BUILD AN EMERGENCY FUND
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.
INCREASE RETIREMENT SAVINGS
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.
START A COLLEGE FUND
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 .savingforcollege.com, 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.
INSURE THE FUTURE
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.
|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|