For some, living within your means is about as realistic as sticking to a New Year's resolution.
But for Manny and Celina Cervantes, it is truly a code to live by. The couple is passionate about getting the most out of their combined $71,700 annual gross income.
Celina, a 32-year-old bank operations officer, hunts for sales, clips coupons and buys in bulk at Sam's Club. Manny, a 35-year-old mail carrier, is the kind of comparison shopper who can spend weeks visiting stores before finally deciding on a major purchase. They rarely buy on credit.
Their near-Olympian financial rigor extends to their savings accounts, too. Between Celina's 401(k) retirement plan and Manny's Federal Retirement Thrift Savings Plan, the family is saving $8,700 annually in pretax income for retirement.
In addition, they are contributing $400 a month to four Janus mutual funds. Three are growth funds--the namesake Janus Fund (five-year average annual return: 12.7%), Enterprise (less than 5 years old) and Mercury (less than 5 years old)--and the fourth, Worldwide (five-year average annual return: 17.7%), is a world stock fund. Those investments have allowed them to build up a $7,000 nest egg in addition to their work-related retirement plans.
Plus, they've been paying $100 a month more than required against the mortgage on their home in Norwalk.
Overall, then, this middle-income family is saving a bit more than 15% of its gross income.
If they continue saving at that rate, and assuming they continue getting decent rates of return, they will have $2.8 million in their retirement accounts within 30 years--the equivalent of $1.4 million in today's dollars, said Kathleen Stepp, a fee-only certified financial planner based in Overland Park, Kan. That sum should give them more than enough to live comfortably in retirement and leave their children with a tidy inheritance too.
Manny and Celina Cervantes each arrived in the United States 20 years ago not speaking a word of English.
"I was 12 years old," Celina recalls of that wrenching time in her life. "It was just horrible. I wanted to go back to El Salvador, where I had a maid and my own room."
Thrust into a regular sixth-grade class, Celina learned English slowly but surely even as her classmates teased her mercilessly.
But her experiences have stood her in good stead, and today part of her job duties are teaching recent immigrants how to open and operate bank accounts.
"I wouldn't change what I do for anything," she says.
Manny was equally uncomfortable when his family arrived from Mexico around the same time, although he quickly picked up the new language.
By the time the two met in 1982, as tellers at the same bank, they were well assimilated to their new land. Celina soon moved to another job but stayed in touch.
"My best friend was still at the bank, and I'd call her," Celina recalls. "Sometimes Manny would answer and we'd talk, and one day he asked me out. He proposed to me on the fourth anniversary of our first date."
As adults, they have seen their share of financial hard times. Shortly after their 1989 wedding, they purchased a Norwalk home for $150,000--just before the Southern California real estate crashed.
As their residence was sinking in value, Celina, at the time in the middle of a difficult pregnancy, was fired from her job and was out of work for more than a year. She finally received a $25,000 settlement from her former employer in connection with her job loss. However, the money didn't go far. A third went to the attorney who won her settlement, and the rest went to repay her mother, who had lent the couple the money for the down payment on their house.
As if all these troubles weren't enough, the couple then made a regrettable investment decision. A representative of a national brokerage firm sold them on the idea that the small amount then in Celina's individual retirement account should be in a variable annuity, a long-term tax-deferred investment account.
But after they made that move, Manny began to read up on investments and decided that tax-deferred annuities were the wrong move for his family and that he wanted Celina's IRA in mutual funds. To exit the annuity and regain control of the money, they were forced to pay high surrender charges.
"Between the high fees and the small amount of money, we were going nowhere," Manny recalls. "But the good thing [the brokerage] did was get us on a program where we learned to put aside savings like we were paying a bill."
Today Manny and Celina are in an excellent position to achieve their long-term financial goals.
Manny hopes to leave the Postal Service within 10 years to work full time at the landscape design business he is beginning to establish. Celina, who was not able to finish college because of a lack of money, doesn't want to see the same thing happen to their children, Misty, 5, and twins Erick and Alex, 3. In addition, the couple would like to retire with homes in both the Los Angeles region and in Manny's native Mexico.