Tim and Cynthia Kniffin, of Burien, didn’t sock away a lot of savings in their 20s. School expenses and starter-job wages made it tough.
Now in their 30s, married and with two children, they want to buy their first house.
The dual-income parents share the family car. Their two daughters wear tidy hand-me-downs to day care. Cynthia clips coupons; Tim quit his gym. These are careful spenders and economizers.
More recently, with housing prices and interest rates at levels they believe are within their reach, the Kniffins worry about more than just wasting money.
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“We really want to make sure we are not wasting any time,” says Tim Kniffin, 35, a former church youth-group director who is now an education-foundation project coordinator.
With an annual household income of $78,000, the couple is actively house hunting, he says, because “there’s nothing like a home to make you feel like a family.”
Cynthia Kniffin, 38, an elementary-school teacher who works half-time, agrees.
After two years of “racking our brains” at money seminars, classes and programs at their church, and conversations with “friends and family who have good financial instincts,” the couple feels good about their priorities.
“I just really feel like having a professional to ask these questions to would … sharpen everything,” Tim says. “It would get us going where we want to go, quicker.”
With that in mind, the Kniffins completed an online survey to participate in a free financial makeover with a member of the Puget Sound Chapter of the Financial Planning Association.
They were paired with chapter member Lily McKee, a certified financial planner at Redmond-based TurningPoint Financial Life Planning. She understands the allure of the current housing market, but cautioned the couple to slow down to get their financial house in order before plunging into the brick-and-mortar kind.
Getting things in order
Buying a home “is an emotional decision,” McKee says. “For many people, a house looks like the American dream right in front of us. We just need to make sure all the other pieces are in place.”
After crunching their numbers, McKee felt about $250 a month more income would put them in a better position to buy the $300,000 house they have their eyes on.
“My concern is that they won’t have any cash reserve” after buying a $300,000 house, McKee explained. After a 10 percent down payment, the Kniffins still face “$14,000 in credit-card debt, and $43,000 in student loans, (so their) emergency fund is going to be zero.”
Buying a house means “maintenance and improvement expenses you don’t currently have,” she told the couple.
“The Kniffins are not the only people out there who worry that they are going to miss out on the [real-estate] market and never get back in again,” says McKee. “But there are always houses down the road. Even if you don’t get this house, if you get your finances in order, you will still get a house.”
For the Kniffins, she adds, “the important thing is that they’re going into it with their eyes wide open,” including buying homeowners insurance.
Setting up a plan
A few other proposed changes in their cash flow could get the young family on a firmer track, the planner says.
For starters, McKee recommends they maintain 10 percent of their income — about $7,800 — in their checking or savings as an emergency reserve. Currently, they’re at about 4 percent.
To make up for the years they weren’t saving as much, the couple should work toward saving about 20 percent of their income now. If they start at 10 percent and increase it by 1 percent each year, they can ease into that level.
Paying off their credit cards in full each month will also help, McKee says; the couple closed all but one account.
The planner also recommends creating a six-month budget to make extra payments on that remaining credit card — and record all expenses to see where their money goes.
McKee also wants the Kniffins to set up systems for automatic savings and bill paying:
• Savings: Have 10 percent or more of their paychecks automatically deposited into a 401(k) or IRA. (Maximize these payments before contributing to any 529 college savings plan for their daughters, McKee says, because 529 plans limit financial-aid eligibility and use of tax credits.)
• Bill paying:
Pay all bills from one checking account or credit card, and track that account’s monthly statement to record expenses.
To meet their goals, Cynthia has already added hours as a summer-school teacher and the couple cut their $1,100-a-month child-care expenses to almost “zero” by “tag-teaming” a lot more; Tim now works later at night.
McKee offers another tip that could be helpful to the Kniffins and others: check out Washington state’s health-care insurance exchange under the new federal Affordable Care Act.
Subsidies will be available to those with incomes of up to four times the federal poverty level. This year, that’s $94,200 for a family of four. Enrollment opens in October; coverage begins next January.