Living With Principles

Jai and Peggy Hill are using debt-free living and the pursuit of education as their keys to financial freedom


The Hills have about $2,200 in their cash reserve, which isn’t even equal to one month of their living expenses, which total $3,700. The couple ought to have a minimum of $10,000 (or three months’ worth of living expenses) stashed away.

Creuzot suggests that they salt away $500 a month (or $6,000 annually) into a money market account. They can check Websites such as www.bankrate .com to find banks that pay the highest interest rate. Creuzot also recommends that they put their $2,000 contest winnings into their emergency fund.

Jai’s teacher’s state retirement plan automatically takes an annual $2,500 (or 5%) out of his pay. He also contributes to a 403(b), the 401(k) equivalent available to certain government and municipality employees, toward which he only defers $200 a month (or $2,400 a year). The maximum contribution allowed is $11,000 a year. Jai needs to defer an additional $8,600. Peggy is in a federal employees retirement plan, which automatically puts in 7% of her annual salary. She should continue to contribute 10% of her salary to a voluntary thrift savings plan.

The downturn in the stock market has disrupted Jai’s long-term focus. The Hills have invested the majority of their assets in fixed-income vehicles and cash equivalents, which is not appropriate for a couple as young as they are, says Creuzot. They should have no more than 20% of their portfolio in fixed-income vehicles (bonds, CDs, money market accounts, etc.) to provide stability, and about 80% in equities — with half of that amount in growth funds and the other in value funds. The Hills aren’t looking to invest a lump sum into the market. They are investing the same amount of money monthly through dollar-cost-averaging, which allows them to buy more shares when prices are down.

Using the University of Alabama as a benchmark, tuition and room and board are currently $9,098 per year. With college costs increasing at an average rate of 7% a year, and assuming that the Hills’ 2-year-old son, Adrian, will go to the four-year college in another 16 years, the Hills need to save roughly $250 a month. Creuzot suggests they check out www, which will give them a detailed review of different kinds of 529 college savings plans. She further suggests they look for an age-based plan, whereby the money is invested predominantly in equities starting out, but as the child gets closer to college age, the money is automatically moved into more conservative fixed-income vehicles.

Creuzot also recommends that the Hills draw up wills and carve out an estimated $1,000 a year to get an additional $500,000 in term life insurance.

Financial Snapshot:


Gross Income $112,000
Residence (market value) $115,000
Other (household furnishings, jewelry, cars) 33,960
Peggy’s Thrift Savings plan 24,282
TRS (Jai’s retirement plan) 10,407
Roth IRA (Jai) 4,376
Roth IRA (Peggy) 4,376
Cash Reserve 2,200
Jai’s 403(b) 2,133
Total $196,734
Mortgage $94,000
Student Loans 12,500
Total $106,500
Net Worth  $90,234
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