Financial Fitness Contest Winner No. 84

Richard Mcfarlane and Jennifer Little prepare to create a joint financial plan

life. Adds McFarlane: “We are both fully aware of our individual strengths and weaknesses. Jennifer’s strength is handling money. My strength is to balance her. I am usually the one that has to pull her away from the clearance shelf and remind her what is a necessity.”

The Advice

To help ensure that the couple gets off to a healthy financial start, Jocelyn Wright, a certified financial planner with Miles Wealth Management in Houston, analyzed their situation.

Get on the same page. It is important for the couple to start planning as a family. The line of thinking should be “we vs. me,” says Wright. They live together but have not fully merged assets. They have a joint account only to manage household expenses. Otherwise, they maintain individual accounts. “Jennifer says Richard is more likely to plan and prepare for today and immediate needs, whereas Jennifer is more of a long-term planner,” says Wright, who is concerned that McFarlane has not enrolled in his company’s 401(k) plan. “It’s important that their planning is done jointly.”

Build cash reserves. The family is vulnerable should anything happen to Little. Wright recommends a cash reserve fund of at least $10,000. The $2,000 contest winnings should go toward building that fund. “They must monitor spending generally, and particularly over the next few months with the new house, wedding, and school,” says Wright.

Protect assets. Both Little and McFarlane need to assess their current life insurance coverage and satisfy any shortage, says Wright; she only has group life insurance worth $110,000, and he does not have any coverage. Given all their expenses, right now, term life insurance is the most cost-effective option for them. Wright recommends a minimum of $500,000 coverage for each. Just as important is disability insurance, especially for Little. “They should take advantage of any employer-provided group coverage. She has group coverage that would pay 50% of her current monthly income,” says Wright.

Also, Little should consider having wills and ancillary documents (living will, medical power of attorney, etc.) drafted and executed. Guardianship should be determined for Donovan and any future children. Wright suggests Little meet with an attorney to assess the most appropriate method for transferring assets to Donovan because he is a minor.

Manage debt. Fortunately, much of Little’s debt is at low, competitive rates, but she should be mindful that she could incur student loan debt of about $50,000 over the next four years. “Jennifer must keep any other additional debt low because she will have to begin repaying the student loan about six months after completing school.” She should also refrain from purchasing investments on credit because the negative impact of a decline in share value will only be heightened by paying interest on the purchase.

HOUSEHOLD INCOME

ASSETS

Gross Income $105,000
Jennifer’s 401(k) Account 41,000
Roth IRA 900
Donovan’s 529 Plan 6,000
Mutual Fund 2,580
Stock Options 6,000
Savings Account (Jennifer) 1,500
Savings Account (Donovan) 100
Joint Checking Account 1,000
2001 Toyota Rav4* 7,650
1993 Nissan 300zx* 4,325
Total $315,055

LIABILITIES

Mortgage $242,000
Car Loan for Toyota Rav4 8,500
Credit Cards 12,000
Total $262,500
NET WORTH $52,555
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