First task? Build up emergency fund

When Brad Allen started on the case of Heather and Jose Ramos, one big issue was credit-card debt and student loans. Then, as he said, "The flavor of this changed from when we started. It looks altogether different."

The Ramoses, of Renton, refinanced their old house, paid off those debts and purchased a larger home. But their goal of retiring at 60 on one income will still take work and discipline.

Allen, a certified financial planner with Coast Capital Management, based in Bainbridge Island, said his biggest immediate concern is the lack of enough emergency funds on hand.

"This is something I feel strongly about, especially where there's only one breadwinner," he said.

The rule of thumb is money to survive three to six months, and he urges the couple to err on the high side of that formula.

He urged the couple to set up wills and identify who would be the guardian of their two young children. And disability income insurance is a must.

Also, Heather's father is contributing about $2,000 a month to the family. But that money could be gone if he became seriously ill or died, so they need to build up their reserves and ratchet down expenses, especially until Jose is making more money when he becomes a journeyman, Allen said.

He advised them to start a budget or cash-flow-tracking system. "It's one of the most powerful personal-finance tools people can use.

"I'm big on this with all my clients," Allen said. "Where's the money going? A lot of people don't like to do it. It takes time and energy. But if you can look at spending, you can see if money's bleeding and make some different choices."

Several software programs, including Quicken and Microsoft Money, make it an easier task. Allen himself goes through the process.

"There's time and effort in the set-up phase, then you have to use it diligently. It's my Saturday morning ritual: pay bills, update the budget. It takes about an hour or hour and a half."

Waiting, he said, makes budgeting that much harder.

Even if one partner handles most of the finances, both should be involved in and discuss the budget and its status.

It's not uncommon to see surprises, he said.

"Even high-income people can be living paycheck to paycheck. They start budgeting and sometimes say, 'I had no idea I was spending in some silly area.' When they see that, there's a decision to be made."