A Sweeter Life for Childhood Sweethearts

Karen and Russ – two fictional characters in Vanessa Stoykov’s book ‘The Breakfast Club for 40-Somethings’ – are the pair who got together in high school and ended up married with three children and a white picket fence. While life looks good from the outside, with overseas family holidays and kids in private schools, the reality is they can barely breathe from the financial pressure hanging over their heads.

Life seems sweet for Karen and Russ Douglas, childhood sweethearts who married young, bought a home in Sydney and had three children they sent to good schools. Overseas holidays to places like Fiji gives them some time to relax as a family, while Russ seems like he’s doing quite well for himself as he climbed the corporate ladder.

Underneath it all, though, they felt trapped by the financial pressure hanging over their heads and Russ isn’t really that happy in his job. With so many expenses, from a mortgage to private school fees and growing credit card debt, there’s no way they could afford to take even a month’s wage cut.

Financial Adviser and Director of Integra Financial Services, Deborah Kent, said this scenario for mid-life couples is all too familiar. They need to take stock and reassess their incomings and outgoings, get rid of the credit card debt while putting more into savings, and have a solid plan for the future, she explains.

“They were really only living from one day to the next and not really saving anything,” Deborah observed. “My whole process would have been around budget and debt reduction, and how they could increase their savings into super in the most effective way.”

Credit cards and savings buckets

While their overseas holidays give them time out of the daily grind to relax and spend time together with their kids, they rely on their credit card to pay for it. Deborah’s strategy would be to attack the credit cards first, create holiday account and don’t go on those holidays until you can pay for them.

“If you can’t afford to go overseas, stay in Australia. Sometimes you’ve got to take some short-term pain for some long-term gain. Pull the big expenses back and once you start to save, then you can say, OK we have enough to do a nice holiday to Fiji and pay for it. Don’t put it on credit, because that will bite you,” Deborah says.

“Sometimes you’ve got to take some short-term pain for some long-term gain.”

“An overseas trip is good – but it’s not going to be good when you put it on a credit card and you’ve got all this money to pay off. I encourage people to have a holiday account and pay as much off as possible,” she adds.

Maybe you won’t be able to do that holiday every year but maybe you could every other year or so. “If you can’t afford it, just don’t do it. I know that’s hard because we live in a society when we all want it now and we all want to have those holidays and to do what we want,” Deborah says. “It comes down to what sacrifices am I going to put in place to get to that end goal.”

Reducing credit card debt is the first step. “I would attack the credit card first and pull the reins in,” she says.

“Credit cards, at the end of the day, cost a lot of money.”

Once the debt is paid off, it’s important to use the extra cash wisely and channel it into a savings bucket – not into online shopping. “What you save on the credit card, put that money in a holiday account,” Deborah suggests. “It all comes down to budget and discipline.”

When it comes to savings, Deborah recommends putting away “about a year of what your expenses are” as a buffer “just in case anything was to go wrong”. “You always need an emergency fund because you never know what’s around the corner. These days, a year of your total expenses at least gives you a bit of a buffer,” she says.

“You always need an emergency fund because you never know what’s around the corner.”

Looking ahead to future retirement

While Russ accumulated $180,000 in superannuation from years working a six-figure job, it’s not nearly enough for the two of them to retire comfortably. Meanwhile, Karen not having a job outside the home since they had kids meant she has very little super – only $22,000.

“The big problem is that Karen, like most women, don’t have a lot in super and the males of the partnership usually suffer the most,” Deborah said.

Deborah suggests spousal co-contributions to get more super into Karen’s name while she isn’t working and says salary sacrifice is “the most effective way of putting money into super” because it’s pre-tax dollars.

“It’s a big thing for women not to have super,” she says. “I would have looked into how Russ would have got some super into Karen’s name.”

When it comes to retirement, people don’t realise how much they’ll need. “To pay for retirement you need around a million dollars,” she says. “For a couple with a reasonable lifestyle, I always say around a million – and debt-free of course.”

It’s important to diversify your finances to give you a long-term plan and a comfortable nest egg to live off. “The issue with super is, for young people, is you can’t get your hand on it. So, if you’ve got a couple of strategies like debt reduction, a savings plan, so we’ve got a nest egg and a long-term retirement plan and balance that out,” Deborah adds.

“As long as you take a longer-term view of at least five years plus, a good diversified portfolio will do quite well for you because you’re going to get growth.”

If you run your own business, like Karen who eventually runs a small home-based website, Deborah stresses how important it is to pay yourself super, even though you’re not obliged to as a sole trader.

Unlearning your money mindset

Deborah questions how Karen can continue being a full-time stay-at-home mum while they have a $700,000 mortgage, kids in private schools and a credit card that’s getting racked up.

“Why’s Karen not going to work? Is there a mindset she’s learnt, that she’s happy being a stay-at-home mum, but in our society that’s not always an easy thing to do,” Deborah says.

Deborah questions whether Karen needs to “unlearn” whether she should be a stay-at-home mum. “It’s a nice thing but is it viable financially? I think they would have been better off financially had she been doing a part-time or casual job to contribute to the budget,” she adds.

“Once the kids grow up – this is what I see quite often with stay-at-home mums – all of a sudden these women are lost. They’re wondering what to with their life now. Some women actually suffer mentally because of it. I think encouraging women to do something is good,” Deborah says.

Karen ends up starting her own online side business she can run from home, which not only gives Karen a hobby and passion to work on, it also takes the pressure off Russ being the sole breadwinner. “Men get mental illness because of this stuff, because they have to keep providing for the family because Karen’s not going to work,” Deborah adds.

The extra money Karen earns could go towards annual expenses like school fees. “A lot of women go to work just to pay for the school fees. They’ll do part-time work, and all of their salary will go on the private school fees,” she says.

“It comes down to sacrifice. If I’m going to be a stay-at-home mum, can we afford the private school fees, or do I go to work to help with the expensive schools?”

Which brings up the question if private school fees are necessary. “It’s an enormous amount of money. A lot of people pay for school fees and can’t afford it,” Deborah said.

“Do the children need to go to private schools, or do you live in an area where there are good public schools?” she questions. “Think about if that money was back into the budget, think about not having so much pressure.”

Zoom out and look at your life

“When I sit down with a client and look at their future, I look at what is going to make them happy. Whatever that looks like, we need to look at how we’re going to get there. People who are unhappy, they suffer more illness and stress,” she says.

Forward financial planning focused on building up a nest egg and diversifying income can contribute to a happier life, whereas those who spend big in the moment and have little in long-term savings may end up stressed.

“The old saying, money buys happiness, I don’t believe that, but money makes you more secure, so it makes you less stressed and healthier and you live fuller lives. People who don’t have the money have more stress and more illness and they don’t live fulfilled lives,” Deborah observes.

She adds that it’s important for couples of this age bracket to look at their wills, so they have powers of attorney and guardianship in place. “Having insurance is important too. It’s also got to be affordable. You’ve got to weigh up the cost of insurance,” Deborah advises.

While reviewing their life insurance, Deborah would ensure Karen as a stay-at-home mum was also covered. “A lot of people forget to insure the wife. They make sure the husband is but just because the wife is a stay-at-home mum doesn’t mean she shouldn’t have life insurance,” Deborah adds.

To learn more about Karen and Russ and how they tackled money, listen here on our new podcast https://vanessastoykov.com.au/blog/podcast_post/episode-1-the-power-of-time/