Heather and Luke Weslowski got married five years ago. Heather had two children from her previous relationship, Felicia (8) and Adam (10). With their combined incomes of over $100,000, they thought their financial resources were more than enough to enjoy the good life.
The couple purchased their home six years ago with 5 percent down and a sizeable mortgage. They both brought student loans and credit card debt to the marriage.
When Heather (33) went on maternity leave after new baby Rory was born they were reduced to one income and felt the pinch. They realized that when she returned to work they would have to make changes, get their priorities in order, and prepare a financial plan.
Working together they determined what they both wanted for their family’s future. Being debt free was a major goal and they worked out a strict plan to pay all but the mortgage within three years. They discussed their weakness when it comes to money. The main one was if there was an outstanding balance on their credit cards then it became too easy to charge more purchases.
They were determined to increase both their retirement savings, open RESPs for the children and go on a memorable family trip in the near future.
Heather is very detail oriented and she continually revised their budget to cover all their expenses but also to have some money put aside for the occasional fun treat.
Related: Splurging on a budget
Their plan was working well until disaster struck. Several large unexpected expenses in a row depleted their emergency savings – a hefty car repair, dental work that was not covered by company benefits, and a trip across the country to Luke’s grandmother’s funeral. Then the furnace quit working and they paid for a new one out of their vacation fund.
“I really didn’t want to touch that savings account, but I knew if we put it on the credit card, it would be too much of a temptation to say – Oh, to heck with it, what’s a few more purchases! – And we’d be back with a big balance to pay off,” says Heather.
“I thought we were doing so well,” says Luke (38), “and then it’s one expense after another. I feel like we’re back to square one. It’s really discouraging.”
- Pay off debts.
- Set up RESPs for their children.
- Retirement savings.
- A great trip the whole family will enjoy and remember.
- Develop the basement in their house to give them more living space.
Here’s what they can do
The first thing the Weslowski’s should do is take a step back and see how well they have actually done in other areas of their financial plan.
If they take a look at their original net worth statement and compare it to the present, they will find that:
- The credit cards and student loan debts are paid in full.
- By switching to accelerated biweekly mortgage payments, the balance has reduced noticeably.
- Automatic transfers to both their RRSPs and the RESP – and some good market returns – have been steadily increasing their portfolio.
- They’ve accumulated savings for their yearly expenses – insurance, property taxes and holiday spending.
The couple will see that their financial plan is actually working, and they should celebrate their progress and continue what they have been successfully doing. Money has already been set aside in their budget to go to their emergency savings and the vacation fund. They did not succumb to their money weakness of charging their credit cards up to the maximum balance again.
To boost their savings balances – and not feel as if they are starting from scratch again – they have a number of options.
- Temporarily rework their budget to funnel extra cash to savings.
- Work some additional overtime.
- Take on a freelance project.
- Sell some unwanted possessions on eBay, or at a garage sale.
- Brainstorm other ways of getting some cash.
The bottom line
You develop your financial plan, take action, and feel really good about your progress. Then life has a habit of throwing a monkey-wrench into your plans – expectations are not met, unexpected expenses come up that are not quite prepared for, you experience poor investment returns or the stock market falls, a life-changing family event requires you to go in a totally different direction. Setbacks can be frustrating.
Related: How to overcome financial inertia
But, it’s very rare that your whole plan falls apart. Review your goals again. Make adjustments to your action steps. Don’t succumb to your money weakness. Celebrate your success. Stay engaged with your plan, move forward, and know that it’s all going to come together.