Joshua Wright, a freshman at Kent State University, is not your typical college student. He and his wife, Melissa Wright, live in nearby Rootstown, Ohio, with their three children ages 8, 12 and 14.
Mr. Wright is a retired Air Force veteran, 45 years old, and attending Kent State on the GI Bill, which means the military covers 100% of his tuition, provides a stipend for school supplies and pays $1,200 a month toward the Wrights’ living expenses.
That is a big help for the couple, whose immediate financial goals are to reduce their monthly expenses and pay off debt. Mr. Wright, who is majoring in applied engineering with a minor in sustainable energy, plans to seek an engineering position at a sustainable energy company when he graduates. While Ms. Wright is currently a stay-at-home mom, she was an accounting manager at a property-management firm before the children were born.
The Wrights were living in Kansas in 2019 when their home flooded. Almost everything was destroyed. They had $35,000 of renters insurance, but that wasn’t enough to cover all expenses, so they made up the difference by using credit cards.
Mr. Wright also receives $1,800 a month in retirement pay from the Air Force and $2,400 a month in veterans disability for an injury incurred while he was in the service. And, even though they now live in Ohio, the couple receives an $800-a-month stipend from the state of Kansas because they adopted two of their children from foster care there.
Mr. Wright bought a home for $230,000 last year, using a 30-year, fixed-rate VA loan at 4.1% that required no down payment. The Wrights have two auto loans: $27,000 and $12,000, with interest rates at 5.3% and 4.9%, respectively. They also have $30,000 in debt spread over 14 credit cards.
The family’s monthly expenses include: $1,429 for the mortgage; $895 for two car payments, plus $150 in car insurance; $770 to service credit-card debts; $400 for groceries; $220 utilities and trash; $185 for cellphone and internet; $100 for kids expenses, $300 eating out, $200 for life insurance and $16 dental insurance. The family’s health insurance is covered by the military.
After paying down their debt, the Wrights would like to continue to reduce monthly expenses and then be in a position to save money for retirement and help their children pay for education.
Advice from a pro: Dan Andrews, a certified financial planner with Financial Planning Fort Collins, in Fort Collins, Colo., says now is a good time for the couple to rethink their approach to their finances. Developing good habits now will help them enormously once Mr. Wright graduates and increases his income, Mr. Andrews says.
First, they need to cut their spending. About 20% of their monthly income is going to car payments, Mr. Andrew says. Replacing the more expensive car with something cheaper, yet equally safe, could save them roughly $300 a month. Next, if they spent $100 a month at restaurants instead of $300 and reduced their cellphone bill by $50, perhaps through a military or student discount, the couple would have an extra $550 a month. That, coupled with the roughly $540 a month they currently have left after expenses, means a surplus of almost $1,100 a month, or more if the Wrights find other ways to save.
Half of that surplus should then be used to build up an emergency fund of about $25,000 for five months of expenses, so they can avoid using credit in an emergency. They should put that money into a high-yield savings account that is separate from their checking account. The other half should go to paying down credit-card debt; they can pay down the card with the highest interest first or consolidate their debt into one payment. Mr. Andrews recommends they look into debt-counseling services through the military or Kent State to help figure out the most efficient way.
Mr. Andrews says it’s important that they pay down as much debt as possible while Mr. Wright is a student, so it becomes a habit, and then substantially increase those payments when he gets a full-time job after graduation.
The couple should also consider part-time jobs for one or both of them.
Good financial habits now will put them in a much stronger position not only to pay down debt, Mr. Andrews says, but also to start planning for other important financial goals, like their own retirement and even helping their children through college, once his income increases.
“He has the discipline, because he is a veteran, and the mind-set, because he is a student, to create new habits and stay on track,” says Mr. Andrews.
Ms. Ward is a writer in Winhall, Vt. She can be reached at firstname.lastname@example.org.
Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8