Getting Their Financial House In Order


Folmar, who advises the couple to consult with their tax adviser. The potential increase in cash flow can be used to pay down debt and increase their emergency fund.

Make debt reduction a top priority. At their current debt reduction rate, they will pay off their credit card debts in less than two years. When they do, they should switch their attention to the student loans. Their $60,000 debt can be eradicated within 10 years if they apply $750 to monthly payments. They should increase their student loan payments to at least pay the interest, adds Folmar. The good news for the Quinzys is that they will be able to lower their automobile expenses in a couple of months when the lease expires on one of their vehicles. “That money they spent on the lease should be shifted to increase cash flow for savings,” says Folmar. Furthermore, as their incomes increase, they will have even more discretionary income. But, “they must resist the temptation to abandon financial and debt-management controls,” says Folmar.

Improve investing strategies. The largest percentage of the Quinzys investments is accumulated in their 401(k) plans. All of Shante’s contributions are in her company’s stock. She should maintain a position in company stock no greater than 15%. She is contributing only 3% of her income to her employer-sponsored retirement account. “She needs to increase her contributions and add other asset classes,” says Folmar. Danny’s portfolio is more diverse, with 30% in company stock, 40% in international, 20% bonds, and 10% cash. “Like Shante, he should reduce his company stock holdings to no more than 15%,” says Folmar. He should also shift the mix to 10% to 15% international; 10% to 20% bonds; and balance his portfolio among other classes such as large-cap growth and value, mid- and small-cap, and real estate.

Enhance preparations for the future. The Quinzys should use their contest winnings to shore up their emergency funds and should meet with an attorney about establishing a will and a trust. A will allows them to recommend to the courts their choice of guardianship in the event of their deaths. Other estate planning documents, such as a living will and a power of attorney, should also be considered. They say that they want to provide two years of college expenses for their sons. The Quinzys have a custodial bank account in their children’s name to cover tuition and they plan to acquire savings bonds. However, with college costs currently escalating at a rate of 8% to 9% a year, they will need investments that keep pace. “At an inflation rate of 8%, it will cost $300,000 to provide for their sons as they would like,” says Folmar. To achieve their education funding goal, they should invest in income mutual funds as well as blended mutual funds consisting of growth and growth-and-income fund categories. He recommends either a Coverdell Education Savings Account or a separate 529 plan (outside of the plan set up by the children’s paternal grandmother). They should


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