THEIR FIRST YEAR OF MARRIAGE WAS full of the magic of romance, but newlyweds Adriene and Rob Lambert must now face the reality of money matters. As much as they love each other, they have conflicting money styles: Rob is a spender and Adriene is a saver.
“We need to get on one accord. We need to come up with a financial plan that both of us can live with,†says 25-year-old Adriene. “I try to pay bills on time; he’s the opposite.†“I procrastinate because I’m so busy and then I end up late,†adds Rob, 30. Adriene realizes that their clashing money personalities were shaped long before they said “I do.†She grew up in a household where Money management was taught on a daily basis. Adriene, warned by her aunt of the danger of credit cards, never applied for one. Rob, on the other hand, says he inherited his father’s philosophy: It’s just money; you can always get more of it. That belief took root and grew into destructive spending habits. Explains Adriene, “He doesn’t just buy small stuff, but things like a $1,000 sound system.†“My dad never taught me about saving,†Rob says.
Rob earns $43,000 a year as an emergency medical technician for a hospital emergency room. Adriene, who has a master’s degree in finance, makes $45,000 as a financial systems coordinator, where she helps establish her company’s financial policies, procedures, and systems.
After the marriage, there were some financial surprises. Shortly after Adriene and Rob opened a joint account, he overdrew. His creditors got wind of the account, which only held a little more than $1,000, taking $1,300 for an overdue debt. “I was pretty heated. We’ve decided to keep our accounts separate until we get things sorted out,†says Adriene.
Rob’s tardiness in paying bills had a devastating impact when his 2007 Kia Rio was totaled in a car accident last November. Because Rob missed a car insurance payment one month, the car was not covered at the time of the accident, so they couldn’t file a claim. What’s more, Rob’s credit is such that he needs a co-signer in order to get a loan–one favor Adriene won’t grant. “I don’t cosign for anyone,†says Adriene, who doesn’t want to be stuck with a large bill if a person she co-signs for can’t pay off a debt. Adriene says it’s ironic that money is an issue given her background in finance. “It’s hard, and sort of embarrassing given what I do, because my own house isn’t in order,†she says. Rob is attempting to turn things around. “I definitely loved to spend money. Now, I ask myself if I really need what I want to buy.†he says.
Adriene wants to purchase a home. Furthermore, the couple plans to start a family in the next couple of years. Their one-bedroom apartment in Philadelphia is a modest $475 a month, but Rob owes $2,000 on his credit card, and together they owe about $46,000 in student loans. Rob still has to pay the $10,000 left on his car loan.
Adriene has set a yearend goal of having $5,000 in her savings account, and Rob is shooting to save $3,000. “We may not reach our goal, but we’re talking about money,†says Adriene.
THE ADVICE
Danny Freeman, principal adviser with Darda Wealth Management in Winston-Salem, North Carolina, talked with the couple about coming together financially.
Arrange a financial intervention. Rob’s financial irresponsibility could prevent the couple from purchasing a home, starting a family, or living a stable life. Rob must immediately cut up his credit cards and stop all spending beyond basic necessities such as food and shelter. Before any progress can be made, Rob must drastically improve his habits. It is imperative that he make an appointment with a credit counselor. The National Foundation for Credit Counseling (www.nfcc.org) can offer him assistance with devising a payment plan with his creditors and controlling his spending. In addition, it is vital that Adriene and Rob meet with a financial adviser on a regular basis.
Stop the hemorrhaging. “Adriene and Rob have anywhere from$500 to $1,000 a month slipping away as untracked spending. They need to track their expenses for a month to get a sense of where their money is going,†says Freeman. They also need to discuss their financial responsibilities, devise a budget, and stick to it.
Establish a credit history. Though Freeman understands Adriene’s fear of credit cards, she needs to conquer that fear–quickly. “She has student loans that she is paying that should help her establish a credit history. But in the post subprime mortgage era, having no credit history will become a much bigger problem than in recent years, as lenders will be more ‘by the book’ when granting credit. In fact, no credit history will be almost as bad as having bad credit,†he explains. If a lender can’t determine your creditworthiness because of no credit history, then they will assume the worse. That means you will more likely be rejected. Even if you’re approved, you will probably pay a higher than normal interest rate, says Freeman.
Delay the home purchase. They should not attempt to buy a house until Rob’s credit issues are resolved and his credit score has improved. The difference in what they’ll pay with a subprime mortgage versus a conventional mortgage is staggering. A $150,000 mortgage at 10%would cost them about $1,300 a month. That same mortgage at 6%will cost them$900 per month. Also, at 6%, $1,300 a month would allow them to borrow about $217,000. That means a bigger house, a nicer neighborhood, or both.
This story originally appeared in the November 2008 issue of Black Enterprise magazine.