Future Teacher Knows Frugality but Needs Lessons in Investing
Brenda-Jean Shephard wants what most people want: a nice home, some money in the bank and a secure and fulfilling life for her 4-year-old daughter, Dani. And like many people, she’s trying to accomplish these things on a financial shoestring.
Shephard recently quit a $15,000-a-year job as a food coordinator at Dani’s preschool and is living in a converted South Bay garage on a monthly $700 child support check, her meager savings and what she hopes will soon be regular substitute-teaching work.
But the bright, steadfastly upbeat 34-year-old isn’t giving up on her ambitions. The key: her bachelor’s degree in elementary education, a ticket to a stable job, health-care benefits and a retirement plan. In fact, Shephard ditched the food coordinator job so she could focus on getting her permanent California teaching credential and start moving in earnest toward her goals.
“I could no longer afford to work at something that was basically a volunteer job,” she said. “You really don’t get the respect and support. But I wanted to be close to my daughter, and it’s really a very good preschool.”
If all goes according to plan, Shephard will begin her career as a teacher sometime after the first of the year. But such best-laid plans have had a way of falling through in recent years. There was the first marriage that ended after a few years with her $20,000 in debt to the Internal Revenue Service, finance agencies and friends, a debt she says was not of her doing. She worked hard to clear the obligation and eventually married again, but that partnership foundered as well, and she now lives separately with Dani.
Shephard wants to buy a home so she can provide a more stable environment for her and her daughter. But with no income other than the support payments from her estranged husband and only modest savings, is it a realistic goal? Massachusetts-based financial planner Sharon Rich believes Shephard can do it, but she added that the prospective teacher mustn’t repeat past mistakes.
“We can’t go back, but we can learn from our experiences,” Rich told her. “You are to be commended for getting out of debt and then [in the second marriage] not letting economics keep you in a situation that you wanted to get out of. That’s one of the hardest things to do.”
Until Shephard’s teaching career and its $35,000 annual starting salary kick into gear, she will have only modest assets to keep her going. Besides the child support, she has about $6,000 in an assortment of mutual funds and $4,000 invested in a Roth IRA. She also has $4,000 in her checking account and a paid-for 1995 Volkswagen Passat station wagon.
Fortunately, Shephard said, her enrollment in the Consumer Credit Counseling Service some years back not only helped her erase the $20,000 debt but also gave her valuable lessons in frugality.
“I can live very simply,” she said. “I can make $6,000 last me three months easily. But I am a sucker for 50%-off sales ... and buying things for my daughter.”
Shephard and her daughter have medical insurance through her estranged husband, which is one reason she hasn’t finalized her divorce plans.
“If I were to meet someone, maybe that would be a strong reason to get divorced, but I’m not in any rush to do that,” she said. “I’ve already struck out twice.”
Shephard said she plans to get a temporary teaching credential and work as a substitute teacher, earning $100-plus a day until she finds a permanent teaching position. She is considering teaching adult school to help make ends meet.
That would take some of the pressure off her day-to-day obligations, but financial planner Rich said she also need to consider shedding her mutual fund accounts.
Being a novice in the world of finance, Shephard had tapped an acquaintance in the financial industry to invest $8,000 for her about a year ago. Caught in the stock market downdraft, her portfolio is now worth about $6,000.
The five mutual funds “have some appeal for gutsy types,” Rich said, but it’s more important for Shephard to have an emergency cash fund right now than it is to have an investment portfolio.
“The funds have higher expenses associated with them,” Rich said. “I would have asked [the acquaintance] how much he was going to make on the investments. What disturbs me about the mutual funds is that she left all the decisions up to someone else. She needs to take control of her money and educate herself to learn how to do that.”
Rich suggested that Shephard crack a few books--such as the “Mutual Funds for Dummies” edition from the popular series and “A Common Sense Guide to Mutual Funds” by Mary Rowland--to get a basic knowledge of investing.
“I realize that as a single parent looking for a job, it’s not going to be easy to find the time to read these books, but you need to be responsible for your investments,” Rich said. “Why pay someone else 1% [in fees] for funds that are going down? [Shephard’s acquaintance] picked aggressive funds that don’t seem like a match for you.”
Although Rich acknowledged that it may be unusual to advise clients to simply liquidate their stock holdings, that was what she was going to do in Shephard’s case.
“Just look at it as getting out of a bad relationship,” Rich said. “I think you jumped in with too much of your safety money. It’s OK to take the [investment] loss and move on. And don’t kick yourself too much if you see the market go up the next day. Investments have to match the rest of the picture.”
Rich added that there are credit cards that offer cash advances with no payments for up to six months or more, and that as long as Shephard follows through on her plans to be teaching soon, it might be a viable option to secure added emergency funds.
“I like borrowing free money--as long as you can pay it back,” Rich said.
Shephard seemed relieved that her short-term cash-flow concerns could be solved with some prudent financial maneuvering, especially the credit card suggestion.
“I am wise in the ways of credit,” she said. “I pay off any balance I might have every month, because I don’t want to pay 20% interest, or even 10% for that matter.” Shephard also was advised to check into any help a school district might provide to pay for course work needed to obtain her teaching credential. And some districts help teachers with down payments for homes if they reside in the same city where they teach. Shephard added that once she buys a house, she plans to get a roommate to help with the payments and/or assist with child care.
She also was encouraged to seek out a professional who could help her set up a simple will and durable power of attorney to provide for her daughter in the event of Shephard’s death or incapacitation.
“I think that for a single parent, the legal documents are crucial,” Rich said. “As far as the home buying, I’d support you, but you need a full-time job first.”
Shephard agreed, saying that it’s all part of the new year’s plan.
“Maybe I can be part of another story a year from now,” she said. “Hopefully by then I’ll have some money to make over.”
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This Week’s Make-Over * Subject: Brenda-Jean Shephard, 34, separated, with a 4-year-old daughter
* Gross annual income: $700 a month in child support
* Goals: To get a teaching credential; to save enough money to buy a house
* Current portfolio mutual funds: Morgan Stanley American Opportunities ($1,800); Morgan Stanley Mid-Cap Equity Trust ($500); Oppenheimer Global ($1,600); Van Kampen Comstock ($1,100); Davis New York Venture ($1,100)
* Roth IRA: About $4,000 in an Ameritrade account invested in technology stocks
* Cash: $4,000 in checking account
* Other assets: 1995 Volkswagen Passat station wagon
* Debts: None
Recommendations
* Stick with the budget you’ve established.
* Make your goal of getting a teaching job a top priority to generate income and provide health insurance and a retirement plan.
* Liquidate the mutual funds to provide emergency money for living expenses.
* Hire a professional to draft a durable power of attorney.
* Buy life insurance to help provide for your daughter, and also keep a modest renter’s insurance policy.
Meet the Planner
Sharon Rich is a fee-only financial planner in the Boston area, specializing in women and families.
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