In early December, Michael and Carly Long asked for a Seattle Times Money Makeover. Their young daughter Olivia had needed emergency surgery, and with another baby on the way, they wanted to get a handle on their finances. It turned out their troubles were just beginning.

The impact on Michael’s small business from the coronavirus lockdown would be one of the setbacks. But even before that happened, a record-breaking Pineapple Express flooded them out of their Steilacoom house.

“Before Christmas there was torrential rain and the sump pump failed. Our whole crawl space filled with 3,500 gallons of water,” says Michael. Then the drainage ditch flowing past their property poured into their garage. All that water destroyed the ductwork for the heating in the house they had only owned for a year and a half. “We didn’t have heat and our daughter Olivia was only a few months old. We moved in with my parents.”

By the time the Long family got resettled in their house, they were in more need of financial advice than ever. The HVAC bill was $26,000, which they took out of Michael’s retirement portfolio. They also took out a $7,000 loan to replace the busted sump pump. Like most Americans, the Longs did not have flood insurance.

“We got hit in the mouth hard,” Michael says about the flood. But this couple is not down for the count. The Longs are used to dealing with adversity because they both come from military backgrounds.

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Carly, who is 41, and Michael, who is 35, met while serving in the Army Reserves. “It was love in combat boots,” Carly says.

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Before the Reserves, Michael graduated from West Point and was an intelligence officer in Iraq and Afghanistan. Carly works at Joint Base Lewis-McChord coordinating travel for military training.

“Being in the military helped us deal with these financial setbacks in a more disciplined manner,” says Michael. “We said, ‘All right, this sucks but let’s work on getting out of this hole and never getting back into another one.’”

Our Money Makeover partner, the Puget Sound Chapter of the Financial Planning Association, paired the Long family with Brett Lathrup and Diane Jochimsen of White Raven Financial in Arlington.

Brett Lathrup of White Raven Financial
Brett Lathrup of White Raven Financial

The first thing Lathrup did was to look at the couple’s debt. Before the flood, their baby daughter Olivia required eye surgery to remove a cataract. The procedure was mostly covered by health insurance but the $600 contact lens she needs to wear was not. That doesn’t sound like a big deal, but they bug her and she’s learned how to pluck them out, and they get lost. The $3,600 spent on infant contact lenses depleted the Longs’ emergency fund.

“When we first started talking numbers, I was a little nervous,” Lathrup says. “But then I was impressed that Michael and Carly had no credit card debt, no car payment.” Thanks in part to Army Tuition Assistance, the couple doesn’t have student loans either. Lathrup also gave the couple high marks for keeping track of expenses with the program You Need a Budget, “mostly because they actually use it!”

Lathrup suggested they could have paid for the flood fixes with a cheaper home equity loan instead of a personal loan. But at that point the couple had already raided Michael’s investment portfolio, and their bank required them to take out $15,000 instead of the $7,000 they owe; they didn’t want to take on more debt.

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Carly is the main breadwinner. She earns $84,000 a year — a combination of her salary at JBLM and $600 a month she gets for serving in the Army Reserves. She’s mostly working from home these days because of coronavirus, but she’s not worried about losing her job.

“That’s why I work for the military. Stability!”

Michael takes care of Olivia. He’s also a part-owner in a gym that was just starting to see some profit when coronavirus temporarily shut it down. The gym is offering online training and many clients took them up on that. But about 20% of the members have canceled. The business applied for and got a loan under the coronavirus relief Paycheck Protection Program. And yes, it does protect paychecks. But not Michael’s.

“We are using the loan to keep paying the salaries of our coaches. I’m not taking a salary,” says Michael. “PPP coming through is like a Band-Aid — it keeps us from going into the red.”

To bring in some income, Michael is going to go active with the Reserves starting in June, and he’ll make $1,000 a month.

As a generation, millennials (defined here as 24 to 41) have faced an uphill climb toward financial stability. Despite being better educated than previous generations, they earn less — for example 20% less than baby boomers did at the same age. But they are getting good at saving for retirement, according to a new report from Bank of America.

One of four millennials had $100,000 saved, and Michael is among them. He has $78,000 in a retirement Roth IRA held with USAA. He had nearly as much in a brokerage account.

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“That was for retirement, too. But that’s the account we had to pull from to cover repairs,” Michael says.

Carly has $49,000 saved for retirement in a Civilian and Military Thrift Savings Plan. She had stopped contributing when their daughter had mounting medical bills.

“That’s a shame,” says Lathrup, because with a 3% match she was leaving free money on the table.

Lathrup had Michael and Carly fill out an assessment that would give him an idea of their risk tolerance when it comes to investing. “The results were surprising. They both had scores of eight, which suggests only being comfortable with having cash on hand,” he says.

Lathrup believes the couple needs some stock exposure given their ages and investment time horizon. He thinks recent market turbulence may have influenced the results of the questionnaire. And when he examined the holdings in their retirement accounts, he found not cash but a stock/bond mix that has a good chance of helping them reach their retirement goals.

“In addition, Carly has something that’s becoming increasingly rare — a defined benefits plan,” Lathrup says.

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Because Carly has been in her job for 17 years, her pension would pay around $1,800 a month if she retires at 60. If she stays in the job for 20 years, that amount will increase.

So the retirement picture is promising. And the near future is exciting. Carly and Michael are expecting their second child in July. They want to start saving for the kids’ educations and Lathrup is helping them examine the differences between Coverdell and 529 Plans.

The challenge for this young family will be making their dollars stretch in the near term. And with help from the Money Makeover, they are already making progress. They’ve whittled the repair loan down to $6,400 and Carly is contributing to her retirement plan again.

“The main takeaway I got from the Money Makeover is that you have to pay attention,” Carly says. “Brett showed us it’s the little things you have to look out for. That daily Starbucks habit looks harmless but seven dollars five days a week is $140 a month on coffee! That’s $1,680 dollars that could be going towards investments or the children’s college fund.

“That was a real eye opener.”

Here’s the emergency: how’s your cash stash?

To quote from a song made famous by Frank Sinatra — that rainy day is here. With unemployment skyrocketing, small businesses spewing red ink and the world muted in a weird social-distancing limbo, coronavirus highlights the need the save a portion of your income for a rainy day.

“Your emergency fund can assist in cases of job loss, medical problems, or natural disasters,” says Diane Jochimsen founder of White Raven Financial, the planners who helped this month’s Money Makeover couple.

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Michael and Carly Long had all three emergencies in quick succession — infant eye surgery, a flood in their house and a business shut down due to COVID-19. Hopefully this young family will never have a string of bad luck like that again, but if they do Michael says they will be more prepared.

Jochimsen and many money managers recommend keeping three to six months’ worth of living expenses in liquid assets set aside for emergencies. But that doesn’t mean stashing Benjamins under the bed.

“It is a good idea to keep only a small amount in cash in case of ATM or card problems,” Jochimsen says. “As a rule, though, an emergency fund is meant to cover necessary expenses for a few months, so the full value of the fund doesn’t need to be accessible right away. Keeping half of an emergency fund in short-term bonds or CDs is a way to manage risk without losing all the potential gains.”

Often, financial planners feel like they are shouting this “emergency fund” warning into the wilderness. But in these days of pandemic pandemonium, people are listening. According to the Federal Reserve Bank of St. Louis, Americans have been plowing money into savings accounts even as personal incomes declined.

That’s true of the Longs as well. Their financial planners showed them ways they could trim expenses, like shopping around for cheaper insurance. In just a few months, the Longs have managed to put $7,000 back in their emergency fund.

“We had an emergency fund but it was not enough and that impressed its importance on us,” says Michael. “It’s something we are going to be very focused on in these times.”