Balancing Act

Shelly Robertson works to maintain financial health


Seek help with tuition. Robertson spends more than $10,000 each year for her 10-year-old son’s private school education. At $850 a month, this takes a big chunk out of her income. She should consider seeking a modification of her child support so that she can receive additional money to help with tuition costs. Another alternative would be to seek tuition assistance from the school. Some private middle schools offer scholarships and payment plans.

Take on a renter. Robertson was able to keep the five-bedroom, three-and-a-half bath home she and her husband purchased for $266,000 in 1998.  She owns the home outright. (Her balance is higher now because she opted for a cash-out mortgage refinance in 2007 for $430,000 at an interest rate of 6%, so she could pay off expenses incurred as a result of the divorce). However, the home is too big for just her and her son. It would be hard to sell the home in this slumping housing market, so her best option is to rent out the lower level of the home, which has three bedrooms, a kitchen, a bathroom, ample closet space, and a separate entrance. She should also consider renting out the entire house and moving into an apartment. A real estate professional can help her decide how much to charge for rent. He or she can also assist  her with learning about any restrictions on renting, as laws in Maryland vary by county. Robertson should use the additional income to pay down outstanding credit card debt and save for her son’s college education.

Rebalance retirement portfolio. Reeling from the economy, Robertson reallocated her 401(k) portfolio to 40% stocks and 60% bonds and cash. Dunagan recommends that she rebalance it to 60% stocks and 40% fixed-income vehicles. “In terms of the growth portion of her portfolio, I would suggest that she split her portfolio among large-cap, mid-cap, small-cap, and international [stocks]. She should equally split the growth portion of her portfolio by 25% in each,” says Dunagan. Dunagan says she should also increase her 401(k) contributions to 10% of her income.

Add to emergency savings. Robertson has $6,000 in emergency savings. This is only enough to cover a little more than one month of expenses—a bad move in this turbulent economy. Robertson’s monthly expenses, including her mortgage, are about $4,000. Dunagan recommends that she  place three to six months of expenses in reserve. Robertson should use the $2,000 contest winnings to bolster her savings.

Get additional life insurance. Dunagan suggests that Robertson add another $200,000 in term life insurance so that there would be enough money to cover her son’s college and living expenses in the event of her death.

This article originally appeared in the October 2009 issue of Black Enterprise magazine.

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