that more money will grow tax-deferred.
Open a Roth IRA. He should take the $2,000 in winnings from be and establish a self-directed Roth IRA consisting of small-cap and emerging-equity positions. Given his age, he has time to wait out market cycles. If he becomes a full-time longshoreman, he should contribute 25% of his income to the IRA since he doesn’t anticipate any changes in his standard of living, such as the purchase of a new car or a new home or getting married and having children. His only vice thus far: his Hot Wheels car collection.
Buy stock. Even with Neal’s new vocation, the first year will be one of transition. He should start investing at least $100 a month in stocks through DRIPs (Dividend Reinvestment Plans), increasing that amount to $250 a month next year.
Get additional insurance. He has casualty insurance through his homeowner’s association, but he needs condominium insurance to protect the contents of his home. He should also consider getting disability insurance (whose premiums should be paid with after-tax dollars) to supplement his policy at work.
Kenneth Howard Neal
Household Income
Full-time (IRS) $33,000
Part-time (Longshoreman) $7,200
TOTAL $40,200
ASSETS
Checking $ 1,000
401(k) 20,000
Annuity 1,500
Real estate (equity) 130,000
TOTAL $152,500
LIABILITIES
Credit card debt $6,900
Personal loans 1,500
Mortgage 81,000
TOTAL $89,400
NET WORTH $63,100
