Great Income, Lots of Debt: Now What?

May 13, 2013  | By austinwealth

Chris (32) and Karen (30) have been married for six years. Chris graduated from medical school a few years ago and is working for a large family practice in Central Texas. Karen works as a dental hygienist just outside of Austin. They are a busy couple, work long hours and earn substantial incomes for the work they do. Steve has a large amount of student loans from Medical School and they have acquired some credit card debt over the last few years. They are looking to buy their first home and want to start having children soon. They feel disorganized when it comes to their overall financial situation and aren’t sure how to make sure they are taking the right steps.

We sat down with Chris and Karen to discuss their goals and concerns and decided to look at the following areas in our meeting:

  • They are unsure of where their money goes every month and want to get a better feel for their monthly available cash flow.
  • Their student loans and credit card debt are like a monkey on their back and they want to understand the right approach to pay them down.
  • They both earn substantial incomes and want to know how to make the best of this.
  • They want to be financially prepared to start a family and don’t know where to begin.
  • They want to prepare for buying their first home and they aren’t sure what they can afford.
  • They want to reduce their tax bill as much as possible.
  • They both have 401(k)’s available to them but are unsure if they should be taking advantage of them.

Chris and Karen were relieved that there was someone out there they could talk to about their finances and who understood their unique situation and goals as a young, successful family. After reviewing their entire financial situation, we set out to help them map out their options to achieve their objectives. They were excited to know that there were so many options available to them and really valued the guidance we were able to provide them with.

“”Chris and Karen were relieved that there was someone out there they could talk to about their finances, and who understood their unique situation and goals as a young, successful family.
Initially, we spent the bulk of our time working with Chris and Karen to identify where their money was being spent every month and identify areas where they could cut back to increase their discretionary cash flow. This organization was critical to helping them make sure they would have enough available money every month to work towards their short and long term goals. Next, we worked with them to create a debt management strategy that would allow them to pay off their credit cards and student loans within a reasonable time frame. We also identified an appropriate amount of money to keep in savings for emergencies and laid out a plan to save money to achieve this goal over the next few years. To make sure that an illness or a death wouldn’t derail their plans, we built a comprehensive insurance plan to protect their lifestyle and assets.

We also helped them identify a budget for a house they could afford to buy and begin saving additional dollars into a money market account to have enough funds for a down payment in 4 years. To help Chris and Karen reduce their tax bill and take advantage of their employer’s matching contributions, we recommended each one begin contributing to their 401(k). Once they have paid off their debt, we determined that we could increase their retirement contributions to help them achieve a reasonable retirement by age 65.

The final step in the process was to build an action and service plan to make sure they stay on track to reach their goals. This accountability is critical to making sure that they can achieve their objectives. Chris and Karen now have the confidence in the decisions they are making today to ensure their preferred financial future.

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