Podcast Summary: "House Poor and Feeling Behind"

Jill on Money with Jill Schlesinger
Episode: House Poor and Feeling Behind
Release Date: May 15, 2025

Introduction

In the episode titled "House Poor and Feeling Behind," hosts Jill Schlesinger, CFP®, and Mark delve into the financial challenges faced by Bridget, a 41-year-old self-employed photographer from South Carolina. Bridget reaches out seeking guidance on managing their newly built home and mounting credit card debt, fearing they might be falling behind on retirement savings.

Bridget's Financial Snapshot

Bridget and her husband, aged 45, are parents to three children aged 12, 9, and 2. Last year, they invested in constructing a home valued at approximately $2 million. Despite both working full-time—Bridget as a self-employed photographer earning around $140,000 annually, and her husband in construction management earning about $100,000 plus bonuses—their financial landscape has become strained.

Key Financial Highlights:

• Income: Bridget earns ~$140k/year; husband earns ~$100k/year with bonuses.
• Retirement Savings: Both contribute the maximum to traditional IRAs, totaling $200k jointly. The husband has recently started a 401(k) through his employer, contributing about 9% annually, matched by his company.
• Mortgage: A 30-year loan of $600,000 at 6.75% interest.
• Credit Card Debt: Approximately $35,000.
• Other Debts: A remaining $3,000 on an auto loan, expected to be paid off by February 2026.
• Savings: Limited to about $12,000, after depleting previous savings to build the new house.
• College Savings: Established 529 accounts for each child, with ongoing monthly contributions.

Identifying the Core Issues

Bridget expresses concerns over feeling "house poor," a situation where a significant portion of income goes toward housing expenses, leaving little room for other financial goals. Additionally, the surge in credit card debt post-house construction has exacerbated their financial strain.

Bridget's Concerns:

• Falling behind on retirement savings.
• Managing substantial mortgage payments alongside credit card debt.
• Balancing fluctuating income as a self-employed professional.
• Ensuring sufficient funds for children's education.

Strategic Financial Advice

Mark provides a multi-faceted approach to alleviate Bridget's financial pressures and set a path towards stability and growth.

1. Addressing High-Interest Debt:

   • Recommendation: Secure a home equity line of credit (HELOC) or an additional loan to pay off the $35,000 credit card debt.
   • Rationale: Credit card interest rates average around 21.9%, significantly higher than mortgage rates. By refinancing this debt at a lower interest rate, monthly payments can decrease, easing cash flow.
   • Quote: "The interest rate's going to be less than the credit card for sure" ([11:29]).

2. Optimizing Cash Flow:

   • Recommendation: Temporarily pause contributions to IRAs and 529 plans to reallocate funds toward debt repayment.
   • Rationale: Reducing the outflow of cash towards investments can provide immediate relief, allowing more funds to tackle high-interest debts.
   • Action Plan:
     • Utilize the HELOC to eliminate credit card balances.
     • Redirect savings from paused retirement and education accounts to pay down debt.
     • Once debts are managed, resume and potentially increase contributions to savings and retirement funds.

3. Long-Term Financial Planning:

   • Recommendation: Focus on maximizing retirement savings once immediate debts are under control.
   • Rationale: "Retirement is more important than the kids. Kids can always get a loan to go to college" ([17:52]). Prioritizing retirement ensures financial security in the long term, whereas educational expenses, while important, can be addressed through alternative means if necessary.

4. Estate Planning:

   • Recommendation: Update wills and estate documents to reflect the current family and financial situation.
   • Rationale: With the addition of a third child and significant financial commitments, it's crucial to ensure that estate plans are up-to-date to protect the family's future.
   • Quote: "Do you have your wills done? Your estate planning done?" ([21:57]).

Potential Challenges and Considerations

Bridget's husband expressed reluctance to take on additional debt, highlighting the emotional and psychological toll of financial decisions. Mark acknowledges this concern, emphasizing the importance of finding a balance that satisfies both spouses.

Husband's Concern:

• Preference against increasing mortgage debt despite current financial strain.

Mark's Response:

• Encourages open communication and mutual understanding, recognizing the emotional weight of financial decisions within a marriage.
• Suggests a one-year game plan to stabilize finances before considering major moves like selling the house or refinancing the mortgage.

Implementation Timeline

Mark outlines a clear, actionable timeline to help Bridget and her family regain financial stability:

1. Immediate Actions (Next 12 Months):

   • Secure a HELOC or similar loan to eliminate credit card debt.
   • Pause contributions to IRAs and 529 plans to free up funds for debt repayment.
   • Pay off the remaining auto loan by February 2026, freeing up $533 monthly.

2. Mid-Term Goals (Post Debt Repayment):

   • Redirect funds previously allocated to debt payments into retirement accounts and savings.
   • Reinvest in children's education funds with renewed contributions.

3. Long-Term Vision:

   • Consider refinancing the mortgage if interest rates become favorable.
   • Explore options for selling the house only if it aligns with the family's happiness and financial goals.

Conclusion

By addressing high-interest debts and optimizing cash flow, Bridget and her family can alleviate immediate financial pressures. Mark emphasizes the importance of prioritizing retirement savings and maintaining open communication with her husband to ensure that both partners are aligned in their financial journey.

Final Advice from Mark:

• "Trust me when I tell you you're going to... have a one-year game plan" ([16:09]).
• "Change your work, change your wealth, change your life" ([23:06]).

Takeaways

• Prioritize High-Interest Debt: Eliminating credit card debt can significantly improve financial health and reduce monthly burdens.
• Flexible Financial Planning: Adjusting savings contributions in response to current financial pressures can provide necessary relief.
• Long-Term Security Over Short-Term Gains: Ensuring robust retirement savings should take precedence over educational funds, as financial security is paramount.
• Communication is Key: Financial decisions, especially those involving debt and savings, should be made jointly to maintain harmony and mutual understanding within the family.

For listeners facing similar challenges, Jill on Money encourages reaching out for personalized advice and exploring structured plans to regain financial control.