Disney EchoEar Grand Mouseter
Joined: April 1992
||Posted: May 06, 2012, 9:25 am
"The Suze Orman Show" on CNBC May 5, 2012 had a segment called "Can I Afford It?" in which callers ask personal financial management expert Suze Orman advice on whether or not they have the money to afford something they want. Callers must show to Suze during their call what their incomes, expenses, debts and available assets are, and if asked by Suze show how they intend to pay for the "wanted" item. Suze analyzes that (probably in screening who gets on the show there is advance research done on both sides of the call before they put the call on the air) and issues an opinion on if the "want" is affordable and doable or not, and if the caller is denied approval then why, and suggestions on what needs to be done instead, or praises if Suze approves the "want" and what made the want doable on the part of the caller.
You should know that Suze is well known as a book author, host of this show on CNBC on weekends, and for appearances on PBS TV stations during special pledge drive shows about personal finance so she's successful and knows her subject matter.
Suze advocates people have as part of their savings an eight-months worth of salary emergency fund in case something catastrophic (financially) happens to a caller or caller's family (out of work, dire illness, destruction of property by catastrophic means, etc.). Multiply your family income by eight months to privately determine how much emergency fund you'd need in order to get the idea.
So read the transcript below. This particular show had a caller, a spouse-Dad named Eric, wanting to take his family to WDW and asking if it was a doable trip. See if you think his proposed trip is doable or whether you agree with Suze's advice-judgement call instead. "S" is for Suze, "E" is for Eric, and DW is for Disney World.
S Eric, what do you want to buy?
E Oh, Hi Suze. Thanks so much for taking my call.
S Any time, sweetheart, what do you want?
E Well, my wife and I were married at DW eight years ago. And we now have four kids, 6, 4, 3 and 10 months old. And I really want to take the whole family down to DW so the kids can experience the magic down there too. The thing is, my wife and I really want to pay off our mortgage within the next five years or less so we can start putting more money away for our children's college expenses. And the other night I've been pressing my wife to go on this trip and she said if Suze says that we're approved then we can go.
S Alright so, boyfriend, show me the money!
E (Chart on TV screen: Eric, 43, $10,000 Disney World Family Vacation. Income: $12,600/month take home, Expenses: $8,709/month) (Eric just tells Suze what is on the chart.)
S (About the income) That's good (about the expenses) Great…
E (Chart on TV screen: Debts: $140,000 5-year Adjustable Rate Mortgage @ 2.89% and $18,000 Home Equity Line of Credit @ 2.74%. Savings: $76,000 Liquid, $11,000 Investments, $315,000 Retirement) (Eric just tells Suze what is on the chart.)
S And you're 43 years of age, correct?
S And you want to go to that Magic Kingdom….
E Suze, I want to be able to go home from work today and, and, and, even if I didn't win the Super Bowl I want to tell them 'Hey, we're gonna go to DW!'
S Alright then, here's what you're gonna do. You're gonna go home and say 'Kids, guess what? We are NOT going to go to DW, 'cause you've been denied!' (Graphic overlay on the '$10,000 Disney World Family Vacation DENIED)
E Oh, Suze…..
S Eric, here's the thing: If you were a little bit younger, if things were just a little bit more…. We have four kids. We don't really have the money for an emergency fund here that I'd really like to see a little more cushion there. You know it and I know it. The real estate market isn't that great and it could very easily be that you could get $10,000 less for your home than you think you would get. So boyfriend….
E Oh no….
S You know how much you and your wife loved it a few years ago and you were already an adult. They'll love it no matter how old they are. Sorrrrrrrrrrrrreeeeeeeeee (Sorry…) ……
E (Sighing) OK…..
End of transcript.
So what do you think? Is Suze Orman right? Or could Eric do that trip if he rethought that $10,000 cost of it? An eight month emergency fund of salary based on what Eric described as $12,600/month is $100,800. He told Suze he has $11,000 in investments, $76,000 in liquid cash, total of $87,000, so Eric needs at least $13,800 more and he'd have the emergency fund paid off. Then he needs to pay off that 5 year $140,000 mortgage. And start the four children's college funds. I feel for Eric! But Suze is probably right, with the housing market still not good, and people can and do either get fired or laid off or financially catastrophic things can can happen (job loss, fire, natural disaster destroys the house, catastrophic illness like cancer can happen), and college as time goes on is costing more, not less. And Disney is costing more and not less as time goes on, too. Their prices go up, and as children get older their tickets, travel costs, food, and the cost of rooms for a family of six goes up. Then as the children get past age 10 they pad adult rates for tickets, some meals, how many in the room…. Poor Eric, it's somewhat cheaper to take them to WDW in today's dollars plus the ages the children are at today before they age into older and more expensive brackets of Disney costs. But Suze is probably right….
And think of this: Suze Orman just told Eric and his wife with a joint annual income of $151,200 ($12,600/mo x 12) they can't afford WDW ! At least for now.
My 2-cents worth:
I just went to BankRate.com and just using their calculator a 5 year mortgage at 2.89% is approximately and rounding up dollars and cents to the nearest dollar $2,509/month or four months of such payments = the $10,000 WDW trip he wants to take his family on.
There are cheaper 5 year ARM rates than 2.89% right now, in the 2.3%-2.4% range. If Eric could refinance his current loan he'd get a little break on the monthly payments.
Cut back on a lot of expenses (not disclosed what those expenses are) and live-eat modestly. Get the emergency fund up to what Suze recommends, bad things can and do happen and with four children under the age of six Eric owes it more to them to have that financial cushion in place than to go on a discretionary trip. Pay off the mortgage, maybe refinance it if that is prudent to lower the amount of interest he pays each month or to lock in a fixed rate vs. adjustable rate. Once the cushion is adequately funded and the mortgage paid off, tackle the college funds. Get comfortable with that.
THEN see if they still want to go to WDW, and if so to do it modestly (stay at the All-Stars or off-site at a family suites hotel, drive don't fly so you don't have to rent a car, etc.).
It will probably mean more to the kids, who'll remember the trip better when they are older and the youngest two will be going at ages they can remember it vs. being ages 3 and 10-months old today.
The goal is to be inside the park gates having fun they can afford, staying off-site if they had to do it means that can attain that goal sooner and more affordable. Even at $150,000+ a year joint income they need to do things cheaply, whatever it takes, to make that dream of a WDW trip affordable, and cutting some corners or making hard compromises might be what they have to do.
The fun they'll have knowing they are debt and worry free and can pay for the trip outright even if it means deferring the trip a few years will be worth it.
2-cents worth mode OFF.