The Johnsons

Before Len (34) and Sue (31) Johnson were married six years ago, they lived comfortably, debt-free, but without savings. Now, with two kids, Molly (4) and Abe (1), they were shocked to find that they had accumulated $30,000 in credit card debt. When Sue took a three-month maternity leave last year, they had reached their limit on credit cards and had to borrow from their 401(k) plan to pay bills.

They had wanted to go back to college to earn advanced degrees, set up a college fund for the kids, and retire early, but the Johnsons had never adjusted their spending to reflect their new family obligations. While they incurred new expenses with kids and a house they had bought four years ago, they still maintained their previous spending habits. Despite making $75,000 annually, they ran out of funds every month. With the expenses of child care, a mortgage, and minimum payments for credit card balances, they often ended up using credit cards to pay for necessities like gas and food. They tried to set a budget, but it was like trying to lose weight; whenever they made progress they went out to dinner!

With the help of an ACA Member, the Johnsons wrote down and prioritized their goals. A realistic amount and date were set for achieving each of their goals. They were determined to pay off all debt in 5 years. By visualizing their dreams and using objects consistent with their dreams to remind them of their goals, they were able to stay focused on their priorities.

Here's what they were able to accomplish:

• To live within their means. (Use credit cards responsibility. Pay off balances each month.)
• To budget creatively by focusing on their priorities. They cut some optional expenses in half. They discovered some simple pleasures such as going to a park or library for recreation and taking classes to learn to cook foods they enjoy. They also found alternative ways to reduce childcare costs.
• To set realistic spending goals and stick with them. They now track expenses to control spending.
• To restructure their debt with the goal of repaying it within 5 years.
• To make their money work harder. For example, good tax planning helped them to reduce their tax liability. They managed to save a minimum of 10% and build adequate liquidity. Their insurance was reviewed, and wills were created. Additionally, now they were able to put money in their retirement plan instead of having to borrow from it!
• To return to college, with the assistance of their employer, to advance themselves.

There is no quick fix. As for most people, it is taking the Johnsons at least as long to become debt-free as it took to accumulate the debt. But their financial foundation is now solid, and they are on the path to achieving their goals.