MONEY MAKEOVER
Good income, right attitude count

By Deborah Adamson
Advertiser Staff Writer

Garton and Tricia Sojot seem to have it made: A combined $100,000 annual income, two loving children and a house in Makakilo.

Garton and Tricia Sojot, with their children, Saechel, 9, and Adam, 13, have a combined annual income of $100,000. Gregory Yamamoto • The Honolulu Advertiser

It bothers Tricia, a 36-year-old preschool teacher, more than her husband, a sheet-metal worker. Garton, 44, is relying on the union to take care of the family's financial needs when he retires. But Tricia wants to make sure there's a safety net in case something happens to her husband or his job.

"I ask him what happens if you get injured and can't work," she said. "He says, 'Oh, union will take care.' "

Michael Iraha, a Honolulu certified financial planner, said that it's wise to build a retirement nest egg apart from any union benefits they expect to receive. To get full benefits, Garton must work for 30 years. But the Sojots haven't factored in the possibility of Garton's being laid off.

The good news is "you have the right attitude," Iraha said. "You're concerned enough that you took the time (to meet with a financial planner). But you need to take the next step."

Central to the makeover is getting a handle on the family budget. Tricia said she keeps an informal list of expenses or tallies them in her head. But Iraha said the Sojots need to keep better track of their spending so they'll know where to cut.

The Sojots say they don't splurge.

But her car finally died. She bought a new Mazda on which she owes $21,000. Their other debt: $2,000 on credit cards and $4,000 in student loans.

Aside from the mortgage, insurance and utilities, they spend about $600 a month on groceries, $150 on cable and broadband Internet, $150 on cell phones and they eat out often. But they don't keep track of incidentals, like a birthday gift here or a baby shower present there.

Two months ago, the couple made their last $645 monthly payment to settle complications arising from a bankruptcy. They bought a townhouse in 1996 for $189,000 and moved five years later to a larger house when they had their second child. The new house cost $199,000. The Sojots couldn't get enough in rent on their townhome to break even on the mortgage. They were having trouble keeping up with both mortgages, and they eventually filed for bankruptcy.

Tricia thought they would be able to put $645 into their savings now that they've discharged their bankruptcy obligation. To her surprise, they spent the extra cash without knowing where it went.

Iraha advised them to set up an automatic withdrawal of $645 a month from one of their paychecks into a savings account. It's easier than vowing to write a check for savings every month, because inevitably you'll find use for that money somehow — an anniversary, baby lu'au or graduation that's coming up.

The Sojots should start an emergency fund that can pay for at least three months of living expenses, or about $10,000, the adviser said.

Once they have extra cash, they should buy life insurance since the family depends heavily on Garton's $66,000 a year job.

Find out what life insurance benefits Garton has through the union, Iraha said. Make sure he's covered for at least $250,000 — so Tricia can pay off their $189,000 home loan and other debt plus leave something extra for the children.

If the policy through the union doesn't provide enough coverage, buy extra. Choose a 20-year term life insurance, which should cover the family until 13-year-old Adam and Saechel, 9, are financially independent. Tricia also should consider taking out life insurance, but coverage for Garton is more critical.

Finally, Garton should look into whether his union provides adequate disability insurance — enough to cover at least 67 percent of his income.

The couple wants to save for their children's college education, but Iraha has this advice: "Do not jeopardize your retirement for the kids' education."

The children can get student loans, apply for scholarships or work through college. Fund both goals if you can, but your priority should be your retirement, he said.

The Sojots' retirement savings should be invested mainly in stocks because they still have decades to go before retirement.

They should each open a Roth IRA, in which you can withdraw money completely tax and penalty free after 59 1/2, Iraha said. Currently, the maximum investment allowed is $3,000 a year per person. Tricia and Garton should aim to put away $6,000 in their Roth IRAs annually.

After 20 years earning 7 percent on average annually, the IRAs alone would be worth about $245,000.

Tricia also has a 403B retirement plan offered through work and she should put more money into it. Currently, the most allowed a year is $13,000.

At this point in the discussion, Garton suddenly piped up and said he got his first $700 monthly check for teaching welding classes.

"What?" his wife said in surprise.

"Garton!" she and the financial planner said at the same time.

So the Sojots should at least have $1,345 to set aside, Iraha said. They shouldn't put off saving any longer since success in reaching their financial goals is directly related to how much they save now — not next year or after the children go to college.

If the Sojots start saving immediately, "you'll be thanking me 15 years from now," Iraha said.

Reach Deborah Adamson at dadamson@honoluluadvertiser.com or 525-8088.