When Coraliz and Daniel Houser-Diaz began their married lives in 2018, they had a big wedding. They also started out with another tradition: “something borrowed” — as in money.

The couple’s biggest debts are school loans they took out for their degrees from Seattle Pacific University. Coraliz, who takes the lead managing the couple’s finances, tried a few budgeting methods to get a handle on cash flow — then abandoned them. That’s when she reached out to The Seattle Times Money Makeover.

Going into it, “I only had one goal,” Coraliz says. “How are we going to pay off these student loans?” Daniel felt the same way. “Money dreams seem amorphous until the student loans are gone.”

Time to bring in the expert. The Puget Sound Chapter of the Financial Planning Association tapped Bob Toomey for the job. He’s a certified planner and vice president of research with S.R. Schill and Associates on Mercer Island.

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As he began to gather information, he realized the couple wasn’t seeing the forest for the trees. Their forest, while mostly seedlings today, has great potential. Daniel is a pre-construction project manager for a luxury home builder. “Mostly I’m the Bad News Bear. The design team tells me they want to do this or that and I say, ‘That costs too much.’” 

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He makes $60,000 a year and his company is going gangbusters as people focus on homes during the COVID-19 lockdown.

Coraliz earns $52,000 a year as a workspace planner for offices. With many businesses sorting out whether they need offices in this pandemic world, you might wonder if her job is secure. “The account we are on has seen a lot of growth,” she says. “The client still uses its physical spaces and we have been prepping the spaces to allow for social distancing.”

Toomey’s assessment? “At their tender age of 24 and their strong income, they are in a very good position for financial success if they remain disciplined.”

The planner would normally recommend that a couple just start out stashing some cash toward multiple goals; some money for an emergency fund, a percentage would go into 401(k)s at work and the remainder would pay down loans. But as Toomey would find out — the Houser-Diazes have their own ideas. They want to put nearly all their surplus cash — more than $21,000 — into retiring their student debt in one year.

Coraliz owes almost $10,000 in student debt and Daniel has a balance of just over $11,000. Not too bad when you consider that Seattle Pacific University costs $64,000 a year for tuition, room and board. Coraliz and Daniel defrayed costs partly by working in the school’s admission office, which is where they met.

Both Coraliz and Daniel grew up in families that had to be careful about racking up debt. “Growing up, my Dad was in the military. I was born in Puerto Rico, then we moved to Tennessee and then Washington state,” Coraliz said. “My parents were pretty poor but they did a great job taking care of us.”

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A world away, in China and Thailand, Daniel’s parents were also watching their pennies. “My parents are missionaries and I grew up really blessed to live in a lot of different places. But there was not a lot of extra money.”

In college, both Coraliz and Daniel describe a kind of Top Ramen existence where they barely squeaked by. “I was clueless,” Coraliz says about her finances. “By the end of college, I was scared to look at my checking account!”

They have about $4,000 in a checking account today. The only financial disagreements they’ve had are about little expenses — like tea. Coraliz would like to upgrade to nicer tea. Daniel still buys in bulk. 

“Now that we’re married, I’m trying to be comfortable spending some money,” Daniel says.

Going over their expenses with a fine-toothed comb, Toomey found nothing surprising until he came to “charitable contributions.” This couple, who have disagreements over which tea to buy, gave more than $10,000 last year to charity.

The Houser-Diazes are members of a Christian church in Seattle. “Part of the Christian faith is an invitation to give 10% of your earnings,” Coraliz explains. “As a thankfulness to God.”

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Daniel admits he considered waiting to tithe until they made more money. “But if we don’t start now, we are probably going to spend and save — but not to give. We need to make it a habit.”

Their planner says it’s a habit they can afford. “They still have a cash flow surplus after tithing. That is impressive!”

Charitable contributions can be deducted from taxes — but because the standard deduction is higher than $10,000 for a married couple, Toomey says, “There’s no financial advantage. This is pure faith.”

The rest of the planning process was sorting out what Coraliz and Daniel would do with their money after expenses — around $24,000 a year — once they vanquish that student debt. Toomey had plenty of ideas.

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“They need to channel more savings into their 401(k)s. They both get a company match of 6% of their gross pay. That’s free money.” Again, Daniel and Coraliz had their own priorities.

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“Instead, they want to save for a home,” Toomey says. “So, they will only put 2% in their 401(k)s for the first couple years.” Which is fine with the planner — this couple’s financial dreams are taking shape.

In four years, Toomey calculates, the couple will have enough money for a down payment on a home. Luckily their dream home is more within reach than some. Because of their backgrounds in construction and interior design, Daniel says an affordable, vintage fixer-upper is what they have in mind. “We can have fun with an older home. Bringing it up to what we want it to be.”

To save for that house fund, which will double as emergency savings in the short term, Toomey recommends steering clear of stocks. “You don’t want that money subject to volatility or a market crash. I feel better having that money in bank savings and CDs.”

Not that this couple doesn’t need stock exposure. Toomey says stocks are a “must-do” to supply a comfortable retirement. Because the couple is focusing on other goals in these first years, Toomey recommends that down the road they accelerate their 401(k) contributions to at least 6% a year and start investing nonretirement cash in ETFs (see sidebar). He says all their investing should focus on growth stocks.

Past is not prologue, but given the return of stocks over time, if the Houser-Diazes get serious about investing, they might have a million dollars by age 39. “The program we use is running the math, but you need to take that with a grain of salt,” the planner cautions.

Coraliz says that can wait until the short-term goals are met. “We haven’t paid into any retirement or investing,” says Coraliz “I didn’t even look at those numbers.” Daniel didn’t look either. “I didn’t want to get all those dollar signs in my eyes!”

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Coraliz says the Money Makeover helped her become less stressed by realizing there’s life after school debt. “When I reflect on our meetings with Bob, I never zoom out and take a look at the big picture. He did that and it helps me feel we are going to be fine.”

Bob Toomey, S.R. Schill & Associates, on Mercer Island. (Courtesy Bob Toomey)
Bob Toomey, S.R. Schill & Associates, on Mercer Island. (Courtesy Bob Toomey)

Are ETFs better than mutual funds?

Planner Bob Toomey recommends that our makeover couple invest in Exchange Traded Funds (ETFs). Toomey’s firm invests clients’ money in ETFs instead of mutual funds.

“ETFs trade throughout the market day. They are more liquid,” Toomey says. More importantly for long-term holdings, “They have much lower expense ratios so they are a better deal for the investor.”

One of the main differences between ETFs and mutual funds is that mutual funds are often actively managed while ETFs passively track an index like the S&P 500. Toomey says investors pay for active management with mutual funds, but they don’t get better returns.

Toomey adds that some mutual funds also carry extra charges like 12b-1 fees. “That’s a kickback to the broker when they sell a mutual fund to a client. More people need to know about this.”

Plenty of investors appear to have gotten the news. According to Morningstar, last year ETFs had inflows of more than $500 billion while mutual funds had an outflow of almost $290 billion.