The Single Income Household
William Diaz and Amanda Peters, 32 and 33
Startup Software Engineer and Independent Marketing Contractor
Income: $125,000 and $35,000 (expected but not guaranteed)
When I ﬁrst met Amanda and William, they were on the fence about whether or not they actually needed professional advice.They were being gifted a down payment from Amanda’s parents for the purchase of their ﬁrst home and they considered themselves pretty good with money- especially compared to their friends. Amanda had been working in biotech making 6-ﬁgures, but had quit her job the year before. Many of her coworkers were married with kids and were regularly lamenting about how they had to keep their positions because they needed the good incomes. Having just gotten married herself and beginning to think about kids, Amanda had a feeling that if she got pregnant while working there she’d be in the same boat. She’d talked to William about her concerns, and he agreed she should leave if she wasn’t happy and that they’d make do on their savings and his income while she ﬁgured out her next step. Surprisingly, the shift changed their awareness of their spending habits and after a year of Amanda out of work they’d actually added to their emergency fund. Now, William was tired. The startup he’d been working for that promised big bonuses and lots of growth wasn’t compensating him as promised and he was working 80 hours per week. The strain from work made it hard to stay disciplined with spending and their emergency fund was slowly declining. William knew that in any company he moved to, he’d at least be taking the same base salary and Amanda got a small marketing gig that was reliable. They decided to invest in a plan because they really wanted to buy a house but weren’t sure what they could afford and how buying would impact their overall cash ﬂow. They also felt like they weren’t maximizing their opportunities with the money they were making and they wanted to make sure they understood exactly what their options were so that as their incomes increased they would be building wealth more efﬁciently. Lastly although they had emergency savings, neither Amanda nor William had been contributing to retirement for the last 2 years and wanted proper savings to be part of their overall plan.
Plan Options To Consider
The ﬁrst step with William and Amanda was to look at their beneﬁts. Because William’s employer is a startup his only work beneﬁts were health insurance and stock options on non-publicly traded employer stock. We looked at life insurance, short-term and long term disability in addition to retirement account options and the stock investment opportunities. William had previously purchased stock options at his startup and felt strongly that he should purchase more, but he wasn’t sure what made sense given their goals and their other savings and investments. We looked at William and Amanda’s investment portfolios and savings beneﬁts as a whole and discussed what kind of potential liquidity, growth, and restrictions investing in different options offered. We also talked about fees in their current investments and opportunities for diversiﬁcation to better protect against market downturns and to be able to get growth from different market sectors. We also talked about taxation of their investments and in what ways it was helping and hurting the growth of their investments. From there we worked on a strategy for the home purchase. Based on the size of the gifted down payment, their goals, their current work situations, and their current liquidity, we walked through different scenarios to evaluate what using the entire gift as a down payment looked like versus putting down a smaller down payment. Armed with a goal mortgage payment and the agreed upon down payment, we ran different scenarios (renovation year 3, property taxes go up, Amanda has no income) to show how the purchase would impact cash ﬂow both regularly and under stress. We also incorporated regular retirement and mid-range investment savings into their overall plan and ran different savings scenarios so that they could choose what they wanted to save and how they wanted to save it knowing how each option affected their spending now and their net worth at different points in the future.
The client experience described may not be representative of any future experience of our clients, nor considered a recommendation of the advisor’s services or abilities or indicate a favorable client experience. Individual results will vary. Strategies mentioned may not be suitable for every individual.