Growing Their Wealth

financial start.

Rent the condo. Clark suggests the couple rent out Richelle’s condo and use the extra income toward additional investments and savings. This income stream would prove helpful for covering any unexpected costs.

Plan for renovations. Remodeling a house requires planning. Depending on the cost of the renovations, Clark recommends a home equity loan if the costs will exceed $15,000 to $20,000 because they will be  able to deduct the interest on their taxes.

Prepare for baby. Richelle and Niko plan to start their family soon. They should be prepared to create an investment account for college expenses, such as a 529 Plan. With college costs soaring and funding sources drying up, the sooner they begin to save, the better. An addition to the family is also a good reason to go ahead and establish a will.

Buy life and disability insurance. Since the Perazichs’ liabilities essentially are related to their properties, they should increase their life insurance to equal or exceed their liabilities. Currently, there is only a policy covering Richelle. She should increase her policy to a minimum of $400,000 from $180,000.  Niko needs to establish a policy with a minimum of $300,000. The higher figure is needed for Richelle because in the event something happens to her, Niko will have enough protection to pay off the larger mortgage and maintain the smaller one with his salary. In addition to life insurance, having a comprehensive disability policy for both of them will help protect against hardship in case of an unexpected injury.

Up the ante the 401(k). With the financial cushion the Perazichs have each month, it would behoove Richelle to make every effort to increase her contributions to 15% through her employer’s 401(k) retirement program. Her company matches dollar for dollar the first 3% she saves each pay period and 50 cents of the next 2% she saves each pay period. Richelle currently contributes 5%. Although Niko has $28,000 in a 401(k) with a former employer, his present company, a small tech firm that runs a Website, does not offer a 401(k) plan.  Since Niko’s company does not offer a 401(k), he should set up an automatic investment plan with a mutual fund company.

Concentrate on investments. Since the couple’s objective is to increase their net worth, there can’t be a better time than now to begin to invest in the stock or real estate markets, given the rock bottom prices. “With the stock and real estate markets at depressed levels not seen in more than 50 years, the opportunity and rewards are enormous over the long term,” says Clark. With the $2,000 contest winning and $20,000 to $30,000 of the capital they have in CDs and savings, they could diversify their holdings into several exchange traded funds to take advantage of the broader markets. In addition, they should establish an automatic investment account through any mutual fund family.

Financial Snapshot
Richelle & Niko Perazich
Washington, DC

Household Income
Gross Income    $148,000

Assets
Market Value of House    $400,000
Market Value of Condo    410,000
Niko’s 401(k)   

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