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Couple's Frugal Habits Handy as Debt Looms, Family Grows


At the tender age of 23, Rick and Brandy Mendoza have already realized their dream of homeownership, no small feat in Southern California.

They carry no high-interest credit card debt. Although both work full time in accounting-related jobs, they live modestly, forgoing vacations except for camping and the occasional low-budget, Motel 6-style California ski trip. When they dine out, they can make an event of going to a fast-food restaurant. And the couple's love for playing softball and baseball hardly breaks the bank.

Despite their fiscal prudence, the Lancaster homeowners face a raft of potential financial hazards in the short run: They are expecting their first baby in February. Rick hopes to change careers as soon as he can land work as a teacher, a promising but not particularly lucrative proposition. They lack enough short-term savings for an emergency fund. They make more than $1,500 a month in mortgage and car payments, and after the baby arrives, Rick is scheduled to begin paying $170 a month on his $14,000 college-loan debt.

As a result, the frugal couple face a moderate risk of financial trouble, said Timothy J. Wallender, a registered investment advisor and certified financial planner from Manhattan Beach who reviewed their finances for The Times.

The immediate decision is how to use the money the Mendozas have left after basic debt payments and living expenses. By early next year, after they pay off one of their car loans, which total $21,200,they will be able to direct $450 a month toward savings and debt reduction. At least some of that is needed to increase their short-term savings, now just more than $1,000. Child expenses will take up some as well. But then, as their income rises, the key would be to keep their living standard the same while reducing debt and taking full advantage of any retirement programs at work.

'We're Setting a Foundation'

The first debt to attack would be their $19,000 second mortgage, which carries an 11.5% interest rate. Reducing that would also be the first step toward eliminating their monthly $42.95 private mortgage insurance payments, Wallender noted.

The second mortgage, obtained after sorting through a blizzard of mail solicitations, consolidated $6,000 in debts from credit cards as well as some initial expenses for the new house--furniture, basic landscaping, a patio and patio cover.

All "this [debt] will take a significant amount of time to bring down to zero," the planner said.

Like many other young adults, the Mendozas are trying to keep many financial balls in the air simultaneously: student loans, mortgage payments and a family.

Some parents are having children later than the Mendozas--the average age of parenthood in the U.S., now 27, has been rising for decades for a variety of reasons. But from a purely financial standpoint, there are always substantial, long-term costs associated with children and there's never a "perfect" time to have a baby.

Wallender said that although the Mendozas might have some tight years ahead, they appear likely to keep their expenses, debts and savings in balance. "It's going to correct itself; it will just take a little time," Wallender said.

One reason for optimism is the couple's attitude. "We've always been real responsible. I've always been real good with money," Rick said. He had a remarkable role model in his mother, who was abandoned by the children's father and emigrated with her two children from Colombia.

"When we first came to this country we were very poor," he said. "My mother was a single parent who worked at Jack in the Box while she studied accounting. I watched my mother work very hard to support us."

Rick earns $23,500 a year working for a mental health association, helping mentally ill clients manage their monthly expenses. He can add to that a lump-sum $3,000 health-insurance allowance that he can use for other purposes because they are insured through Brandy's accounting job with the Antelope Valley Union High School District. She was recently promoted, bumping her salary up by about $4,000 to $33,000 annually.

Also in their favor is that Brandy and Rick are in sync when it comes to money. Neither feels deprived going without life's extras, at least for the time being.

"Right now we're setting a foundation," Rick said, adding that any money left over in the checking account immediately gets transferred to savings or is used to pay down debt. They are careful with expenses--for example, they spend just $600 or so a year on clothing.

"Stability is more important than anything to me," Brandy said. "Putting my kids through college is pretty important. And no matter what happens, we've taken steps like buying life insurance, so if my husband left me with a child, we'd be taken care of."

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