Tracking the middle class' missing cash

Mike Stuckey Senior news editor • Profile

Show me the money.

That’s where it all begins for middle-class families who hire Eileen Freiburger to help them manage their finances.

“The theme I see for every client I work with is, ‘I can’t see where the cash is going,’” says Freiburger, a certified financial planner from Manhattan Beach, Calif., who says almost all of her clients are middle class, whether their income is $50,000 or $200,000.

The three families who participated in Gut Check America’s coverage of the middle class were a step ahead of the game, already on top of most of their monthly expenses, if not down to the last dollar, she says. But Freiburger says large categories such as “miscellaneous” or a supposed surplus with no money regularly going into savings indicate the need for a closer look. Likewise, a monthly deficit without an increasing debt somewhere else, means some categories aren't being accurately tracked.

Among her own clients, Freiburger says, private school tuition, ever-increasing adjustable rate mortgage payments and untracked ATM withdrawals are some of the biggest sources of “mystery” budget leakage.

Once those leaks are identified, she explains, the money can be redirected into more rewarding categories, or “buckets” as financial planners like to call them. Likewise, once a regular financial commitment such as a car payment is fulfilled, she recommends that money immediately be dedicated to something else instead of being “piddled away.”

Using herself as an example, she notes that when her daughter graduated from elementary school, a regular monthly expense for afternoon child care ended. “The second my daughter went to middle school and we no longer had to foot that bill, that $240 when immediately to her education fund,” Freiburger says.

Eileen Freiburger

“Once you find the cash flow,” Freiburger says her job is “helping a client recognize what’s fixed expenses versus discretionary and then filling up those buckets” that they want to fill. “Let’s find the bucket for emergency cash and start filling it. Let’s find the bucket for the 401(k) and start filling it.”

Aside from not tracking spending accurately, Freiburger says other big financial pitfalls of middle-class Americans include a lack of savings for emergencies, retirement and college educations; buying homes they really can’t afford; impulse spending on consumer goods and entertainment; and lack of clear debt-repayment strategies. She offers these bits of advice:

• Lack of retirement savings should be a special concern because “anyone of us who is not currently 55 or 60 relying on the notion of Social Security, it’s not going to do it for us.”
• Despite soaring housing prices in many parts of the country, Freiburger says exotic loans that get buyers in the door with low interest rates that soon rise sharply are almost always a bad idea. “If you can’t afford the 30-year fixed payment, you can’t afford to be in that home.”
• “I cringe when I see some of the cable and entertainment budgets. I have no idea why the cell phone numbers are as high as we’re starting to see.”
• “People are just tapping into these (credit) cards or their homes (equity loans) without realizing there’s no payoff strategy” because minimum payments do little or nothing to reduce the balance owed.

Freiburger, 43, who has 24 years experience, says most middle-class families could benefit from working with a financial planner. Her advice is to choose a fee-based consultant through the Garrett Planning Network or the National Association of Personal Financial Advisors, preferably one who will work on an hourly, as-needed basis. Steer clear of advisers who also sell insurance, investments or other financial products, she advises.

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