Liza's smile would be bigger and longer-lasting if she received better quality counsel.

Better quality counsel should put a bigger smile on Liza’s face . . . without risk it might suddenly disappear.

Tim Cardon, a professional financial counselor, told Liza, “The Girl with the Three Loans,” to clear out her IRA in order to pay off her car loan. I thought that was terrible advice. Here’s what I believe would have been better.


I’ve spent the last few posts talking about Liza, a young woman who had three outstanding loans and about $100-a-month of negative cash flow. We’ve looked at the details of her situation and the counsel she received from Mr. Cardon, a financial advisor.

Basic question: Did Mr. Cardon give her good advice?

My conclusion: No.

Appropriate next question: “Okay, Mr. Smarty-Pants. How would you have advised her?

What Would Have Been Really Good Counsel for Liza?

I am convinced Liza would have been far happier with Mr. Cardon’s counsel (because she would have had a far clearer understanding of her true situation) if he had helped her understand the things I noted in my last post that he had failed to discuss with her.

Beyond that, however, I believe Mr. Cardon should have helped her . . .

Evaluate the Realistic Value She Might Get from Her Job

According to Mr. Cardon, Liza said she viewed the new job as “a great opportunity” with “good growth potential.”

Why didn’t he dig a bit deeper into what those words meant to her? What did she expect from this new job? And were her expectations realistic?

I would have expected him to say something along these lines: “While your credit card and vehicle debt is certainly contributing to your discomfort, you are involved in a career investment. And that investment in your career is contributing (at least for a short while) rather significantly to your overall negative cash flow. So . . . can we talk about your career expectations?”

  • What kind of returns are you expecting to enjoy from your investment in your career at this company? What is the growth potential, both in terms of your capacity as a human being and in terms of financial rewards? When can you expect to see salary increases? And of what size do you expect those raises to be?
  • What evidence leads you to these expectations? (I.e., are your expectations reasonable?)

Assuming her expectations were reasonable:

  • How much of your IRA funds do you think you may want or need to utilize in order to make this investment in your job and career viable, doable, even pleasurable . . . so it can pay off?
  • How many months before you think your job will yield enough increased positive cash flow (income) that your total cash flow will turn positive? (Put another way: If you were to TRANSFER your investment in the IRA to a more direct investment in building a great career: could such a redirection of investment assets produce a better return? And—very important—when might you expect to enjoy the fruits of that better return?)

My hypothesis: IF the job really and truly was such “a great opportunity” and offered truly “good growth potential,” then she would expect to be cash flowing positive within 3 to 6 months and absolutely no longer than a year. (If it didn’t turn positive within that time frame, I would expect Mr. Cardon gently to suggest that maybe she ought to be re-evaluating what a great job opportunity this job really offers her.)

Having helped Liza think these things through, then, I expect Mr. Cardon would have raised Liza’s happiness quotient even higher if had continued further down the same path and helped her . . .

Strategize How to Invest Appropriately in Her Job

I would have expected Mr. Cardon to ask questions like these:

  • You have $11,250, total, that you could invest in trying to make this job pay off. You probably don’t want to use all those funds for this one investment. But it certainly seems reasonable that you would use some of them for that purpose.So. How much would you want to invest in making this job work out?Right now, your monthly expenses are $100 greater than your monthly income. Would it be helpful if you were to give yourself $100 a month of positive cash flow by making regular $200-a-month (after taxes) cash infusions from your IRA? –Think of those infusions as ongoing “cash call” investments in your career (that you will need to make only until your job is generating enough cash flow to pay for itself).

    [My guess: $100 a month of positive cash flow would likely be enough. But maybe not. Maybe she wants $150. Maybe $200. Maybe only $50. (She has begun to learn to live on a much tighter budget than she expected.) . . . Why should Liza or Mr. Cardon “assume” she wanted or needed $225 a month in positive cash flow?]

  • How long do you think you will need to continue to make these kinds of additional cash investments in your career? Six months? Twelve?[My thought: If this job is really a great opportunity, then it should be paying her enough to be cash-flow-positive in no more than six months. Which means maybe she wants to plan for six months at $200 to $300 a month out of her IRA funds. Maybe she will “even” feel the need to continue smaller investments for another six months—“just to feel good about it.” That leaves her with somewhere between $11,250 – ($1,200 to $2,400) = $10,050 to $8,850 of cash . . . available for emergencies . . . or to pay off consumptive liabilities. . . .]

Once Mr. Cardon laid things out in this manner, I expect Liza would have been breathing very easy. And she would be viewing her use of assets far more accurately than if she were led (as I’m afraid Mr. Cardon did) to (unwittingly) consume her (previously ignored) IRA investment in the mistaken belief that she was improving her financial condition.

But I think there is one more way Mr. Cardon could have helped her increase her joy even further.

What if he had helped her

Calculate the ROI of Her Investment in the Job—in Dollars and Cents and Percentage Terms

Clearly—unless her expectations of payback from her job are hopelessly unrealistic—Liza should be expecting some kind of decent ROI on her deliberate redeployment of assets from her IRA to her calm, peaceful, joyful development of the new career.

So wouldn’t it have been wonderful if Mr. Cardon had pulled out the calculator and demonstrated the actual dollars-and-cents and percentage ROI would yield?

“Look at this! You expect to invest $1,200 [or $1,800; or whatever the actual number she comes up with] over a period of __ months . . .  at which time you expect your income will grow from $40,000 a year [$3,333 a month] to $_____ a year [$_,___ a month]. Let’s see. That means your $____ investment should return $______ of increased income in a period of only ___ months. That’s a ___% ROI in __ months—the equivalent of a __% annual return! Can you imagine any better place to invest those funds?”

And then, finally, depending on how the math works out in answer to the above questions, and assuming she expects, reasonably, to have, say, $9,000 to $10,000 or so of the funds from her IRA “left over,” I believe it would have been even more helpful if Mr. Cardon had helped

Show Her How Her Credit Card Debt Was Sucking Over $90 a Month Straight Out of Her Pocket

He should have opened her eyes to see what ADDITIONAL ROI she might enjoy by redeploying—whenever she felt comfortable—at least some portion of those “remaining” funds to reduce the tremendous negative cash flow that the interest on her debt was creating. (Personally, as discussed in my last post, I don’t see why she wouldn’t pay off the entire credit card debt. But if she isn’t comfortable with that, she could at least pay off a goodly portion of it . . . with no negative consequences.)

I would use the Enhanced Loan Calculator to demonstrate that she will cut out far more cost (and improve her monthly financial position) by paying down the credit card debt than she will by increasing the speed at which she pays off her car!1

Moreover, I would note (as I did in my last post) that, supposing she pays down her credit card but runs into an emergency, she could always re-borrow from her credit card. (Yipes! Do everything reasonable to avoid that specter; but if absolutely necessary . . . .) If she pays off her car, however, again, because it is a one-way option, she has no similar opportunity to re-borrow.

And I would point these things out because having no margin at all (as she had been thinking was true—though her thinking was wrong) is truly terrifying.

1 Enter the necessary numbers and calculate for “Term.” Then click “View Report” (at the top of the data entry screen). Scroll down, and you will see the amount of each payment going to interest and to principal. . . . —Return to text.