By Mieke M. Bomann
In response to alumnae requests, the Quarterly
published a series of articles in 2006 on making your money work harder. In the first installment, financial planner Eleanor Hotchkiss Blayney ’73 created a basic financial plan for 1997 alumna Faizun Kamal. Subsequent articles featured balancing saving and spending, overcoming debt, and planning for unexpected financial challenges.
Money. It frames our daily lives and shapes the way we live, work, and play. Women, traditionally skilled in stretching a household dollar, now often face the complex responsibilities of securing a mortgage, planning for retirement, handling savings and investments, and running sizable households. For young professionals, and retirees living on modest pensions, making ends meet in an increasingly pricey world poses a considerable challenge.
Student loans and credit-card debt are tops on the list of “things to get rid of” for many young professionals. Buying a house is often the primary financial goal. How to do these things simultaneously usually involves a bit more work than forgoing the daily latte or bringing your lunch to work—although those are good first steps. What follows is the story of one alumna’s financial goals, and recommendations from a professional planner, also an alumna, of how to get there.
Making a Dollar Holler
Faizun Kamal ’97 leads a full, if uncluttered, life. The Baltimore resident lives alone in a one-bedroom apartment, rises early to meditate, works full-time as a program officer at JHPIEGO, an international healthcare organization affiliated with Johns Hopkins University, and also is going to Hopkins part-time to get her MBA.
Although Kamal lives frugally—few clothes, no gym membership, no hairdresser or nail splurges—she has $19,000 in credit-card debt, some of which is being paid off at a rate of 30 percent. A dedicated shopper? Hardly. Unlike many other young professionals, Kamal, born in Bangladesh, lacks a spendthrift sensibility. “My mother could make a dollar holler!” she says of her pragmatic upbringing, and Kamal has a pretty good understanding of what she needs to do to get her financial life on track.
But her past financial support of a friend has left her paying off considerable debt while at the same time hoping to buy a house. What she needs are specific strategies to reach her goals, says financial planner Eleanor Hotchkiss Blayney ’73 (
Eleanor.blayney@theharris.com;
www.sbsinc.com), managing director at Sullivan, Bruyette, Speros & Blayney, a subsidiary of the Harris Private Bank, and she agreed to provide that blueprint.
Foundation for Success
“Faizun has just about everything it takes to be financially and personally successful,” says Blayney, who is based in McLean, Virginia, and interviewed Kamal at length by phone. “She has intelligence, discipline, a good sense of where her money goes each month, and a well-articulated vision for her future. This is a young woman who will undoubtedly achieve her goals.”
She also has a huge heart: Kamal has started a business venture to import clothing and household items made by women in her native Bangladesh, and then return the proceeds to help educate and provide nutrition for the craft women’s children. But Kamal’s first priority is to eliminate her own debt and improve her credit score so she’ll qualify for a home mortgage. Evidence of her determination is the fact that she has paid down $5,000 in debt in the past year.
Assets and Liabilities
While Kamal currently has a negative net worth of approximately $7,500—the value of her retirement fund and automobile minus her car and student loans, and credit-card debt—her long-term financial outlook is promising. “Once her human capital is factored in, namely, her earning potential as a result of her education, international experience, and tremendous ambition, the financial picture is considerably brighter,” says Blayney.
Kamal makes between $45,000 and $60,000 annually. She would like to continue in her present position, since it affords her $5,600 in annual tuition reimbursement that she puts to good use with her MBA classes. On a cash-flow basis, notes Blayney, she is making ends meet, although there is no room for any unexpected expenses. Kamal’s one indulgence is buying books, a cost she offsets by using a discount card.
Faizun Kamal’s Current Monthly Expenses
Rent……………………........…..$700
Utilities…………………....……..$50
Food……………………….......…$150
Car payment……………....….$206
Car insurance……………....…$225
Gas…………………………......…$50
Cell phone…………………....…$80
Cat food and supplies…..…$30
Books……………………….....…$20
Personal (toiletries)…………$30
Credit-card payments……..$465
Anything left over at the end of the month, Kamal applies to her highest-interest credit card.
Recommendations
After reviewing Kamal’s financial situation, Blayney made these recommendations:
- She should sign up for her employer’s disability program. Since her earnings potential is her biggest asset, she needs to protect this against any accident or illness that might prevent her from working.
- She currently contributes $250 a month to her retirement plan, but does not know if Johns Hopkins makes a matching contribution. She needs to find this out, and contribute as much as is needed to get the full match. She also needs to investigate what a recurring $10.26 charge represents every pay period. Is this eye or dental insurance coverage?
- She should consider buying renter’s insurance. While she has very few personal possessions, the cost of this insurance is far below the replacement cost of these items.
- The cost of Kamal’s auto insurance appears excessive. It turns out that she is rated an “inexperienced driver” because she only got her license last year. After three years of driving experience and no accidents, this rating should go away. Her policy shows no discount for anti-lock brakes, nor a “good student discount.” Kamal should investigate whether she is eligible for these. If possible, she should also make her premium payments every six months, rather than monthly, avoiding a $4 surcharge each month. There is also a possibility that she is being charged higher rates as a result of a suboptimal credit score (some insurance companies do this.) Any steps taken to improve her score may reduce her premiums.
- Kamal’s withholding for federal taxes is 60 percent higher than it needs to be; she is also overwithholding for state taxes. While many taxpayers think it is great to get a refund, it is usually a big mistake. In Kamal’s case, she is lending $3,200 interest-free to the government, while struggling to pay off her high-interest debt. She should immediately adjust her withholding to increase her take-home pay, and use the excess to pay down her debt.
- Kamal mentioned that her father is willing to give her some money to help with her credit-card balances. She is reluctant to accept this offer because she wants to be financially autonomous and responsible. She might, however, consider a bona-fide loan from her father, on which she would make regular interest and principal payments, just as she is doing with her car loan. The difference, of course, would be that the interest rate could be far lower, even if it is set at the normal market rate between unrelated parties. If he could lend her, say, $2,000, the loan might be structured at 6 percent, amortized over five years. The monthly payment for such a loan would be approximately $39. She could then use the borrowed funds to pay off the high-interest Chase card. Then Kamal needs to aggressively attack her MBNA credit-card balance. If she were to pay approximately $425 each month to MBNA (this is the amount she was paying monthly to both Chase and MBNA minus the $39 she will now be paying to her father), her MBNA card would be at a zero balance in about 4.5 years, assuming no further purchases are made on the card. Better still, however, would be if Faizun were to add some of the extra cash she will have as a result of lower withholdings to her MBNA payment. By adding $250 to the monthly payment, bringing it up to $625, her MBNA card would be paid off in three years and seven months.
- There is a possibility Kamal might find another credit card that has a lower rate than her MBNA card (which charges 10 percent), and transfer her balance there. However, this may result in another black mark on her credit score, since frequent balance transfers from one credit company to another is generally viewed negatively.
- If Kamal can aggressively pay down her card debt by paying considerably more than the minimum required, her credit score should increase to the point where she can consider a home purchase and mortgage. Without an increase in her salary, she could consider a purchase of approximately $200,000 with $10,000 down. This may limit her to a small condo in the Baltimore area, but it is important that she get her start as a homeowner, both for personal and financial reasons. As her salary increases—which it undoubtedly will—she can buy more of a house.
- For her 403(b) retirement-fund allocation, Kamal should keep it simple, long-term, and growth-oriented. I would recommend a 70 - 80 percent equity allocation (50 percent US and the remainder in international equity funds), with the balance in a high-grade bond fund.
Kamal was thrilled with the review process. “Having Eleanor review my financial picture has been invaluable,” she said. “Her suggestions are simple and direct.” Kamal has already filled out the paperwork to adjust her withholding for federal and state taxes, which produces immediate results. She plans to sign up for disability insurance at work. Finding better credit-card rates and determining the fund allocation in her retirement account will take a bit of research. But the exercise has given Kamal hope.
“It is ironic that those who need financial help usually do not have resources to get such help,” she says. “So this was serendipitous. I will continue to aggressively monitor my situation until I get to the place I want to be. Thanks, Eleanor.”
For more information about Faizun Kamal’s clothing and accessories from Bangladesh, contact her at Faizunk@yahoo.com.
Seven Steps to Funding Your Dreams
By Lili A. Vasileff ’77
1. Find your passion and do it well.
- Jumpstart your career.
- Uncover opportunities.
- Make your pitch.
- Mark your territory.
- Expand your network.
2. Invest in yourself first and foremost.
- Pay yourself first.
- Ratchet up your savings.
- Do it with discipline.
- Save at least 10 percent of your net income.
3. Max out your retirement savings.
- Invest the max.
- Max out your employer’s contributions.
4. Get out of debt.
- Elect “plastic surgery” by cutting up those credit cards!
- Lower your rates.
- Tackle those balances.
5. Invest smarter.
- Do your homework.
- Understand the risk-reward relationship in investing.
- Get professional help if needed.
6. Spring for a spending plan.
- Cover the fixed costs first.
- Target some realistic goals.
- Pick a prize to splurge on and make it real—put a price tag on it and buy it!
- Stay on track with your spending plan.
- Realize that a spending plan is about making good choices.
7. Delete the “Prince Charming Action Hero” from your thinking.
- Be successful in your own right.
- Be independent financially.
- Share and share alike!
Lili A. Vasileff is a Connecticut-based certified financial planner and registered investment advisor. Her Web site is www.divorcematters.com.
How to Educate Yourself About Money
Web sites:
www.wfn.com
www.smartmoney.com
www.money.cnn.com
www.bankrate.com
www.troweprice.com (includes calculators for investment, education, and retirement planning)
Books:
Smart and Simple Financial Strategies for Busy People, by Jane Bryant Quinn, Simon & Schuster, 2006.
On Your Own: A Widow's Passage to Emotional & Financial Well-Being, by Alexandra Armstrong and Mary Donahue, Dearborn, 2000. (Although written for widows, the advice is applicable to any woman seeking financial independence)
Cable television:
Nightly Business Report, PBS
Radio
Marketplace on NPR
Newspapers
Wall Street Journal
Magazines
Fortune
Money
Kiplinger’s Personal Finance
Barron’s
Blayney photo by Lise Metzger
Kamal photo by Gene Sweeney, Jr.
Vasileff photo by William W. Good Photography
By Mieke H. Bomann
In response to alumnae requests, the Quarterly published a series of articles in 2006 on making your money work harder. In this installment, we consider the financial situations of three hardworking alumnae, Sue Hershner Chehrenegar ’73, Suzanne Lufkin Weiss ’77, and Maria-Stella Fountoulakis ’99, and offer the insights of a fourth, financial adviser Beth Fisher Cutler ’82 (pictured below). Other articles in this series addressed financial basics, balancing saving and spending, overcoming debt.
Life is beautiful and complicated and expensive. Few journey through it without experiencing some sort of financial challenge, but many of us are ill prepared to handle it.
Sue Hershner Chehrenegar ’73 wishes someone had suggested an emergency savings account to her a long time ago. In 2003, the unexpected side effects of a chronic medical condition forced her into early retirement after a successful career in biomedical research. Fortunately, her husband could pick up some of the slack, but Chehrenegar, now a freelance writer, has taken a considerable cut in pay.
“I was made to believe that I would just be working and tried to live my life as normal,” she explains. “Nobody suggested I should have money saved if I had to retire [early].”
The unexpected financial challenges of illness, losing a job, or getting divorced are by no means unusual, says Beth Fisher Cutler ’82, a financial adviser with UBS Financial Services in Greenwich, Connecticut. The only way to withstand them, she adds, is to have a plan. Step one is stashing away enough readily available cash to live—without an income—for at least three months.
Suzanne Lufkin Weiss ’77 wishes she had reached out to a financial planner years ago during her divorce. Currently a real-estate broker in Bath, Maine, she would love to get her teaching credential but is raising three teenagers. Taking time off to go back to school seems financially impossible to her.
“Not too many part-time careers favor single mothers,” Cutler agrees. The best plan for Weiss, she says, may be to finish a master’s in arts administration that she’s put on hold, and then see if she can find work for a large organization that will offer her a retirement and healthcare package.
“What this is all about is life planning,” says Cutler. “People should be thinking about it with some regularity, and keeping in mind the worst-case scenario regardless of how much they’re making and how well life is going.”
Financial advisers can help you create a financial plan. They work in different ways—some charge a flat fee, others a percentage of your assets—and you should interview contenders before choosing. “Ask as many questions as you want,” she says. And be sure to check the financial health of the outfit you’ve selected. You want it to be around “for a long time and making wise decisions.”
Passion, Risk, and Understanding in the Financial World
Find your passion. It’s an admonition that’s tossed around regularly in these days of personal trainers, life coaches, and a resurgent stock market. Stories abound of accountants abandoning their ledgers to open scuba-diving businesses in the Antilles, and of architects closing up shop to climb the world’s highest peaks. These folks always seem to have a bundle in the bank and not a worry in the world.
But what about the rest of us, who also want to fulfill our true potential but either haven’t a clue what that might be or have been chastened by circumstance or tradition to be happy with what we’re doing because who knows what life will deliver tomorrow? The answer depends on whom you ask.
Maria Stella Fountoulakis ’99 (left) has decided that despite the considerable risks of moving from job to job until she finds what suits her best, it’s worth it. A women’s studies major at MHC, the social services worker-turned elementary school teacher-turned waitress and actress has been fine-tuning her life plan since graduation and she isn’t done yet. “I feel like this is an opportunity for me to be a self-made person,” she says of her varied professional endeavors.
Beth Fisher Cutler ’82 sympathizes with the desire to find a suitable profession but takes a more pragmatic approach overall. A financial adviser for UBS Financial Services, Cutler points out that in a world of escalating costs, it’s important to mesh passion with compensation and to find a job with a company-matched retirement plan and health insurance at the outset of a career, if possible.
“Looking at annuity and insurance timetables, women will live twenty years longer than men,” she notes. “You have to do as much planning from the beginning as possible. The first job you [take] often sets the direction for the rest of your career.”
Fountoulakis, who is considering a master’s degree in social work, is certainly aware of the importance of financial planning and eager to better understand the principles of investing. She routinely watches the progress of her shares in the Vanguard Energy mutual fund, which her parents gave her after graduation, and she has gone online to educate herself about the stock market. But she says the language of business and finance is lost on her.
That’s not unusual, says Cutler. She recommends that Fountoulakis look for in-person seminars for women on investing and financial independence. The Alumnae Association has offered several in its Back to Class program during reunion, she points out. “Women enjoy hearing other women’s questions,” which spur even more questions, Cutler adds.
Fountoulakis also needs to network, says Cutler. She should talk to everyone she knows about finding an adviser, and swap stories about sources of financial information. An excellent resource, she says, is LifeNet, the Alumnae Association’s online networking site, where graduates can connect with women who are financial professionals and/or are interested in money issues.
As for figuring out how to finance her continuing education, Cutler suggests Fountoulakis talk to an adviser about her liquidity needs, her timeline, and building a balanced portfolio.
Woman to Woman: the Feminization of Money
As a recent article in Wealth Manager magazine pointed out, women take a different approach to managing money than men do. Financial experts have learned that just as women are generally more relationship oriented than their male peers, they also favor wealth managers who check their pontification skills at the door, listen to their individual goals and timetables, and willingly translate sometimes-indecipherable “business-speak” into proper English.
Beth Fisher Cutler ’82 understands this. As a UBS Financial Services adviser, Cutler has many female clients, and her approach is educational and supportive. “I find that … males seem to be more data oriented,” she says. “Women think of money as a means to their ends. Empowering women with financial information is my goal,” she adds.
Developing trust is essential, Cutler says, as is empathy. And that takes time. “When I plan my first meeting, I allocate two hours,” she explains. “My colleagues think that’s crazy, but when I go to a doctor I don’t want to be rushed. I want to have the full-length conversation. You are planning for your life and have to sit next to somebody who has allocated enough time.”
The bottom line, Cutler says, is that wealth managers need to find out what their clients need and understand, and then speak thoughtfully to those issues.
Beth Fisher Cutler may be reached at beth.cutler@ubs.com.
In response to alumnae requests, the Quarterly published a series of articles in 2006 on making your money work harder. Other articles in this series addressed financial basics, planning for unexpected financial challenges, and overcoming debt.
By Maryann Teale Snell ‘86
Around my house are urgent notes I’ve written to myself describing budget woes, admonishing my behaviors, and suggesting reform: “Spending $500/month on food; budget is $300! Figure out how to cut back!” In my attempts to get a financial grip, I’ve tried the cash-only method. (Attached to my credit card is a ratty Post-it note with the command No! It’s ratty from all the times I’ve removed it to use the card, and then stuck it back on.) I toss change into a little cast-iron crock several times a week (yield: $45 annually, used for groceries). I stash a modest sum ($150) from my paycheck in a savings account, but there’s always a surprise expense (new brakes) or one I forgot to budget for (oil delivery), or some sudden, dire need (a hammock).
Being savvy about the save-spend dynamic is no small task, especially if it doesn’t come naturally—and that’s true for most of us, says money coach Olivia Mellan ’68. But setting realistic goals, creating an accurate budget, and striking a balance between discipline and deprivation are steps in getting there.
Savings Challenges
Saving even a few dollars at a time may seem impossible if you’re living paycheck to paycheck. When Lisa M. Utzinger ’02 (pictured below) started work at a nonprofit in Boston, she supplemented her entry-level income with odd jobs, but still couldn’t save. A little self-examination, though, has yielded insights: “A city lifestyle is expensive. I spend way too much on clothes, eating out, and entertainment.”
After graduation, Sabra L. Smith ’81 got in the habit of stashing away a bit of her paycheck each month. “I feel better if I’m sitting on a pot of cash in case of an emergency,” she says. Now divorced, the once stay-at-home mom is paying grad-school tuition as she prepares to reenter the workforce, shelling out money for home repairs, and trying to support her two young children. She says it’s “extremely discomforting to see my bank book hemorrhaging.” Like Utzinger, Smith concedes, she’s not sure she can afford the way she lives. “I feel trapped in my house … I’m terrified that I should [instead] be in a crappy little apartment with a roommate, to cut costs,” she says. “I’m used to buying what I want at Target when I want, but I have a feeling I should be buying ramen and eating at home more than I do.”
The first step toward saving money is understanding your short-, medium-, and long-term goals, says Mellan. “Until you know what you’re saving for—a vacation, your kids’ college educations, something you want to buy—you can’t get motivated about saving.” She has clients keep a “spending diary” of where their money’s going and how they feel about it.
“Then they can think about what they need to change to come up with more money. It’s simple: You have to work more or spend less—or both.”
Setting Goals
Jennifer K. Dick ’93 wants to buy property. She lives “on less money than most everyone I know,” but the savings process is slow despite a contract teaching English and American literature in Paris. Still, what she sets aside is adding up, and soon she hopes to invest her savings in home ownership. Beth Regish Smith ’92 too is saving for a down payment on a home. While Boston-area housing prices are “out of sight,” she and her husband are saving what they can and seeing progress.
Utzinger’s goal is to save $30,000 over the next five years, to make a down payment on a house. Toward that end, she has $250 automatically deducted from each paycheck. But “things inevitably come up—car repairs, Christmas shopping, trips—so I’ve had to dig into my savings,” she says.
“Balancing competing priorities—home, school debt, emergency funds”—is a challenge for Beth Smith. That, and having the patience and discipline to “plan for long-term goals at the expense of short-term ones.” Women, she adds, “need to be more vigilant about saving for retirement. We need to plan for ourselves, not just our families.”
Many of us just want to know what our savings—and investing—options are, and to receive useful, unbiased advice from a trustworthy source. Approaching a bank for answers can be daunting, especially if you sense you’re getting a sales pitch rather than helpful information. Dick says she taps friends, family, and
the Web for info—as well as bankers.
Expert Advice
“Saving and spending are like opposite ends of a tilted pencil,” says Dam T. Nguyen ’02, a financial adviser setting up her own firm. “If one goes up, the other goes down. To get a handle on saving for any purpose—retirement, a home, a wedding—you need a clear understanding of where the money’s going.”
Tiffany Ross ’93, a financial representative for Northwestern Mutual Financial Network, says “it’s critical to ‘pay yourself first.’” Consider your savings a “bill” you’re responsible for each month, she advises. “Pay it just like you’d pay the rent, mortgage, or cable bill.”
“The best way to save is through automatic deduction via payroll or from your bank account,” says Camille M. Gagliardi ’90, a certified financial planner® with Ameriprise Financial Services. Sign up for “an employer-sponsored plan (such as 401(k), 403(b), or 457), where you receive a match. If that’s not available, set up a monthly [payment] to an investment account from your checking account. It’s easier than trying to make yourself sporadically save.”
Inspiring people to take charge of their finances is part of Olivia Mellan’s job, but she encourages self-compassion while learning how to put money aside. “You shouldn’t save so much that you feel so constrained and then go out and have a binge,” she says.
“Also, some people say if you have credit-card debt, you shouldn’t save anything, you should just pay it off. But many of us in the money field don’t believe that,” Mellan adds. “We think it’s psychologically important for people to start saving something, even if it’s a teeny bit. It helps them see that they can save.”
Any way you look at it, being master of your monetary domain requires effort. Mellan suggests keeping a picture of what you’re saving for in your wallet, as a reminder. Expect to fall off the wagon now and then. “As a nation we are very bad at delaying gratification for deeper fulfillment,” she says. “We don’t seem to understand the value of it. But getting better at it can be a tremendous boost to people’s self-esteem.”
As someone who has paid down her credit-card debt from $35,000 to $5,000, is now making monthly payments to a savings account, and has recently managed to satisfy a couple of decades-old yearnings (drum set and pickup truck), I can attest to that.
10 Tips from the Trenches
1. Redefine “emergency.” Consider your savings account off-limits except in a true emergency (not that the boots you’ve lusted after are on sale, or that you bought too many mai tais on vacation and the credit-card bill has now arrived.
2. Set spending priorities. Forgo the Starbucks latte and drink free office coffee (or, if coffee is your thing, drink Starbucks every morning, but bring lunch).
3. Keep your mitts off. Put a small amount in an account that can’t be touched for several years. It will earn interest, and you won’t empty the account when things get tight around holiday or tax times.
4. Live within your means. If you can’t afford that ski trip, don’t take it.
5. Be real. Buying something on sale doesn’t mean you’ve saved—you’ve still spent money.
6. Live modestly. Even if you can afford to drive a BMW, join a fancy gym, and go to an expensive hair salon, that doesn’t mean you should.
7. Be binge-free. When you see something you want but it’s at the limits of your budget, think hard: will you really wear it, use it, value it? Why or how often?
8. Nip that paycheck. Get a savings account and have money automatically transferred to it every pay period.
9. Split your raises. When you get a raise, put at least half of it in your 401(k). You won’t miss that money and you’ll still see an increase in your paycheck.
10. Keep your eyes on the prize. Save for something specific—a house, a wedding, grad school, a new car, a trip to Europe. It helps to visualize a goal.
A tip of the hat to Jennifer Dick ’93, Sabra Smith ’81, and Lisa Utzinger ’02 for their advice.
In response to alumnae requests, the Quarterly published a series of articles in 2006 on making your money work harder. Other articles in this series addressed financial basics, planning for unexpected financial challenges and balancing saving and spending.
By Maryann Teale Snell ’86
Does your student-loan balance exceed your annual salary? Have you whipped out the platinum-plus card to make ends meet? Are you a pro at “switcharoo”—transferring high-APR credit-card balances to cards with lower ones? Do you hover by the mailbox each spring, awaiting a tax refund that you will nobly forward to a creditor? In short: Do you owe, big-time?
If you’re up to your chin in debt, you can at least take solace in knowing you’re in good company. According to Consumer Credit Counseling Services, the average American owes $8,600 in credit-card debt; and the Department of Education reports that the average college student owes nearly $20,000 upon graduation. But those are just averages. For many of us, the picture is considerably bleaker. And there’s a certain stigma attached to having personal debt, which can make it uncomfortable to talk—or even think—about. But even if you’re in deep—however you got there—you can still get out, as some Mount Holyoke alums are proving.
In the Red—From Debt and Embarrassment
Mary Smith ’04 (not her real name) is $55,000 in debt, with $12,000 on credit cards, $18,000 on a car loan, and $25,000 still to pay on student loans. “I definitely feel in over my head,” she says. After graduation, Smith went to England, where she earned a master’s degree—funded mainly through student loans and credit cards. Now back in the United States, she admits she sprung for a new vehicle rather than buying a cheaper used one and is “addicted to traveling,” which ratchets up her credit-card balances.
Karen T. Lee ’85 panicked two years ago when she realized she owed $80,000—including a $40,000 mortgage and $5,000 in student loans she deferred while finishing her PhD. The rest she attributes to living off credit cards when she was between jobs, a general “lack of restraint with money, and a couple of bad decisions”—like renting a costly apartment. “Credit cards,” she adds, “are evil.”
Kate M. Axt ’01 left MHC owing $15,000 in student loans. She has paid that down to $10,000, but in the meantime accumulated another $25,000 in credit-card debt. Moving to New York City and furnishing her living space accounts for about $10,000 of that, she says; “I tried to do it economically, but it added up.” Still, she admits making “some purchases that didn’t need to be made, including clothes, eating out, and an iPod.”
Her parents covered her student loans while she was at MHC, but once she graduated Clare M. Robbins ’04 took over the $65,000 balance. She says she didn’t have a “practical understanding of what it would be like to manage my money, to manage debt”—which in her case now includes credit-card balances. If she’d had better “financial literacy skills,” Robbins says, her situation might not have felt so overwhelming.
That’s not an uncommon sentiment. As Consumer Credit Counseling Services points out, “Generally speaking, we are not taught in school how to handle budgeting and credit issues. For the most part, we have had to learn about [these] on our own. Unfortunately, many of us have learned the hard way.”
What’s Worth Going Into the Red?
Robbins has given herself a reprieve by putting some student loans in forbearance and arranging for graduated payments on others. In retrospect, she and other alumnae have asked themselves: If I had it to do over again, would I make the same financial choices? What’s worth being in the red for, and what isn’t?
“Graduate school was worth every penny,” Smith says. “Even some of the debt from my travels I would not trade for the world; the memories are too precious. But do I wish I had not gone on shopping sprees in Europe and put everything on credit cards? Definitely.”
Nowadays Lee could justify getting loans for a car, an education, and a home—but that’s it. Even that mindset is “incredibly different from two years ago, when I would have gone into debt for just about anything,” she says. “A house, a car—if you need one where you live—and school are all worth going into debt for,” agrees Susan R. Bushey ’96. “But you have to be able to pay them off. That’s the key.”
There’s definitely “good debt versus bad debt,” says financial adviser Dam T. Nguyen ’02. Mortgages are good—in part because “you get tax deductions on the interest paid. Cars are not good investments,” she adds, because their value just keeps going down. (She recommends buying one that’s “decent and reliable, but not luxurious.”)
Getting one’s monetary house in order requires some financial knowhow and a heavy dose of discipline. To reduce her credit deficit, Peg Atkins Danek ’85 first had to get her spending under control. She read Finances for Dummies, tracked her purchases using Quicken personal finance software—and changed her habits. She quit using credit cards, started buying groceries in bulk, and cut out nonessential services like cable TV and callforwarding. Then she tackled the loans, paying off the high-interest ones first. Becoming “habitually frugal” and staying in the black is a “fantastic feeling,” she says.
Getting Your Financial Land Legs
But even when you stick to your financial guns, clearing your debt can seem unbearably slow. Robbins says for a while she felt immobilized by financial fears. “Lately I’ve tried to transform my thinking, to believe that [having this much debt] is not going to be the ultimate setback of my life. [But] I still need to have a strategic plan and not be willy-nilly about it.” The trick, she thinks, is to “pay what you can each month—and be consistent. I’m picking away at my debt mountain with a toothpick but keeping myself in good standing. That’s what keeps me sane.”
To get a mortgage two years ago, Bushey had to pay off a student loan and some credit-card debt. Reluctantly, she turned to her parents for assistance. They helped her pay down her balances and negotiate with credit-card companies. She has just one card now and pays the total due every month.
A year ago, Kate Axt cut up all her cards except one, which has a limit of $500. She’s also found that online banking has helped her “keep everything in order and pay things on time.”
If you still carry significant balances on your credit cards, Nguyen offers this advice: “Be methodical about paying a bit extra every month.” And if you’re inclined to shop around for lower-interest cards, the zero-percent variety “can help buy some time,” she says, but it’s still important to make regular payments.
Since her financial reality check a couple of years ago, Karen Lee has paid off $20,000 of her debt. She’s a follower of radio talkshow host and best-selling author Dave Ramsey, who penned The Total Money Makeover. “His get-outof- debt plan … has worked for me,” she says, adding that she “stopped using credit cards cold turkey. I only buy things I can pay for now. I feel pretty good,” she adds. “There’s a light at the end of the tunnel”—and that should be some reassurance for anyone who owes.
To reduce her credit deficit, Peg Atkins Danek ’85 first had to get her spending under control. She started at the supermarket.
Learn More For more on how Peg Danek got out of debt, and tips from Consumer Credit Counseling Services, visit alumnae.mtholyoke.edu/ go/debt.
How to Be a Cheapskate and Still Keep Smiling
If you’re cash-poor and tempted to use your credit card, consider these tips from Lori Macellaro Kelman ’82, who considers herself something of a cheapskate who still knows how to have fun:
• Cook at home, eat at home. Make your own coffee, bring your own lunch. This can save you hundreds, even thousands, of dollars a year.
• Find cheap ways to keep culture in your life. Go to museums on “free” nights, and visit local art galleries. Seek cheap tickets to plays (go to previews, volunteer to serve as an usher). And if you must see first-run movies (you can save a lot renting them later), go to the cheaper first showing.
• Cancel cable TV and watch shows at a friend’s or on DVDs from your local library.
“Bottom line,” says Kelman: “Decide which things that cost money really matter to you and which ones you can do without or skimp on. There are plenty of choices (clothes, makeup, transportation) where you can spend more or less money.”
But her past financial support of a friend has left her paying off considerable debt while at the same time hoping to buy a house. What she needs are specific strategies to reach her goals, says financial planner Eleanor Hotchkiss Blayney ’73 (Eleanor.blayney@theharris.com; www.sbsinc.com), managing director at Sullivan, Bruyette, Speros & Blayney, a subsidiary of the Harris Private Bank, and she agreed to provide that blueprint.
