Couple urged to budget, invest
By Deborah Adamson
Advertiser Staff Writer
Maybe she was influenced by the seductive sway of the palm trees, or the romance of the Latin culture. But Kelli Appenzeller of Avalon, N.J., found herself attracted to the blond and carefree Matt Maletta. One Valentine's Day, she asked him out to a coffee festival in the mountain town of Maricao.
That was five years ago. Today, the two are married and leading a simple, country life in Kahuku. They moved to Hawai'i shortly after they became a couple because Matt sought year-round surfing at a place with better job opportunities than Puerto Rico.
"I don't need to make tons of money. I just want to be comfortable," said the 32-year-old surfer who defines comfort as having food, clothing and shelter plus a little extra for emergencies and occasional splurges. "I'm more of a free spirit, I guess."
Kelli shares his carefree outlook on life and wealth: "Money is not a priority, it's a necessity. You need it to do things you like to do. In turn, it makes you happy and keeps you healthy."
The Malettas pull in just under $50,000 a year working four jobs. Kelli, 32, is a production assistant with a real-estate magazine and works Saturdays as a bartender for a caterer. Matt sells art at Wyland Galleries in Hale'iwa and also works as a substitute schoolteacher. They try to take a month off every year.
The couple has some savings, but most of their net worth comes from their three-bedroom, one-and-a-half bath house, which has appreciated by about $80,000 since they bought it for $200,000 last year. They still owe $160,000 on the house.
They don't have any debt besides the mortgage because they live a simple lifestyle that's heavy on enjoying nature. Matt either swims or surfs everyday, while Kelli likes to hike and bike. Matt says he never buys anything unless it's on sale, and Kelli has set a $50 a month clothing allowance. They seldom dine out but enjoy going to the movies or renting DVDs, usually at a discount from a supermarket.
But they would like to start a family soon and want to be in better financial shape.
Seeking guidance for their money matters, the couple turned to Martin Arinaga, a certified financial planner and senior vice president of Chinen & Arinaga Financial Group in Mililani.
While Kelli and Matt aren't wealthy, they have a net worth that's higher than some people who live more affluently because they carry no debt beyond their mortgage, Arinaga said. Net worth is calculated by subtracting one's liabilities from assets.
Nonetheless, the couple should consider ways to boost their income working in higher paying jobs they'd enjoy, he said. Matt said he's hoping to get his nursery business off the ground in a few years and might teach full time. Kelli is mulling a medical career as a nurse something that would require going back to school.
Listening to the presentation in Arinaga's office, Kelli nodded in agreement: "We should make more."
"We will," Matt said, reaching over to touch her hand in assurance.
The two should work on staying debt-free, Arinaga said. They should also write a budget to get a clearer picture of all their spending. When the financial planner asked Kelli to list their expenses, she named the mortgage, utility and grocery bills and entertainment costs. When those costs were deducted from their monthly take-home pay of $4,000, it appeared as if they had $1,400 left over.
But Arinaga reminded them of various expenses that they didn't account for, such as car insurance and transportation expenses as well as the cost of repairs. Suddenly, the estimated size of their monthly savings shrank.
An accurate budget is important because it measures true cash flow income minus expenses.
"The first measure of wealth is net worth," Arinaga said. "The second measure of wealth is cash flow."
The Malettas also need to beef up their retirement savings. Matt should save more money in his tax-free Roth IRA, and Kelli should open an account. Matt plans to join his employer's 401(k) plan in July, and Kelli will ask her company to start a retirement plan. At the financial planner's recommendation, Matt will look into joining the 403 (b) retirement plan tax-sheltered annuities offered by the state Department of Education.
The two should set a goal of putting 10 percent of their gross income into retirement accounts, Arinaga said.
Kelli and Matt said they'd feel comfortable having $4,000 a month to spend in retirement. However, they need to remember that inflation will erode their purchasing power as the years go by. Assuming an annual inflation rate of 3 percent, Kelli and Matt will need $10,000 a month to maintain the same standard of living in 30 years time. Ten years into retirement, they'll need $13,000 monthly to stay on an even footing.
One dilemma: They don't like to invest in stocks, which tend to appreciate the most over time compared with other types of investments.
"I saw my dad lose a lot in stocks," Matt said. "We're interested in real estate. We feel it's safe."
Arinaga pointed out that real estate has its ups and downs as well, although it's not as volatile as stocks. But for the Malettas to have enough money in retirement, they would need to invest a portion in stock mutual funds. In the meantime, they can take their savings out of low- or no-interest bank accounts and transfer them into a money market mutual fund, which is stable and pays a slightly higher interest, Arinaga said.
As for their home, they have to decide whether they're going to sell it, make it into a rental or continue to live in it. The Malettas took out an interest-only mortgage that is fixed for five years but changes into an adjustable rate afterward. They did it because they had planned to move into a larger home in a few years. But now they're thinking of holding on to the property.
Arinaga said if they decide to keep the property, they should refinance soon.
It's also a good idea to start socking away money for education, not only for their future children but for themselves, the financial planner said. Kelli and Matt can look into various 529 plans offered by Hawai'i and other states as a way to save money tax-free for education.
The Malettas also should join their bank accounts, which they haven't yet done since they got married. It avoids going through probate, which is cumbersome and costly, if one spouse dies. They should make sure to update their beneficiary information, as well.
Other estate planning issues to consider would be setting up wills, living trusts and giving each other power of attorney. It would give them more control over their assets in the event of death. Finally, they might want to look into buying life and disability insurance.
"You want to get it before you need it," Arinaga said.
Interested in a free Money Makeover? Contact Deborah Adamson at email@example.com or 525-8088.
Couple given financial plan
Work: He is an art consultant and a substitute teacher. She is a production assistant at a magazine and works part time as a bartender.
Combined salary: Just under $50,000 a year.
Assets: Some savings and a house that is valued at $280,000.
Credit card debt: None.
Goals: The couple wants to start a family soon and wishes to be financially prepared. They would like to save enough for a comfortable retirement.
Challenge: The Malettas need to boost their income to meet their financial goals. They prefer to retire as early as possible, but they are averse to investing in the stock market. The two also need to join their bank accounts in the event of a spouse's death.
- Look for better-paying jobs that they would enjoy.
- Set up a budget to get a complete picture of their spending.
- Save 10 percent of their gross income for retirement.
- Consider investing in stock mutual funds to boost investment returns.
- Transfer money out of low- or no-interest bank accounts into money market mutual funds that pay higher interest.
- Make a decision about whether to sell, rent out or live in their home.
- Explore 529 plans to save for education.
- Establish joint accounts and update their beneficiary information.
- Set up wills, living trusts and power-of-attorney privileges.
- Look into buying life and disability insurance.