phase of life comes with its own set of financial circumstances, goals
and necessities. The question is, how should we be spending, or
saving, our income as we move through different stages? We looked at
three earning levels — $40,000, $80,000 and $120,000 per year —
and asked some of the area’s top financial experts for their
single, out of college and beginning to establish myself in my career
I have my first
career job but little financial experience. How do I set
goal is to calculate how you will pay your bills so that you can
budget for some extra items or wants. Your needs might include student
loan debt or a disproportionate share of income going to housing,
depending on where you want to live. Take a look at online resources
for average percentages of spending by category, but a ballpark might
look something like this: housing — 30 percent; food — 15 percent;
transportation — 10 percent; savings/debt repayment — 15 percent;
taxes — 10 percent; and discretionary — 20 percent." — Alex
Kramer, market leader for The Private Client Reserve of U.S.
Am I ready to
buy a home, or should I continue to rent?
decision to rent or own a home shouldn’t be based on financials
alone. Owning a home/condo can tie you down more than you want to be
at this stage in your life, but renting leaves you flexible. The
rental market is very strong in Milwaukee, with new buildings popping
up all over in popular areas like Walker’s Point, the East Side and
Bay View. There are a host of options for all budgets. Having a
pre-set rent also helps keep your monthly expenses predictable, as
renting eliminates any home maintenance costs and unforeseen repairs
like a broken furnace or leaky roof. And you won’t have to pay
property taxes or condo fees in a rental unit." — Andrew
management adviser at Northwestern Mutual
I live on the
Lower East Side. Should I buy a car or take an Uber?
Lyft and public transportation can be a great way to get around in a
city like Milwaukee, but if your commute takes you away from the city
every day, you might need to buy a car. At this income level, I
suggest you buy used and don’t fall for the enticement of leasing. A
good used car will be much less expensive than leasing or buying new.
Have the car checked out by a qualified mechanic before buying. In
Milwaukee, you can get a good used car for $5,000 to $8,000. Cheaper
cars are available, but they might cost more in maintenance. The
monthly cost of a used car, including monthly payment, insurance,
maintenance and gas, might be $500 to $700." — James Cantrell,
founder and president of Financial Strategies Inc.
I am carrying
student loan debt. What are my options?
have a large federal student loan, consider an income-based repayment
plan. Just beware, if the government forgives a remaining balance of
debt someday, you may be liable to pay a tax liability on the amount
forgiven. It may pay to consolidate loans with private lenders, but
beware they don’t typically offer income-based payments. It’s a
fairly broad set of options these days, so it’s important to find
professional help." — Andrew Bird
rates on college loans are extremely attractive at 3.5 to 4.5 percent,
so plan on a long-term payment. In Wisconsin, state schools are more
reasonable, so hopefully your student loan is smaller. What you do not
want to do is default on your loan, which will adversely impact your
credit history for the long term." — Jim Marshall, president of
Spectrum Investment Advisors
been married a few years, my career is on track, and we have one child
but are hoping for more.
For a couple
earning $80,000 per year, what is the recommended breakdown for major
percent of your gross income should go toward foundational expenses,
including housing, transportation, medical and child care. Often, 25
to 30 percent of income is quoted as the rule of thumb for housing.
However, sticking closer to 25 to 30 percent of take-home pay, versus
gross income, provides more flexibility in covering other needs."
— David Scaife, regional wealth planner, The Private Client Reserve
of U.S. Bank, Milwaukee
is really all about setting priorities. We will have the client list
expenses in order of importance. We put the least important expenses
at the bottom of the list. We then subtract each expense from the
income as we move down the list. When there is no more money left, we
draw a line. This forces the client to make the tough choices."
— James Cantrell
We want to
expand our family but are worried we can’t afford it. How much does
each child cost per year?
expensive! In August 2014, the U.S. Department of Agriculture released
its annual report, ‘Expenditures on Children by Families’ — the
cost of raising a child. The report shows that a middle-income family
with a child born in 2013 can expect to spend about $245,340 ($304,480
adjusted for projected inflation) for food, housing, childcare and
education, and other child-rearing expenses up to age 18. Costs
associated with pregnancy or expenses that occur after age 18, such as
higher education, are not included." — Susan Bisswurm, regional
wealth planner, The Private Client Reserve of U.S. Bank, Milwaukee
How much house
can I afford?
less on your house will give you more money for other things. But
rather than backing into your monthly budget, one calculation is 2 to
2.5 times your gross income. In this case, that would mean a house
between $160,000 to $200,000." — Alex Kramer
investment business, we say it’s not the house payment that causes
anxiety — it’s the neighborhood that costs you in trying to keep
up with the Joneses. Plan on a house payment, including property
taxes, of not
more than 35 percent of your gross income."
— Jim Marshall
How can I invest
locally and in environmentally friendly companies?
many mutual funds you can invest in that would be considered green or
socially responsible. Several major mutual fund companies have these
types of funds. There are other fund companies that provide only
socially responsible investments. A Google search of ‘socially
responsible mutual funds’ or ‘green investing’ will provide
options. This is not a sound investment strategy, and we do not
typically advise it.
"One way to
go about investing locally would be to purchase stock in a company
whose headquarters is in Wisconsin or the Milwaukee area. This would
include companies such as Harley-Davidson, Kohl’s and Rockwell
Automation. We would typically recommend a much higher level of
diversification than this, but it can be fun to own local companies
with a small portion of one’s portfolio." — James Cantrell
Profile: I am at
the top of my game in my career, and my kids are either grown and gone
or will be soon.
What is the
recommended breakdown of major expenses?
"As you age
and some of the foundational expenses have been reduced or waning, the
mix can shift toward goals and flexibility. It’s the life stage and
not the income level which prompts that shift. The breakdown: fixed
costs (mortgage, real estate tax, car payment, utilities) — 30
percent; financial goals (family vacations, charities, gifts to
children, emergency fund) — 30 percent; flexible spending (everyday
spending, including income tax) — 40 percent." — Alex Kramer
How much can I
give to charities, both for budget and
for tax purposes? How can I choose good local
allows deductions of up to 50 percent of your income. We recommend
giving 10 percent or more of your income to charity. Donating or
gifting large sums of money or property to charity can be advantageous
from a tax planning and estate planning perspective. Working with
experts in this field is strongly recommended. The best way to choose
a good local charity is to think about some causes that are near and
dear to your heart and research online to find a charity that supports
them. GuideStar.org is a good place to start."
— James Cantrell
I am planning to
downsize. Financially, what should
I be concerned with?
sell your home for much more than you paid for it and have a large
gain, ideally you would roll (that gain) into your next home purchase.
You may have to pay taxes on the gain if you don’t roll it in to a
new primary residence. Generally, downsizing is a great opportunity to
lower expenses for retirement. Also, consider a home with wide doors
and a one-floor layout or with elevator access. Though not fun to
think about, many aging Americans will want to receive care/assistance
in their home as they age, and (having those features) makes it
easier." — Andrew Bird
The cold winters
are getting to me. Should I buy a vacation home or use Airbnb?
second home can be expensive. Beyond the initial costs, there are the
normal upkeep costs that are often overlooked and not planned for.
clients who considered buying a condo in St. Croix, U.S. Virgin
Islands. We calculated the cost to be about $21,000 per year. They
decided they could have some pretty good vacations for $21,000, so
they didn’t buy the condo. Keep in mind that the cost of the second
home itself is likely to be returned someday if it is sold. We do have
many clients that own two homes. It boils down to what is important to
the individual. Airbnb is nice because there are lots of choices and
different parts of the country you can visit." — James Cantrell
I have three
kids, and they are all in serious relationships. How much will their
weddings cost me?
easily spend $30,000 to $40,000 on a wedding these days. We recommend
setting something aside to help, and doing so with a separate budget
would make sense. We recommend allocating only an amount that will not
impact your own retirement plan." — James Cantrell
providing the same budgeted amount for each child. Don’t overdo it
on the first wedding, because it sets the pace for the next two. In
the Milwaukee area, smaller weddings run approximately $5,000 to
$10,000; midsize weddings run $20,000 to $25,000; and larger weddings
will run closer to $30,000 to $35,000." — Jim Marshall