back to Maryland.
By sticking to a budget, the Fergusons have found that they don’t need to rely on credit cards. When they use credit cards, they pay the balance in full each month. They understand the credit game: “If you have good credit, you can get anything; doors are open to you, and you are given the best interest rates,” says Aaron. “I like the fact that I don’t have to panic if someone needs to do a credit check.” They are also mindful of the fact that their children are watching them. “I want our children to see us paying our bills,” says Melanie. “I want to set a good example.”
Although they thought they were doing well on their own, Melanie persuaded Aaron to pay $350 for a financial adviser in 1998 to help them get the best possible performance from their investment dollars. After a year, they started seeing satisfying returns from their highly diversified portfolio. They’ve also become more conscious of tax strategies. Along with their Roth IRAs and other tax-deferred retirement savings vehicles, they will soon open a 529 plan for the children’s college education, which will allow them to invest more money tax-free.
While the Fergusons are pleased with their financial position, they do have some financial challenges. Currently, they have three months of expenses saved in an emergency fund, and they hope to increase that to six to nine months worth of expenses. They have $75,000 set aside for the house they will buy when they return to Maryland, but they expect to save more aggressively since housing prices are increasing and interest rates are climbing. Their goal is to put down at least 20% on the house. “We lived outside Baltimore, and already we probably couldn’t afford to buy the house we sold last year,” says Aaron.
With continued patience and discipline, the Fergusons should be able to stay on track toward their financial goals. If you’d like to join them, they offer the following advice:
Save for what you want. The Fergusons say never buy anything on a whim. They believe all purchases that cost a significant amount should be saved for. “It’s not how much you make, but how you spend and save that matters,” says Aaron.
Establish a budget and stick to it. Budgeting will keep you disciplined. “You’ll stick to a budget if you also set financial goals. You have to be motivated by something,” says Melanie. She also recommends making small changes in your lifestyle, such as bringing your lunch to work to stretch your budget and increase your savings.
Use credit sparingly. Melanie says credit cards should be used primarily for emergencies. If you must charge something, pay off the balances each month. The Fergusons also stay ahead of the credit game by keeping the borrowing limits on their credit cards low. “We don’t want a card with a limit of more than $5,000,” says Aaron. “Even though we can afford more, we don’t want more. And if they increase our