Now's the Time to Reassess Your Finances

Jill Foster and Sean Stickle are in better financial shape than last year. Both recently started new jobs, more than doubling their combined income.

But with all the news of companies slashing jobs and salaries, neither Foster nor Stickle is resting easy.

Married for nine years, Foster and Stickle have always taken their finances seriously. They have never lived lavishly. In fact, they've been renting the same 600-square-foot Dupont Circle apartment for years. While putting together a budget for the couple two years ago, Foster, now online editor for http://www.womengrowbusiness.com, realized they had spent $11,000 on restaurant meals in one year. She cut their restaurant budget to just $1,500 a year and enforced a rule that 12 percent of their income would go toward retirement.

Now that they are in their late thirties and making more than $100,000 a year, Foster is wondering what their financial priorities should be. Should they be saving more for retirement? And, given the precarious state of the economy, Foster really wants to know how much of their income they should set aside in emergency cash reserves.

"I think we're in a decent spot. We don't have any debt, and we're slowly building our cash reserves. We're taking a few thousand dollars and inching along," Foster said. "Does an optimal financial status exist for a married couple in their late thirties?"

Ronald Rogé, a certified financial planner and author of "The Banker and the Fisherman: Lessons in Life, Happiness & Wealth for the 21st Century," put it this way: "People and their finances are like snowflakes. Each one is unique."

So it's hard to say what an optimal status would be for Foster and Stickle, a software engineering manager. However, the fact that they're even asking the question is a good thing. It's important for us to reassess our financial health on a regular basis, especially when the economy is in bad shape.

Foster and Stickle should sit down and decide what their short- and long-term financial goals are and then prioritize them, said Craig Skeels, a certified financial planner and managing director of Apex Wealth Management Group in Oxnard, Calif. "For most people, the most important long-term goal is getting to a point where they can retire successfully," he said. "[They] do the number-crunching based on when they might want to retire, what kind of retirement lifestyle they want."

Rogé said saving 12 percent is admirable given that the American savings rate has hovered around zero percent for years. "Most Americans do not have a clue as to what it's going to cost to support themselves in retirement. In addition, each generation is living longer, on average, than the previous generation. This is very problematic for our aging nation," he said.

Foster and Stickle should save 15 percent of their income for retirement, Rogé said.

As for emergency cash reserves, Rogé recommends they set aside three to six months of expenditures in a liquid savings account or money market fund.

"Prior to the current financial crisis, emergency funds got little attention. Now people are seeing how important they are and the degree of comfort they provide should one lose their job," Rogé said. "Think of it as a safety net for the high-wire financial crisis performance we find ourselves addressing every day."

Skeels offered another way of dividing up annual income. He advises his clients to live on 70 percent of their total take-home pay. Of the remaining income, 10 percent should go into short-term savings such as a money market fund or certificate of deposit. Another 10 percent should go toward long-term investing, such as a Roth Individual Retirement Account. The final 10 percent should go either into a retirement account such as a 401(k) or into short-term savings.

That said, Skeels said it is possible to save too much. He urges the couple to prepare for retirement or a financial emergency but also to enjoy their present situation because when it comes down to it, they're in pretty good shape. "To me, financial planning is not saving it all for the future and also not spending it all today," he said.