “Look Greg! No more bills! No debts! We’re just saving!”
Projected debt pay-off date: October 2018
Greg: If they stick to this plan, Torrie and Jason can have their debt totally paid off by October of 2018 and be well on their way to saving for their future.