Aiming For Financial Readiness

Maj. Frank Davis needs improved fiscal maneuvers to secure his family's future

four-bedroom home from Iraq last year, Davis explains, “We all had to do a reset, to get readjusted to each other.” There was some rough terrain, but he believes the family is back on track and they’re making amends financially, trying to work down debt and increase savings by accelerating payments on their mortgage and by cutting back on excessive toys and clothes for the girls, as well as CDs and movies.

As for the future, says Davis, “I’m optimistic. We’re not in a crisis; we pay our bills. We just want to do better.”

The Advice

To help the Davises map out their financial strategy, we paired them with David Hinson, president of Wealth Management Network in New York City. Here, he outlines a plan for them.

Cut spending and increase savings. According to Hinson, the Davises need to find a way to save at least an additional $1,100 a month. He says they should consider eliminating the $500 a month Priscilla receives as an allowance, cutting their cable and Internet bill by at least $30 a month, and reducing their mortgage payment acceleration. The family will be better able to reach that goal when Priscilla completes her pharmacy technician program and is working part time. All of her income, minus what she needs for traveling and other expenses associated with working, should go toward their savings. The $2,000 contest winnings should be applied to existing savings as well.

Given the couple’s investment time horizon and their need to build assets, they should have a well- diversified portfolio: 80% in stocks and 20% in bonds.

Sell the extra car. Currently the Davises own three cars. The ’97 Mitsubishi 3000 GT is mostly idle. Instead of letting it collect dust, they should sell the car and take the $10,000 they would likely get for it and apply it to their investments. “There’s no reason to keep unproductive assets,” says Hinson.

Maintain debt reduction level. With more than $80,000 in credit card and automobile debt, they are paying more than $14,000 a year to service that debt. However, Hinson is more concerned about asset growth.

“I would prefer a near-term debt repayment slowdown to more aggressively build assets,” advises Hinson. “Since the Davises are comfortable with paying debt as they have, they can maintain their level of reduction. Going forward, I recommend no new purchases outside of [their budgeted purchases] for three years. All excess cash flow should then go toward building assets.”

Increase life insurance coverage. Frank should increase his life insurance by $400,000. Doing so would only cost him $36 a month. Additionally, says Hinson, Davis should look into obtaining a rider on the family’s homeowner’s insurance policy to pay the full mortgage amount in the event of his death. “Such protection will be important to secure the family’s financial future if Frank is lost,” says Hinson.

Explore college assistance opportunities. The family is far behind in preparing for the children’s college expenses. As a member of the Armed Services and a combat veteran, Davis has access to

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