by: Carlye Adler
from: Managing Your Future
Spring 2000

When Bobbie Hefferman was 12, she opened her purse and a moth flew out. Her brother, who always accused her of being a miser, thought that was a riot. It showed, he said, how infrequently she went to her wallet.

Could be, but Bobbie has a way with money. Four years ago when she became pregnant, she and her husband Nat realized they would have to dramatically change their way of life if they wanted to pay bills, save for the future, care for their new baby and pursue their own work interests. Bobbie, now 34, and Nat, 35, decided on a major lifestyle overhaul. She would work full-time and he would stay at home and become Mr. Mom.

It made sense from a career point of view. Bobbie was doing public relations at Cognos, a fart-growing software company in Burlington, Mass., and Nat was in account maintenance at a small financial firm. It was a job he just fell into, Nat says, not one he enjoyed, and he was attending night school to prepare himself for something he really wanted to do: become a recording engineer.

Because Bobbie’s income was higher and her career track important, they decided that Bobbie would be the breadwinner. Nat, who would be home with the baby, would also work one night a week in a recording studio so once the baby was in school he would be ready to begin his new career.

The Heffermans tried out their strategy before the baby arrived by putting Nat’s salary directly into a savings account and living off Bobbie’s income. "After we paid the bills," she says, "we’d wind up with 13 cents in the bank." Panic time. "Soon there would be an extra mouth to feed, and clothes and diapers to buy."

But the Heffermans didn’t consider the potential savings. As two working adults, they were driving two cars, dressing for work and eating out frequently. As parents, they cut back on fancy dinners, movies, vacations and concerts. Nat had little need for ties and jackets. And then there were the tax savings. "With only one income, they moved into a lower tax bracket," says Roxanne Fleszar, a certified financial planner from Peabody, Mass. "There were also additional deductions from having a new dependent."

Savings for college for their son is one of the Heffermans’ major concerns. They began by refinancing their house, swapping what had been a 30-year, 8% mortgage for a 20-year mortgage at 71/8%. The shift meant a slight increase in their monthly payments, but it also means the mortgage will almost be paid off by the time three-year-old Liam goes to college.

Fleszar suggested another shift: putting an annuity they had purchased to handle mortgage payments into the Massachusetts U Fund, a new fund designed to help parents save for college. The minimum contribution is $50 a month, says Fleszar, and the money grows on a tax-deferred basis.

Bobbie and Nat bought their house in Lexington, Mass, six years ago for $217,000. The value of the house is twice that today, and the Heffermans are currently building an addition. To finance the project, they took out a line of credit, the interest on which is tax deductible.

Bobbie is fortunate in that she works for a company that has shared in the technology boom and allows employees to participate. She invests $300 every quarter in Cognos stock, which she gets at a 10% discount from its market price. Today Bobbie has $57,000 worth of Cognos shares. Bobbie also has maxed out her 401(k) every year she has been eligible to participate in the program. Her contributions are currently capped at $10,500 a year, which Cognos matches with a 2½% contribution. Bobbie has invested the money in aggressive growth funds. Her 401(k) is currently worth $73,000.

Nat has a rollover IRA from a previous employer, which currently has a $3,000 balance, and he has a Roth IRA worth $3,800. Fleszar stresses that they should re-evaluate their investments regularly and become more conservative every five years. This makes sense to the Heffermans, who have always been savers. Maybe by retirement they’ll have moths in their accounts – but with savings and investing, that adds up to good fortune.