Thursday, June 24, 2010

Bad Financial Planning and Good Financial Advice

Fran Tunno Mills has (probably) $176,000 coming to her from the sale of her California home, which makes her feel financially okay. Her financial advisor, provided by the LA Times as part of their money make-over series is less sanguine--she thinks Fran is in a financial pit and will have serious problems climbing out. As this article makes clear, the financial advisor is almost certainly correct.

Fran is 54 years old, newly divorced (the house was sold and the proceeds divided as a result of divorce), and does voice-over work on contract, which garners her approximately $40,000 a year. [Another thing I can't tell from the article is if she gets child support for her two children or if that is included in the $40,000.]

She has saved only $29,000 toward her retirement, and has $39,500 in debt.

To her credit, Fran knew she needed help figuring out where to go next. But Fran was wondering whether to buy a house or a condo. Her financial advisor was thinking Fran can't afford Domino's pizza, much less a home.

Clearly, living in Southern California is part of the problem. It appears that Fran is considering a move to a small town in Pennsylvania to be near her father, though the article doesn't say whether she can continue her recording contracts from that distance.

On one hand, Fran contributes $300 a month toward her children's college funds, but on the other hand, she uses credit cards to maintain her standard of living. Neither of those can continue.

I have a lot of empathy for Fran's position. I was roughly her age before I saw the necessity of putting money away for retirement. And, like her, I still had teenagers at home during my fifties. I know that if anyone had dropped $176,000 into my lap, I would have felt like I was home free. And I probably would have looked around for new housing.

I think she was fortunate to have a savvy financial advisor to set her straight. The housing proceeds will come in very handy, but just to get her back to zero. She still has to make a lot of plans for her financial future that will entail a number of cutbacks in her family's current lifestyle.

7 comments:

Morrison said...

It's hard to believe that people still live like this:

$110,000 on a kitchen remodel?
Refinancing her home several times over and over again, one just to pay off $80,000 in credit card debt?
Spending $66,000 a year on a $40,000 income?
Borrowing $6,000 from her 94 year old father just to make ends meet?
Yet, she had a $200 a month maid!

Ugh.

Let's hope the woman doesn't blow her $176,000 settlement from her divorce. Odds tell me, she will. They always do.

Double ugh.

Grace. said...

Um, Morrison, tell me how you REALLY feel!

I have to say that come the day all my debts are paid off, weekly housecleaning is going to the top of my "what to spend my money on now" list.

But, yeah, Fran needs to ditch the maid!

frugal zeitgeist said...

This is a scary situation and one that's all too common, unfortunately. I am terribly worried for some friends who are just a year or two younger than this lady and until now have lived pretty extravagantly: The wife hates her job passionately but isn't having any luck finding another one within the company (and she's getting plenty of hints that she should move on sooner rather than later). To make matters worse, just this week her husband lost his job. I'm not pushing any advice on them, but I quietly told the Mrs. that I'd be glad to help them with a budget and talk about making some lifestyle changes *if* it's something they would find helpful.

Morrison said...

Grace,
For some reason, I can't stop thinking about this story. Last night, I came up with another angle.

Despite this woman and her husband's bad financial habits, they still managed to come out with $352,000 from the sale of their Glendale home (which, when split, each gets $176,000 cash to restart their lives).

What if they didn't have that home? Yes, the couple were reckless in their handling of money, but where would they be now if they didn't have that home? They probably would have squandered away ALL their money. So, in effect, owning a home really is a hedge against complete financial ruin and yes, owning a home is a form of forced savings.

If this were me, I'd rethink the financial advisors advice about NOT buying a home. If the woman truly smartens up and can get her spending in check and follow a frugal life style, it may just be advantageous to her to buy a small condo/townhouse (as is and not do any remodeling or borrowing against the equity) and restart her life all over again. If she rents, in the long run, she'll have nothing to show (she'd probably wiz through that $176K) but if she uses it wisely for a substantial down payment, in 15 years or so (approx 69 years old) she may have a better nest egg than if she didn't buy another home.

Just a thought.

Chuck said...

I think in her case, she hasn't yet realized that after a divorce, you can't keep living like you were beforehand. A lot of times, it's just something you don't think about, and even if her husband's income was modest, it was still enough to most likely cover whatever new debt she'll incur.

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Carol said...

Ok, this is pathetic.

My first thought on reading this story was "A-hah! She's got a LOT more debt than I do!!!! And I've got more in my 401k!!! I'm not doing so bad after all!!!!"

But in reality, our situations aren't that far off. My debt is going down, little by little, at least for now. But there's a long way to go :-(

And I don't have $176,000, either.

And a full time job would sure be nice.

Living Almost Large said...

stories like this is why my in laws are still married. 50-something, too expensive to get divorced.