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CNN Live Saturday
Business Practices Can Help Family Finances
Aired February 21, 2004 - 16:30 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
FREDRICKA WHITFIELD, HOST: Welcome to DOLLAR SIGNS, where we help you make the most of your money. Today we're going to talk about a tricky subject, family finances.
We have a couple of financial wizards to help you get the financial footing of your relationship on solid ground. Mary Claire Allvine is a certified financial planner in Atlanta. And she's the co-author of the book "The Family CFO."
And Jennifer Openshaw is the CEO of the Family Financial Network in Los Angeles, and she's the author of "The Quick and Easy Budget Kit."
Good to see both of you, ladies.
MARY CLAIRE ALLVINE, CO-AUTHOR, "THE FAMILY CFO": Great to be back.
JENNIFER OPENSHAW, AUTHOR, "THE QUICK AND EASY BUDGET KIT": Nice to be here.
WHITFIELD: All right. I want to start with the seven most important money decisions that couples face. And I'll highlight them, and then we can discuss them.
So buying a home is No. 1, getting out of debt, having children, changing jobs, planning for retirement, getting through a crisis and creating a safety net. All of these, the most pivotal decisions that a couple or a family has to encounter.
Now, you ladies are saying someone's got to be designated kind of the CFO, the chief financial officer of the family. What are the attributes that this CFO needs to have? Mary?
ALLVINE: The CFO needs to, first of all, know he or she is in the job. One thing that I have found in working with couples in my practice and then in preparing for the writing of this book is that couples don't know they're in business.
And as soon as you tell them that they are running a small business, then we need to assign jobs.
WHITFIELD: And Jennifer, you know, can you have both partners as CFOs or do you really have to decide on one?
OPENSHAW: Well, I think there are different responsibilities in the money relationship in a household. There's investments. There's paying the bills. There's buying the house.
And so I think it's best that you assign one person to be completely responsible for each of those.
And to take a good example, if you don't, it's paying the bills. I heard of a woman lately who said that her husband was late on paying the bills. And oh, my gosh, she was worried because of course, that could have an impact on your credit.
I do think, though, that when you look today in family households who is the CFO, it's predominantly more and more the women. It's the woman who is paying 80 percent of the bills in the home, the woman who's making most of those spending decisions.
And more and more we're seeing women marrying later in life, which means they're buying homes on their own. We see that, as well. And so, in many households we're seeing women primarily being the chief financial officers.
WHITFIELD: But Jennifer, with that, if you have women who are the CFOs of the family, this also doesn't mean, apparently, that all of the accounts, all the finances are combined.
We're seeing a lot of modern households nowadays that there are individual accounts, and then there also may be a couple's account.
OPENSHAW: Fredricka, that's such a great point. Because I think so many couples think that traditionally, my gosh, we should merge the finances. If we don't, that means that we don't -- we're not committed to each other.
And I don't think that's the case. And more and more couples that I'm talking to, particularly couples who have been through rocky relationships in the past, are taking control of their checkbooks themselves.
And what some of them do, and what I recommend, is that you decide how much each person is going to spend on the family bills, maybe the utilities, all of those bills that you both contribute to. And you make a decision.
And perhaps you base it on how much earning power each of you have. Perhaps the man is earning double what the wife does, perhaps he pays twice the amount that she does. And then you each manage the rest of your money on your own.
And I think this is great for women, because we very much have not been educated about finances. And yet we will face in our life a situation where we're, boom, suddenly responsible, and having responsibility for a checkbook helps us take control now.
WHITFIELD: So Mary, how is this like running a business, if both of you are advocating that you've really got to run the family finances like you would a business, if you have no business background, what does that mean? ALLVINE: What we have really found is that being in a business means having common objectives and thinking about what you do in a big picture.
Businesses don't get in business, necessarily, to make the most money. They get in business to produce the best product, to gain market share, to deliver a service.
Couples get into business to go to those seven top issues that you discussed earlier: to buy the home, to have children.
And we strongly advocate from the experiences that we had in writing our book and in my practice, in seeing couples talk about their lives as a business, it means having a common mission statement and then using money as a tool to get to those common goals.
WHITFIELD: So a mission statement, you mention. Now you really are, both of you, coming to the table and writing out a mission statement so that you are in accordance with one another about how you want to save, how you want to spend?
ALLVINE: Well, actually, we don't come at a mission statement starting with how much we want to save and how much we want to spend.
One of the common attributes we found in interviewing couples across the country is that if you start with the money question, you're going to turn half the people off. If you're going to start with the budget, it's like saying, well, first thing we're going to do is we're going to diet.
I think what you want to talk about is where you want to go first. So we found our most successful couples, and I'll define those as the ones who are getting to those dreams, those are the couples who sit down and talk about what do we want to do together, what do we want to accomplish.
It's only after they go through those objectives, they are honest with each other about trade-offs they're willing to make and then they turn to the money and they say, then first dollars go to first priorities.
WHITFIELD: So Jennifer, it almost sounds like a getting to know you, as well, kind of session. And hopefully a lot of couples are making these discovers before they actually marry or before they combine their finances, right?
OPENSHAW: Well, absolutely. I mean, one of the biggest problems that people face is they don't talk about money before they marry, because it's unromantic.
And the fact is that it's the biggest issue that is discussed or that ultimately leads to a marital discontent and conflict. And we don't want to see that happen.
So what I recommend -- and I think she's absolutely right. I mean, thinking about your mission statement. What is it that you want to accomplish?
And so one of the things that I suggest that people do, and if you're single, by the way, you can do this with a friend. Create sort of a money buddy system.
Because the fact is that companies have reams of people around them to help them carry out these things. And we as individuals don't necessarily.
So come up with a -- take a financial date, if you will, with your spouse. And what we mean by that is spending maybe a half hour talking about your goals, the things that, you know, that you want in life. And I think a lot of people have a hard time broaching that conversation with their spouse.
WHITFIELD: OK. Jennifer Openshaw and Mary Claire Allvine, hold on a moment. Just hold the phone. Because we're going to take a short break right now.
We're going to take some of your calls and e-mails, coming up next on DOLLAR SIGNS. And of course, you can still send your questions to DollarSigns@CNN.com. Or you can call in. The phone lines are open. The operators are waiting: 1-800-807-2620.
(COMMERCIAL BREAK)
WHITFIELD: Welcome back to DOLLAR SIGNS. We're talking about chief financial officers. Not the corporate type but the person who actually handles all the day-to-day living expenses in your family.
Is it you or your spouse or your partner?
Certified financial planner Mary Claire Allvine and Jennifer Openshaw with the Family Financial Network are giving us some tips. And we've got a caller, Brian, from Kentucky on the line with a question -- Brian.
CALLER: Yes, I was just curious what your guys thoughts were on me giving my wife an allowance.
We're both full-time workers, and just from previous experience before we got married with some of the expenses and so forth from the credit card debt, I was just a little bit scared. And I just wanted to know what your thoughts are on that.
OPENSHAW: I'd love to take that on, if I could.
WHITFIELD: Go ahead.
OPENSHAW: I actually worked with a woman named Janet over very much the same situation, where he was working, she was not. And I do think that's a great idea in this sense.
I think it's important that as a couple you decide on how you want to spend your money. And some of that, of course, is for pleasurable things. You might want to go golfing, or fishing or what have you.
And I think it's important that both people be seen as equal in the relationship. And so if you're working and perhaps she's not, I think yes, she should be given something for the things that she wants to do in her life.
And I think the best thing you should do is to sit down together and come up with a spending plan for the money that is coming into the household, so that you are covering all the necessities first and saving for your retirement.
And I actually developed "The Quick and Easy Budget Kit," available at FamilyFN.com, to help folks do that in an easy way without it being too tedious. But I think that is a good idea.
ALLVINE: The one idea that I would add to Jennifer's remarks is that I think the two of you should sit down together. And I wouldn't use the word "allowance," because it sounds like a word you would use when you're talking to a 12-year-old.
I think you as a family, as a business, want to talk about those goals, where the money comes first. And then ultimately, the money that you want to use for frivolous things or for enjoyable or personal or unaccounted things, I think you should decide together an allocation within your overall family plan. I wouldn't call it an allowance.
WHITFIELD: And maybe call it fun money or something.
OPENSHAW: Yes, it's your slush fund. And actually, that's what this couple did, is they created an account for the fun things that they wanted to do. One was a travel account, et cetera.
WHITFIELD: Yes. And everyone likes to have a little independence and to have their own spending change helps in that manner.
All right. Jennifer from Alaska is on the line with us.
Jennifer, what's your question?
CALLER: Hi. My husband and I are building a home. We're going to be first time homebuyers, and we have almost $9,000 in a sep IRA (ph). And I'm wondering if we should go ahead and use that money, since the rates are so low at this point, to use for our closing costs and down payment?
WHITFIELD: Mary?
ALLVINE: Yes, I would jump in on that one.
I want to go back to those mission statements. And oftentimes I'm asked questions, should we do this or should we do that? And the question I always ask back to the couples is, what is it that you are trying to accomplish? If that home is your really first objective, and you are willing to accept the trade-off that if you're not saving now for your retirement, you are probably not going to have a retirement.
So if you're going to go in and pull on your sep IRA (ph), first of all, understand all the taxes and penalties you'll incur but ultimately, those other dreams you're giving up.
In the end it is difficult ever for me to recommend that you break into those retirement dollars. You cannot go backward and put them back. You can't have the allocation you can put into your retirement moneys every year when you get to a later point in life.
And I've never seen a couple who has consumed their retirement money later come back and thank me.
OPENSHAW: That's a really good point. And if I can sort of add another way of thinking about it is companies make decisions in terms of what's the best return on our money.
And investing in a home is one of the best returns, of course, that families can get.
And so the question is, are we going to get more return -- perhaps the question is if you're going to get more return by putting that money into your house and you get the leverage effect and the tax deductions et cetera, versus in a sep IRA (ph), which will go tax deferred.
By the way, the maximum that you can take out for first home from an IRA is $10,000 without penalties, by the way.
WHITFIELD: OK. Now Lena (ph) in Hawaii is on the line. And she has a question.
Lena? Are you there, Lena?
CALLER: Oh, yes, I'm here. I'm sorry.
WHITFIELD: OK, go ahead.
CALLER: I was wondering about beginning savers. What's the best way to invest your money?
And also, if you're in debt and you visit a consolidation place, are there any negative repercussions you'll suffer?
ALLVINE: Maybe I'll go ahead and jump in on the saver question and hold up on the debt consolidation for a quick second.
I really want to impress on first time savers, a rule of saving that I think a lot of times -- especially when we're in a fast rising stock market environment like we are again now, people lose sight of the fact that savings really need to be invested according to the goal.
It isn't that savings in and of itself should go into stocks or bonds or a CD, but you've got to understand what you're saving for.
If you're saving for something that's going to be more than five years, five, ten, 15, 20, that retirement kind of idea, stocks can be a very good investment for you.
If you are actually saving to buy a car next year, you're trying to get out of debt, you would like to move out of your parents' home, whatever it would be, I would not recommend going into anything where you're going to be risking losing value.
And that's a principle you need to cling to for the rest of your saving life.
WHITFIELD: And Jennifer, it seems like if you've got a partner or your spouse or you're trying to make these decisions, the tricky part is really coming to terms, agreeing on these very goals and agreeing on the approach.
At what point do you need to bring in a third party, if the two of you really don't have the foresight to come together?
OPENSHAW: Well, of course, if you're not seeing eye to eye on how you should be spending or investing your money, I think it is a great idea to bring in a third party, sort of independent adviser, if you will.
And just going back to her question about debt for a second.
A lot of couples are taking out -- or more and more couples are taking out spousal consolidation loans to try to consolidate debt like student debt, with the idea that they can have a longer repayment period, which will overall reduce their monthly payments.
And in some ways it's good, because of course, it reduces your payments. But the problem is that if you're counting on a spouse to make those payments, because one person has to write that check or what have you, if they don't, that can have a negative impact on the other person's credit.
There's also some other complications. But that's something that's becoming increasingly popular, as well.
WHITFIELD: Interesting. OK, Andre e-mails us with this question: "My wife and I are newly married. I am the sole provider. Should we save for a down payment on a house or try to get out of debt first?"
Mary?
ALLVINE: This is the classic question. And in fact, hundreds of couples we interviewed across the country face this very question.
And we have found, first of all, a lot of times the debt will prevent you from being able to get a mortgage on a house. So that question can be answered by itself. But sitting down and working out how to get yourself out of debt can be liberating for any goal you're looking at, whether it's buying a house or changing jobs, eventually retiring.
Getting yourself consolidated, first of all, sitting down and talking about those goals. I can't say that enough. Figure out what comes first. The freedom of being out of debt or home ownership?
And then come to an agreement. Allocate those moneys accordingly. You can do things simultaneously. And especially if you feel very energized by these two goals, it can be a great time to start automatically having money removed from your paycheck every month, every two weeks.
Get those moneys going towards those goals. If your house is your No. 1 goal, get a little bit more money going there. If getting out of debt is No. 2, don't forget about No. 2. They should still be getting regular money every month.
And then No. 3 in the step process here is don't add to the debt. It's amazing the number of couples I talk to who are talking about getting out of debt, but simultaneously one person in the couple is not actually living within their means.
WHITFIELD: And Jennifer, isn't debt kind of, you know, it's all relative, too. Because there could be $5,000 debt, or we're talking about $15,000 debt, $25,000 debt, which would make certainly a difference as to whether you can afford to have a mortgage, if you'd even qualify.
OPENSHAW: Fredricka, the way I like to think about it, to keep it simple, is good debt and bad debt.
The bad debt is probably very expensive; credit card debt is the best example there, 18, 20, 22 percent, versus good debt like student debt or buying a home, which the interest rates are much lower. And in both cases the interest is tax deductible, including that student loan.
MATTHEWS: All right. Jennifer and Mary, hold on a minute. We're going to take a short break and continue to take some of your calls and e-mails. We'll be right back.
(COMMERCIAL BREAK)
WHITFIELD: Welcome back to DOLLAR SIGNS.
We're talking about family finances. Are yours adding up well on the balance sheet, or do they have you seeing red?
Financial planners Mary Claire Allvine and Jennifer Openshaw are helping you meet your financial goals.
And ladies, we once again have someone on the phone line with a question. This is from Denny who is just recently retired. He's in Ohio -- Denny. CALLER: Yes, I would like your opinion on -- we have a 401(k), and we also owe money on our home equity loan.
Now, right now, our home equity loan is at prime, which is variable. I would like to be completely out of debt, but should I take the money out of my 401(k), pay off my home equity loan, or should I just let the interest build up in the home equity loan?
WHITFIELD: Jennifer, I'll let you grab that first.
OPENSHAW: Well, the down side was taking money out of your 401(k), as Mary alluded to earlier, you can't make up that money.
And two other really important things. First of all, you're going to pay taxes on it, and you're going to pay a penalty.
Now, I will tell you that I do know of a couple in their 40's, and they had a lot of debt and they actually did tap into their 401(k) to pay it off. But the big question is are you really going to commit to not accruing additional debt in the future?
Mary, you might have some additional comments, as well.
ALLVINE: You know, Jennifer, I actually like your lead-in there. It was one of the comments I was going to make, as a general statement about debt, is when you get into debt, don't ever do it without understanding how you're going to get out of it.
Jennifer talks about good debt and bad debt. If you get into debt for an education or to purchase a home, these are things where you can actually -- your education can build your earning power; owning a home can build your wealth base. These are things that can help you get out of debt later.
Back to the gentleman caller's question, in terms of paying down the home equity line versus touching the 401(k). The question I would go back and I would urge him -- and if he's in a partnership to sit down with his partner and say, what can we do to begin to live on less than the income stream we have now?
How can we generate a difference between what comes in and goes out every month and make that difference start to go towards the loan repayment, even without touching the 401(k)?
OPENSHAW: It's also amazing to, if I can add in there, Fredricka, because I've looked in developing the budget kit, at what families spend across the country.
And people -- and there are guidelines. There are guidelines that lenders look at, and there are guidelines in terms of making sure that you're also building for your retirement.
And a lot of folks out there, though, don't know those guidelines. They don't.
And so we spend money and we don't think that we can cut back, when in fact there really are some ways to save some substantial amounts of money. It's really knowing some of those tricks. And that's what we do talk about in the budget kit.
WHITFIELD: All right. Well, Neil has this question that he e- mailed to us. It's this: "Do you have any advice on 'unjoining' the family finances (bank accounts, et cetera) without offending and making your spouse think it is more than just trying to get the finances in order?"
Wow. Mary?
ALLVINE: I would love to jump on this one.
You know, "The Family CFO," my book, was built on the premise that your family is a business.
And if your business partner came to you and said, "Listen, I think the operations department is going to run on a completely separate basis than the marketing and human resources department," I think you're going to indicate that we no longer have a common mission here.
And decoupling to me is a sign of something very much bigger going on here. There's no easy way to tell your partner that, because what you're signaling very substantially is that there's a problem in the partnership.
WHITFIELD: But maybe Jennifer, at the same time, you know, it's someone being concerned enough to say, you know, we need to reassess. What's the matter with that?
OPENSHAW: Well, yes, it certainly says that there's some other stuff going on. But here's the thing that folks should remember.
Because what you need to do basically is you have to go to the creditor, the credit card company or the lender, and say that we want to put it into one person's name.
And the issue is that when that lender initially made a decision, they made a decision to lend in both people's name, because perhaps two people are bringing in two different incomes. So whether or not they're willing to make that change really depends on do you as an individual have the income and do you need all these other ratios to support that decision.
WHITFIELD: OK. Jennifer Openshaw, Mary Claire Allvine, thanks very much to both of you ladies...
ALLVINE: Thank you for having us.
WHITFIELD: ... for joining us. We appreciate it, for helping us get our financial houses, literally, in order.
That's all we have time for right now. But stay with CNN. Up next on "PEOPLE IN THE NEWS," profiles of Academy Award winners Nicole Kidman and Russell Crowe. TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com
Aired February 21, 2004 - 16:30 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
FREDRICKA WHITFIELD, HOST: Welcome to DOLLAR SIGNS, where we help you make the most of your money. Today we're going to talk about a tricky subject, family finances.
We have a couple of financial wizards to help you get the financial footing of your relationship on solid ground. Mary Claire Allvine is a certified financial planner in Atlanta. And she's the co-author of the book "The Family CFO."
And Jennifer Openshaw is the CEO of the Family Financial Network in Los Angeles, and she's the author of "The Quick and Easy Budget Kit."
Good to see both of you, ladies.
MARY CLAIRE ALLVINE, CO-AUTHOR, "THE FAMILY CFO": Great to be back.
JENNIFER OPENSHAW, AUTHOR, "THE QUICK AND EASY BUDGET KIT": Nice to be here.
WHITFIELD: All right. I want to start with the seven most important money decisions that couples face. And I'll highlight them, and then we can discuss them.
So buying a home is No. 1, getting out of debt, having children, changing jobs, planning for retirement, getting through a crisis and creating a safety net. All of these, the most pivotal decisions that a couple or a family has to encounter.
Now, you ladies are saying someone's got to be designated kind of the CFO, the chief financial officer of the family. What are the attributes that this CFO needs to have? Mary?
ALLVINE: The CFO needs to, first of all, know he or she is in the job. One thing that I have found in working with couples in my practice and then in preparing for the writing of this book is that couples don't know they're in business.
And as soon as you tell them that they are running a small business, then we need to assign jobs.
WHITFIELD: And Jennifer, you know, can you have both partners as CFOs or do you really have to decide on one?
OPENSHAW: Well, I think there are different responsibilities in the money relationship in a household. There's investments. There's paying the bills. There's buying the house.
And so I think it's best that you assign one person to be completely responsible for each of those.
And to take a good example, if you don't, it's paying the bills. I heard of a woman lately who said that her husband was late on paying the bills. And oh, my gosh, she was worried because of course, that could have an impact on your credit.
I do think, though, that when you look today in family households who is the CFO, it's predominantly more and more the women. It's the woman who is paying 80 percent of the bills in the home, the woman who's making most of those spending decisions.
And more and more we're seeing women marrying later in life, which means they're buying homes on their own. We see that, as well. And so, in many households we're seeing women primarily being the chief financial officers.
WHITFIELD: But Jennifer, with that, if you have women who are the CFOs of the family, this also doesn't mean, apparently, that all of the accounts, all the finances are combined.
We're seeing a lot of modern households nowadays that there are individual accounts, and then there also may be a couple's account.
OPENSHAW: Fredricka, that's such a great point. Because I think so many couples think that traditionally, my gosh, we should merge the finances. If we don't, that means that we don't -- we're not committed to each other.
And I don't think that's the case. And more and more couples that I'm talking to, particularly couples who have been through rocky relationships in the past, are taking control of their checkbooks themselves.
And what some of them do, and what I recommend, is that you decide how much each person is going to spend on the family bills, maybe the utilities, all of those bills that you both contribute to. And you make a decision.
And perhaps you base it on how much earning power each of you have. Perhaps the man is earning double what the wife does, perhaps he pays twice the amount that she does. And then you each manage the rest of your money on your own.
And I think this is great for women, because we very much have not been educated about finances. And yet we will face in our life a situation where we're, boom, suddenly responsible, and having responsibility for a checkbook helps us take control now.
WHITFIELD: So Mary, how is this like running a business, if both of you are advocating that you've really got to run the family finances like you would a business, if you have no business background, what does that mean? ALLVINE: What we have really found is that being in a business means having common objectives and thinking about what you do in a big picture.
Businesses don't get in business, necessarily, to make the most money. They get in business to produce the best product, to gain market share, to deliver a service.
Couples get into business to go to those seven top issues that you discussed earlier: to buy the home, to have children.
And we strongly advocate from the experiences that we had in writing our book and in my practice, in seeing couples talk about their lives as a business, it means having a common mission statement and then using money as a tool to get to those common goals.
WHITFIELD: So a mission statement, you mention. Now you really are, both of you, coming to the table and writing out a mission statement so that you are in accordance with one another about how you want to save, how you want to spend?
ALLVINE: Well, actually, we don't come at a mission statement starting with how much we want to save and how much we want to spend.
One of the common attributes we found in interviewing couples across the country is that if you start with the money question, you're going to turn half the people off. If you're going to start with the budget, it's like saying, well, first thing we're going to do is we're going to diet.
I think what you want to talk about is where you want to go first. So we found our most successful couples, and I'll define those as the ones who are getting to those dreams, those are the couples who sit down and talk about what do we want to do together, what do we want to accomplish.
It's only after they go through those objectives, they are honest with each other about trade-offs they're willing to make and then they turn to the money and they say, then first dollars go to first priorities.
WHITFIELD: So Jennifer, it almost sounds like a getting to know you, as well, kind of session. And hopefully a lot of couples are making these discovers before they actually marry or before they combine their finances, right?
OPENSHAW: Well, absolutely. I mean, one of the biggest problems that people face is they don't talk about money before they marry, because it's unromantic.
And the fact is that it's the biggest issue that is discussed or that ultimately leads to a marital discontent and conflict. And we don't want to see that happen.
So what I recommend -- and I think she's absolutely right. I mean, thinking about your mission statement. What is it that you want to accomplish?
And so one of the things that I suggest that people do, and if you're single, by the way, you can do this with a friend. Create sort of a money buddy system.
Because the fact is that companies have reams of people around them to help them carry out these things. And we as individuals don't necessarily.
So come up with a -- take a financial date, if you will, with your spouse. And what we mean by that is spending maybe a half hour talking about your goals, the things that, you know, that you want in life. And I think a lot of people have a hard time broaching that conversation with their spouse.
WHITFIELD: OK. Jennifer Openshaw and Mary Claire Allvine, hold on a moment. Just hold the phone. Because we're going to take a short break right now.
We're going to take some of your calls and e-mails, coming up next on DOLLAR SIGNS. And of course, you can still send your questions to DollarSigns@CNN.com. Or you can call in. The phone lines are open. The operators are waiting: 1-800-807-2620.
(COMMERCIAL BREAK)
WHITFIELD: Welcome back to DOLLAR SIGNS. We're talking about chief financial officers. Not the corporate type but the person who actually handles all the day-to-day living expenses in your family.
Is it you or your spouse or your partner?
Certified financial planner Mary Claire Allvine and Jennifer Openshaw with the Family Financial Network are giving us some tips. And we've got a caller, Brian, from Kentucky on the line with a question -- Brian.
CALLER: Yes, I was just curious what your guys thoughts were on me giving my wife an allowance.
We're both full-time workers, and just from previous experience before we got married with some of the expenses and so forth from the credit card debt, I was just a little bit scared. And I just wanted to know what your thoughts are on that.
OPENSHAW: I'd love to take that on, if I could.
WHITFIELD: Go ahead.
OPENSHAW: I actually worked with a woman named Janet over very much the same situation, where he was working, she was not. And I do think that's a great idea in this sense.
I think it's important that as a couple you decide on how you want to spend your money. And some of that, of course, is for pleasurable things. You might want to go golfing, or fishing or what have you.
And I think it's important that both people be seen as equal in the relationship. And so if you're working and perhaps she's not, I think yes, she should be given something for the things that she wants to do in her life.
And I think the best thing you should do is to sit down together and come up with a spending plan for the money that is coming into the household, so that you are covering all the necessities first and saving for your retirement.
And I actually developed "The Quick and Easy Budget Kit," available at FamilyFN.com, to help folks do that in an easy way without it being too tedious. But I think that is a good idea.
ALLVINE: The one idea that I would add to Jennifer's remarks is that I think the two of you should sit down together. And I wouldn't use the word "allowance," because it sounds like a word you would use when you're talking to a 12-year-old.
I think you as a family, as a business, want to talk about those goals, where the money comes first. And then ultimately, the money that you want to use for frivolous things or for enjoyable or personal or unaccounted things, I think you should decide together an allocation within your overall family plan. I wouldn't call it an allowance.
WHITFIELD: And maybe call it fun money or something.
OPENSHAW: Yes, it's your slush fund. And actually, that's what this couple did, is they created an account for the fun things that they wanted to do. One was a travel account, et cetera.
WHITFIELD: Yes. And everyone likes to have a little independence and to have their own spending change helps in that manner.
All right. Jennifer from Alaska is on the line with us.
Jennifer, what's your question?
CALLER: Hi. My husband and I are building a home. We're going to be first time homebuyers, and we have almost $9,000 in a sep IRA (ph). And I'm wondering if we should go ahead and use that money, since the rates are so low at this point, to use for our closing costs and down payment?
WHITFIELD: Mary?
ALLVINE: Yes, I would jump in on that one.
I want to go back to those mission statements. And oftentimes I'm asked questions, should we do this or should we do that? And the question I always ask back to the couples is, what is it that you are trying to accomplish? If that home is your really first objective, and you are willing to accept the trade-off that if you're not saving now for your retirement, you are probably not going to have a retirement.
So if you're going to go in and pull on your sep IRA (ph), first of all, understand all the taxes and penalties you'll incur but ultimately, those other dreams you're giving up.
In the end it is difficult ever for me to recommend that you break into those retirement dollars. You cannot go backward and put them back. You can't have the allocation you can put into your retirement moneys every year when you get to a later point in life.
And I've never seen a couple who has consumed their retirement money later come back and thank me.
OPENSHAW: That's a really good point. And if I can sort of add another way of thinking about it is companies make decisions in terms of what's the best return on our money.
And investing in a home is one of the best returns, of course, that families can get.
And so the question is, are we going to get more return -- perhaps the question is if you're going to get more return by putting that money into your house and you get the leverage effect and the tax deductions et cetera, versus in a sep IRA (ph), which will go tax deferred.
By the way, the maximum that you can take out for first home from an IRA is $10,000 without penalties, by the way.
WHITFIELD: OK. Now Lena (ph) in Hawaii is on the line. And she has a question.
Lena? Are you there, Lena?
CALLER: Oh, yes, I'm here. I'm sorry.
WHITFIELD: OK, go ahead.
CALLER: I was wondering about beginning savers. What's the best way to invest your money?
And also, if you're in debt and you visit a consolidation place, are there any negative repercussions you'll suffer?
ALLVINE: Maybe I'll go ahead and jump in on the saver question and hold up on the debt consolidation for a quick second.
I really want to impress on first time savers, a rule of saving that I think a lot of times -- especially when we're in a fast rising stock market environment like we are again now, people lose sight of the fact that savings really need to be invested according to the goal.
It isn't that savings in and of itself should go into stocks or bonds or a CD, but you've got to understand what you're saving for.
If you're saving for something that's going to be more than five years, five, ten, 15, 20, that retirement kind of idea, stocks can be a very good investment for you.
If you are actually saving to buy a car next year, you're trying to get out of debt, you would like to move out of your parents' home, whatever it would be, I would not recommend going into anything where you're going to be risking losing value.
And that's a principle you need to cling to for the rest of your saving life.
WHITFIELD: And Jennifer, it seems like if you've got a partner or your spouse or you're trying to make these decisions, the tricky part is really coming to terms, agreeing on these very goals and agreeing on the approach.
At what point do you need to bring in a third party, if the two of you really don't have the foresight to come together?
OPENSHAW: Well, of course, if you're not seeing eye to eye on how you should be spending or investing your money, I think it is a great idea to bring in a third party, sort of independent adviser, if you will.
And just going back to her question about debt for a second.
A lot of couples are taking out -- or more and more couples are taking out spousal consolidation loans to try to consolidate debt like student debt, with the idea that they can have a longer repayment period, which will overall reduce their monthly payments.
And in some ways it's good, because of course, it reduces your payments. But the problem is that if you're counting on a spouse to make those payments, because one person has to write that check or what have you, if they don't, that can have a negative impact on the other person's credit.
There's also some other complications. But that's something that's becoming increasingly popular, as well.
WHITFIELD: Interesting. OK, Andre e-mails us with this question: "My wife and I are newly married. I am the sole provider. Should we save for a down payment on a house or try to get out of debt first?"
Mary?
ALLVINE: This is the classic question. And in fact, hundreds of couples we interviewed across the country face this very question.
And we have found, first of all, a lot of times the debt will prevent you from being able to get a mortgage on a house. So that question can be answered by itself. But sitting down and working out how to get yourself out of debt can be liberating for any goal you're looking at, whether it's buying a house or changing jobs, eventually retiring.
Getting yourself consolidated, first of all, sitting down and talking about those goals. I can't say that enough. Figure out what comes first. The freedom of being out of debt or home ownership?
And then come to an agreement. Allocate those moneys accordingly. You can do things simultaneously. And especially if you feel very energized by these two goals, it can be a great time to start automatically having money removed from your paycheck every month, every two weeks.
Get those moneys going towards those goals. If your house is your No. 1 goal, get a little bit more money going there. If getting out of debt is No. 2, don't forget about No. 2. They should still be getting regular money every month.
And then No. 3 in the step process here is don't add to the debt. It's amazing the number of couples I talk to who are talking about getting out of debt, but simultaneously one person in the couple is not actually living within their means.
WHITFIELD: And Jennifer, isn't debt kind of, you know, it's all relative, too. Because there could be $5,000 debt, or we're talking about $15,000 debt, $25,000 debt, which would make certainly a difference as to whether you can afford to have a mortgage, if you'd even qualify.
OPENSHAW: Fredricka, the way I like to think about it, to keep it simple, is good debt and bad debt.
The bad debt is probably very expensive; credit card debt is the best example there, 18, 20, 22 percent, versus good debt like student debt or buying a home, which the interest rates are much lower. And in both cases the interest is tax deductible, including that student loan.
MATTHEWS: All right. Jennifer and Mary, hold on a minute. We're going to take a short break and continue to take some of your calls and e-mails. We'll be right back.
(COMMERCIAL BREAK)
WHITFIELD: Welcome back to DOLLAR SIGNS.
We're talking about family finances. Are yours adding up well on the balance sheet, or do they have you seeing red?
Financial planners Mary Claire Allvine and Jennifer Openshaw are helping you meet your financial goals.
And ladies, we once again have someone on the phone line with a question. This is from Denny who is just recently retired. He's in Ohio -- Denny. CALLER: Yes, I would like your opinion on -- we have a 401(k), and we also owe money on our home equity loan.
Now, right now, our home equity loan is at prime, which is variable. I would like to be completely out of debt, but should I take the money out of my 401(k), pay off my home equity loan, or should I just let the interest build up in the home equity loan?
WHITFIELD: Jennifer, I'll let you grab that first.
OPENSHAW: Well, the down side was taking money out of your 401(k), as Mary alluded to earlier, you can't make up that money.
And two other really important things. First of all, you're going to pay taxes on it, and you're going to pay a penalty.
Now, I will tell you that I do know of a couple in their 40's, and they had a lot of debt and they actually did tap into their 401(k) to pay it off. But the big question is are you really going to commit to not accruing additional debt in the future?
Mary, you might have some additional comments, as well.
ALLVINE: You know, Jennifer, I actually like your lead-in there. It was one of the comments I was going to make, as a general statement about debt, is when you get into debt, don't ever do it without understanding how you're going to get out of it.
Jennifer talks about good debt and bad debt. If you get into debt for an education or to purchase a home, these are things where you can actually -- your education can build your earning power; owning a home can build your wealth base. These are things that can help you get out of debt later.
Back to the gentleman caller's question, in terms of paying down the home equity line versus touching the 401(k). The question I would go back and I would urge him -- and if he's in a partnership to sit down with his partner and say, what can we do to begin to live on less than the income stream we have now?
How can we generate a difference between what comes in and goes out every month and make that difference start to go towards the loan repayment, even without touching the 401(k)?
OPENSHAW: It's also amazing to, if I can add in there, Fredricka, because I've looked in developing the budget kit, at what families spend across the country.
And people -- and there are guidelines. There are guidelines that lenders look at, and there are guidelines in terms of making sure that you're also building for your retirement.
And a lot of folks out there, though, don't know those guidelines. They don't.
And so we spend money and we don't think that we can cut back, when in fact there really are some ways to save some substantial amounts of money. It's really knowing some of those tricks. And that's what we do talk about in the budget kit.
WHITFIELD: All right. Well, Neil has this question that he e- mailed to us. It's this: "Do you have any advice on 'unjoining' the family finances (bank accounts, et cetera) without offending and making your spouse think it is more than just trying to get the finances in order?"
Wow. Mary?
ALLVINE: I would love to jump on this one.
You know, "The Family CFO," my book, was built on the premise that your family is a business.
And if your business partner came to you and said, "Listen, I think the operations department is going to run on a completely separate basis than the marketing and human resources department," I think you're going to indicate that we no longer have a common mission here.
And decoupling to me is a sign of something very much bigger going on here. There's no easy way to tell your partner that, because what you're signaling very substantially is that there's a problem in the partnership.
WHITFIELD: But maybe Jennifer, at the same time, you know, it's someone being concerned enough to say, you know, we need to reassess. What's the matter with that?
OPENSHAW: Well, yes, it certainly says that there's some other stuff going on. But here's the thing that folks should remember.
Because what you need to do basically is you have to go to the creditor, the credit card company or the lender, and say that we want to put it into one person's name.
And the issue is that when that lender initially made a decision, they made a decision to lend in both people's name, because perhaps two people are bringing in two different incomes. So whether or not they're willing to make that change really depends on do you as an individual have the income and do you need all these other ratios to support that decision.
WHITFIELD: OK. Jennifer Openshaw, Mary Claire Allvine, thanks very much to both of you ladies...
ALLVINE: Thank you for having us.
WHITFIELD: ... for joining us. We appreciate it, for helping us get our financial houses, literally, in order.
That's all we have time for right now. But stay with CNN. Up next on "PEOPLE IN THE NEWS," profiles of Academy Award winners Nicole Kidman and Russell Crowe. TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com
