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Out of Gen-X Formation

Young Air Force Couple Plan Way Ahead, Apply Discipline to Their Finances


For most 24-year-olds, financial planning is an alien concept. Many Generation Xers still haven't figured out what they want to be when they grow up. Serious contemplation of issues like financing college educations for future children, buying a home and retirement? Forget it.

Jim Winner, a first lieutenant in the U.S. Air Force and soon-to-be second-year student at Loyola Law School in Los Angeles, is an exception. The Ohio native started investing a portion of the $200-a-month salary he received while still a teenage cadet at the Air Force Academy in Colorado Springs, Colo.

At first, Winner, who was on the football and rugby teams, socked away a few hundred dollars for big-ticket indulgences such as a self-propelled water ski. But in short order he started to invest in mutual funds, anticipating a future that would include marriage and family.

During a summer internship at the Court of Appeals for the Armed Forces in Washington, D.C., the country's highest military court, Winner met Mary-Pat McConnin, a law student. They were married in 1994. Winner, a career officer, will graduate from law school in 1999. Then he'll become a judge advocate general, commonly referred to as a JAG lawyer, working in the military's justice system.

Twelve months after they were wed, Mary-Pat decided she liked what the Air Force had to offer and decided to become a JAG lawyer herself. She's now stationed at Los Angeles Air Force Base, a small facility in El Segundo.

Mary-Pat, now 30, also began saving early, starting to invest in mutual funds soon after her 1994 graduation from the George Mason University law school in Virginia.

Now the couple is determined to make the most of their money. They are self-taught investors who aren't afraid to assume some risk, but they want to make prudent, well-informed choices. They are avid readers of financial magazines and comb prospectuses in search of opportunities.

The Winners have three key goals:

* To pay off $30,000 in student loans that Mary-Pat racked up in law school;

* To purchase a house within three years; and

* To put aside money for the college educations of the two or three children they hope to have.

Since Jim's got two more years of law school, they are postponing parenthood. That plan will give them a few years to save aggressively, said Edward O'Hara, a fee-only certified financial planner based in Silver Spring, Md.

O'Hara says the Winners have done a good job in managing their personal finances so far, with virtually no debt other than the student loans.

"Most people at their age spend more than they make," O'Hara notes. But O'Hara recommends that they try to save even more and suggests they tinker with their portfolio to improve its performance.

First, the planner recommends they set priorities for their goals.

"They're not going to be able to do everything they want to do at this point," he cautions.

The Winners have $41,000 in total assets, but $30,000 in student loans means their net worth is only $11,000. For their net worth to grow, they're going to have to reduce their liabilities or invest more.

"There's no magic to this," O'Hara says. "It's just common sense."

But the Winners hope to both reduce their liabilities and invest more. Their combined gross annual income of $72,630 leaves some extra cash; they are trying to be frugal, however.

"We know expenses will be coming up," Jim says.

The couple live in a $600-a-month rent-controlled one-bedroom apartment in Santa Monica, carry no credit card debt, drive two modest cars that are paid for and keep a level head about purchases.

"After we pay the bills every month, we don't go around buying big-ticket items," Mary-Pat says. But at the same time, they're not depriving themselves. They spend money on clothes and entertainment, and they'll occasionally pop for a fun extra. For example, the couple recently flew to Washington, D.C., for a weekend trip to attend a wedding. That set them back $1,000.

"We know it was kind of a lot of money, but we did it anyway," Mary-Pat says.

Perhaps surprisingly, O'Hara thinks this is good too.

"You've got to keep personal happiness in mind," he says. "Don't let the numbers drive everything you do."

The Air Force offers the Winners many financial advantages. It's paying the full freight of Jim's legal education, although because he earned a scholarship, the Air Force will not have to cover the entire three-year cost of his eduction--$70,000 to $75,000. Meanwhile, Jim draws an Air Force salary and is required to work for the military during his school breaks.

They shop at the commissary, where grocery prices are 10% to 15% below supermarket levels, and the military provides free medical care, a nontaxable housing allowance, plus other benefits.

In an effort to get the most out of their income, the couple recently started living on one salary. But can they make it on Mary-Pat's annual net income of $31,200?

"I think we can do it," Jim says.

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