Meetings 4 and 5
Introduction: This is the fourth post in a case study series of financial counseling meetings with Alline Davenport (real person with fictional name). Previous entries are found under the “Case Studies” tab. Alline is a widow in her mid 60’s who works full time as a receptionist and is striving to take care of her debt and prepare for retirement.
As of meeting 3, we had a plan in place that would allow Alline to retire in four years with no debt, a paid for house, $10,000 Emergency Fund and $20,000 nest egg.
Meeting 4: July 14, 2009
Our agenda is to review our plan, fine tune the budget, track progress and answer any questions.
Alline reported that she expects the closing on the house within 30 days. (Explanation: she is buying a house from her daughter for what is owed on the house, thus giving her instant equity of $15,000 in lieu of $35,000 loan to her daughter that will never be paid. Alline will then borrow enough on the house to pay off her IRS debt and jump start her debt snowball.)
- She has cancelled her land line telephone, thus helping her cash flow.
- Her $1,000 Baby Step One Emergency Fund is in place.
- She is making minimum payments on all debt and poised to start her debt snowball next month.
Homework before our next meeting is to set up an escrow savings account for
Christmas savings, health insurance deductible, home owner insurance and taxes.
- We concluded the meeting, agreeing that Alline is on track and making progress.
Meeting 5: August 18, 2009
Our agenda is to check homework and track progress.
Alline appeared distraught as she entered my office. With clenched jaw, she uttered, “Joe, I feel like I am starting all over again.”
“What is going on, Alline?” I asked.
She plopped a paper on my desk which tabulated, in her handwriting, a list of events and corresponding costs. “These” she moaned, “are the unplanned expenses I have encountered in the past two months.” She picked the paper up, studied it and put it back down. “Over $1,300! My air conditioner broke, I had to get my car worked on, the deck boards rotted out and that is not all!”
Knowing she didn’t have that kind of buffer in her budget, I asked, “Alline, were you able to pay for all of this?”
“Yes,” she hesitated, then went on, “but now my emergency fund is down to $600!”
“Alline. Listen to me.” I said. “You aren’t starting all over. The fact is that your emergency fund is down and you will need to build it back up again, but when life happened, you were able to pay for it. What if you hadn’t set that money aside into the emergency fund?”
She sat back, looked upward for a few seconds, then back at me. Her eyes had brightened. “Joe. You are right. I am glad I had that emergency fund in place. Yes, I need to repay it but this is something I can do.”
“Actually,” I responded, “I don’t see how you were able to pay everything without totally wiping out your emergency fund. That, to me, is amazing.”
“Well, I am one hard headed woman who simply watched every single penny these past two months.”
“That is the trait, Alline, that will make you win with this plan. You are going to be all right.”
She took a deep breath, exhaled, and leaned back, smiling. “Yes, Joe, I am.”
Alline told me that the closing on the house is still being held up. She aced her homework by having the escrow account in place. We fine tuned her budget and concluded our meeting by scheduling our next meeting.
My observation/summary is that what happened to Alline is what happens to us all. We can budget and we can plan, but we never know what life will bring. For her, it is good that she had the small emergency fund in place. For all of us, her story is a gentle reminder that building and maintaining a fully funded emergency fund is an absolute necessity.