Unexpected events are apart of life. And perhaps no one knows this better than Dana and Julius Williams. In 2005–at the age of 46–Dana’s mother suffered a stroke. She is now unable to live alone because she cannot use her right hand and has trouble walking. She also suffers from high blood pressure, diabetes, and seizures. A former owner of a daycare center, she will never work again. “We have nobody to turn to and nothing to fall back on,†says Dana, 30.
After caring for Dana’s mother for two years, the San Marcos, Texas, couple is starting to feel the financial pinch. Dana, who earns $38,000 as an assistant director for the school district’s teen parenting program, is an only child, so meeting healthcare needs have fallen upon her as well as on her aunt, who has taken Dana’s mother in. Julius, 29, earns $80,000 as a driver for UPS.
Although they make a combined six-figure household income, money is tight. The couple has spent more than $20,000 a year on care for Dana’s mother, including $8,500 for her hospital stays. And each month, despite having private insurance, the Williamses pay more than $200 in out-of-pocket medical expenses. Dana’s mother takes eight different medications–one prescription alone costs $340 and must be refilled every three weeks. “It feels like we’re sinking,†Dana says. But the high school sweethearts, who have been married for five years, contend with other daunting financial challenges.
In addition to shelling out $2,277 for their monthly mortgage payment (including insurance and taxes) on their $315,000, four-bedroom home, they spend $500 monthly for daycare services for their 1-year-old son, Braxsten.
To make matters worse, Julius totaled his car in a serious accident shortly after Dana’s mother was released from the hospital. Instead of buying another car, the couple opted to use Dana’s mother’s car and assume car payments, insurance, and maintenance. They still owe $4,000.
To bridge the gap between income and expenses, Dana and Julius relied on credit cards and accumulated more than $14,000 on three cards, one of which has an interest rate of 20% and a $6,000 balance. Much of the money has been spent on medicine, household expenses, and helping family members–as much as $9,000 on such emergencies has been doled out. For example, last year they cared for the 7-year-old son of Dana’s cousin, a single mother who had enlisted in the military. They spent $3,000 to fly to El Paso, Texas, to pick up the child and then provided him with food, clothing, and other needs over a six-month period.
The Williamses have no savings account and keep just enough in their checking account to
pay bills. Julius and Dana have saved $8,000 and $2,100, respectively, through their 401(k) accounts. “It’s so frustrating that once we get paid there’s nothing left,†says Dana. “It’s been hard on our marriage. We don’t get to go on vacations or do family things. I worry about my son later in life and how we will coordinate what he needs with my mother’s needs,†Dana laments. “I have good days and bad days, but I’m learning to handle this. We’re frugal. We shuffle so things get paid.â€Adds Julius, who remains upbeat: “I joke a lot with Dana and try to keep the situation light. Laughter is key. I trust that God will guide us in all our decisions. I make sure Dana knows that I will always love and support her through everything. I love her mother dearly. It’s just hard.â€
The Advice
— Establish an emergency fund. The Williamses need to build an emergency fund of $20,000 to cover themselves for at least three months. While Dana and Julius have $125,000 and $150,000, respectively, in term life insurance through their jobs, Johnson advises that they buy a 30-year first-to-die $500,000 term life insurance policy. They should also inquire about whether they can get additional disability insurance and take out as much as their employers will allow. Dana has a benefit of $26,400 annually while Julius has $52,800 per year. The couple should also focus on paying down credit card debt and cut back on spending.
— Seek legal assistance. According to Johnson, because Dana’s mom is in such a deteriorated state, it is unlikely she would qualify for long-termc are insurance. Each state has its own laws, so the Williamses need to find an eldercare attorney to identify benefits for the mother. Johnson suggests that Dana look into a program in Texas called HCBS (Home and Community Based Services; wwwwww.hhccbbss.oorgg) that provides for disabled citizens who are not in a facility. “They need a specialist and should use the $2,000 contest winnings to help pay for a lawyer.â€
Dana could also send her share of the financial responsibility directly to her aunt, who would in turn pay the bills. Doing this would enable her aunt to deduct medical expenses to the extent that they exceed 7.5% of her adjustable gross income. Dana has given money to her mother in the past so she could purchase medication, but the additional funds disqualified her mother for government assistance.
— Establish durable power of attorney. In the event that either Dana or Julius is incapacitated, and in the absence of a durable power of attorney, the other spouse or another family member would have to
petition the court to serve in any capacity, says Johnson. To avoid the legal and emotional drama, Dana and Julius should establish a durable power of attorney, a living will, and a healthcare power of attorney.–Secure the future. Currently, Dana is putting about $200 into her 401(k) and Julius more than $600 a month. They are each contributing enough to take advantage of their employers’ match. Johnson advises them not to reduce their 401(k) contributions since cash flow won’t be an issue once they get control of their debt. BE Ivory Johnson, director of financial planning at Annapolis, Maryland-based Scarborough Capital Management, evaluated the couple’s situation. First and foremost, says Johnson, they are to be commended for stepping in and taking care of Dana’s mother. However, they have helped family members to the detriment of their own financial health. Johnson offers the following suggestions:
Financial Snapshot: Williams Family, San Marcos, TX
HOUSEHOLD INCOME
Gross Income $118,000
ASSETS
Market value of home $315,000
Julius’ 401(k) 8,000
Dana’s 401(k) 2,100
2002 Chevy Trailblazer* 7,205
2003 Ford Escape* 7,540
Julius’ stocks 4,178
Total $344,023
LIABILITIES
Mortgage $300,000
Credit cards 14,000
2003 Ford Escape 4,000
Dana’s student loans 3,000
Total $321,000
NET WORTH $23,023
*According to the Kelley Blue Book
This story originally appeared in the July 2008 issue of Black Enterprise magazine.