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Topic: TV's Suze Orman Says Family Can't Afford WDW Trip!< Next Oldest | Next Newest >
CarolKoster Offline
Carol Koster




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Posted: May 06, 2012, 9:25 am Quote

"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?

E Yes.

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.  

Your thoughts?

:dollar:  :musicsad:  :cry:

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.  ;) :pixiedust:  :dollar:
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CarolKoster Offline
Carol Koster




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Posted: May 06, 2012, 10:17 am Quote

And here's a thought:  Get the emergency fund fully funded, pay the mortgage off, start the college funds.  At some major milestone wedding anniversary (they were married at WDW eight years ago) in the future then go back to WDW, for something like the 15th or 20th wedding anniversaries, 7-12 years from now, the kids will be ages 13, 11, 10 and age 7 if it's 7 years from now for the 15th wedding anniversary, or ages 18, 16, 13 and almost age 11 if it's the 20th wedding anniversary.  They'll be older, can remember and enjoy the trip much better at the older ages, yes the children will age into older brackets of more expensive Disney ticket and room and meal costs.  But then maybe the income of the family will be higher, too, and the mom and dad can escalate it up to be a vow renewal trip with their children present to honor their parents for that milestone as well as make it a family trip they've dreamed of as well as being a second honeymoon for mom and dad.  At age 18 the older child if for a 20th wedding anniversary will be college-bound, even though family expenses will be higher then, the oldest child might be going away for college so a family trip for the 20th wedding anniversary would definitely have a lot of meaning for the family at that time.  For a 20th wedding anniversary trip the then-18, 16 and perhaps 13 year old can develop their own income sources in jobs or chores they are paid to do and earn part of their own expenses at WDW themselves or contribute to the overall cost of the trip.  Just suggestions..... :hearts:
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CarolKoster Offline
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Posted: May 06, 2012, 1:34 pm Quote

Pardon my math error.  The current 3 year old child for a 15th wedding anniversary for Eric in 7 years or a 20th wedding anniversary in 12 years would be age 10 and 15 years old, respectively, and not age 13 for the 20th wedding anniversary.
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RichKoster Offline
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Posted: May 06, 2012, 5:34 pm Quote

My opinion: Pay down debt and save, too, but I'm addition stay offsite, drive instead of fly, and do Disney now while the kids get in cheap and also don't cost as much to feed.

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Posted: May 06, 2012, 6:08 pm Quote

You know I am a big advocate of being debt free. My family is and, other than car payments (which right now we have none), we have always been debt free... going on 20 years of marriage!  BUT... this family would not go into debt to pay for this trip. It appears (if I am reading this correctly) that they have no debt outside their mortgage/home equity loan and have significant savings, even if it is not at the 100% level that Suze wants it to be. They obviously are hard workers and responsible financially. I say... GO! Have a good time. Do things that will save some money... $10,000 seems a little high to me... but do it. Then go back to doing what Suze suggested and go again once their goals are achieved.

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Posted: May 06, 2012, 10:54 pm Quote

I'm with Rich on the off-site thing, especially given that some of the Downtown Disney Resorts that are part of hotel chains (Such as the Hotel Royal Plaza and Hilton) offer rooms at a fraction of what the Disney resorts cost, and with many of the same aminities. Also planning ahead that meals will not come from fancy sit-downs, and when you do want a sit down meal make it from one of the restaurants away from the parks. All that said, I have to agree that with the amount of children he has, paying off the mortage and preparing for college should be a high priority. Once that's all done, or at least a large chunk of it then you can take one knowing that you won't have to spend the time when you come back worrying over where you are going to come up with the cash to cover what you just spent.

Of course you could also wait for the kids to get older and have them take you to WDW  :)


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CarolKoster Offline
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Posted: May 07, 2012, 11:58 am Quote

The transcript is all we know, and I copied it all down, including screen graphics, as it was presented on CNBC.

The guy, Eric, made a bargain with his wife that he'd go with anything Suze Orman recommended.  So reading between lines a little bit, it's the husband "pressing for" (his words in the transcript) the trip, the wife deflecting it to Suze Orman to be the decider.  The wife might be feeling a little financially insecure in general, or financially insecure about the trip.  She might want that nest feathered first, and it might be the wife proposing "Let's pay the mortgage off, then start the children's college funds, and $10,000 for a Disney trip????"  She might be "the practical one" in the marriage, the husband Eric the "dreamer".  They might balance each other out and compliment each other very well in most respects.  But they only had two years of being together after their WDW wedding, then the children started arriving.  The wife/mom has never known more than 2-2 1/6th years at a time without a pregnancy!  She might be overwhelmed, or at least concerned as she looks into a long term crystal ball and sees what $10,000 could fund for family security when there's unemployment, under employment, the housing market is still in a state of flux, and maybe internally she knows something about either her job or Eric's, or their industries, that has her feeling nervous.

Suze denied the trip for family security reasons and the housing market reasons.  

1.  Home Equity Line of Credit is $18,000.  That might be all the equity they have in their house afar eight years of marriage and it's not stated how far into their marriage they bought the house.  Most home loans are that you're paying mainly interest and very little equity in the early years of it.  With the housing market still iffy in some parts of the US it might be Eric's family would be shocked to learn through market appraisal that they are "upside down" or "under water" about the market value of their house vs. what they paid for it vs. what their home loan is on it.  A lot of housing nowadays is now undervalued vs. what values were just a few years ago.  In which case Suze honed in on this reality to make Eric aware of it.  Quoting the transcript:  "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."  $18,000 line of credit but the value of the house could drop if it hasn't already, and Eric valued the vacation at $10,000.  Meaning to fund the vacation in today's real estate market using the equity in your home is risky, the money might not be there.  If we double-dip into another recession, housing values might fall more than they have.  A lot of financial writing lately is the speculation that the housing industry might take a generation to recover.  So Suze is implying relying on "money in the house" is not a stable or reliable way to fund their proposed vacation.  So Eric and his wife need to scratch that possibility off their list of hoped for funding sources for the trip, and look elsewhere.

2.  They've been married eight years and have amassed a total of $87,000 in liquid assets and investments outside the 401K.  At the rate of eight years into that figure they've saved or earned from investments $10,875/year.  Assuming they could sock away that much per year into the near future, an eight month salary emergency fund totaling $100,800 - $87,000 = $13,800 more to go.  They have 86.3% of their emergency fund, all they need is 13.7% more to go.  At an annual savings rate of $10,875 going towards catching up $13,800 to fully fund the emergency fund, they can fully fund it in 15-16 months (a year and 3-4 months).  

Suze never said the family could never go to WDW for that price of $10,000.  What she said was "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. "  

If Eric and his wife could create their own carrot on a stick, set some doable goals, get rid of the home equity line of credit and fully fund the mergence fund in the next 15-16 months, I would think that would cover Suze's two conditions in her denial of taking the family immediately to WDW.  

Suze further said, via implication, to stave off immediate gratification for awhile "You know how much you and your wife loved it a few years ago and you were already an adult.  They'll (the children, the family) love it no matter how old they are."  

So if they can just "if things were just a little bit more" wait 15 months, pay the emergency fund off, disregard tapping into an uncertain home equity in a precarious market, then the wife's conditions for the trip will be met since Suze's advice will have been followed "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."  Husband happy:  He gets to take everyone on a $10,000 Disney vacation.  Wife happy: Suze would approve if the emergency fund is funded and they don't rely on the value of their home to pay for the trip.  Kids happy.  Let's call it a year and a half vs. 15 months that they need to defer the trip, kids will be 7.5, 5.5, 4.5 and 2.5, roughly.  Still within lower "child" price brackets Disney has for ticket prices and room occupancy rates, and the youngest as long as the youngest is under age 3 that traveller travels free!  

So since the date of the show was May 5, 2012 fifteen months from now is August 2013 and a year and a half from now is November 2013 that the family can go to WDW in that time range if they fund their emergency fund fully then save up the $10,000 proposed cost and assuming they remain in good health, no disasters to the house, and assuming their current jobs are steady and stable.
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Jeffrey Winikoff




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Posted: May 07, 2012, 3:21 pm Quote

she wants to see 8 months of emergency fund and he has 6.  The financial counselor I listen to would give the same answer, but for different reasons.  If he is in debt and can put off the trip for 2 years, he should be able to do it in cash and debt free. A 6 month emergency fund is a good place to start before investing elsewhere, in my opinion, and he has that in cash.  I would say take the trip now, but I also see doing at the milestone of 10 year anniversary, and being debt free doing it.

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