to accept her new job that she didn’t think through the implications of moving, such as how expensive it would be for her to visit her family during the holidays.
Being away from family has been tough for Bennett, and she hasn’t followed a budget since the move. “Since I’ve been here, I’ve bought more cards and gifts for people than I did the last three years I was in Denver,” she says. But she knows that she must get back on track. “As long as I get back to my discipline, I’ll be fine. I have to live like I have less room for error at this stage of my life.”
Danny Freeman, a certified financial planner with Darda Wealth Management in Winston-Salem, North Carolina, talked with Bennett about her finances. Here’s what he had to say.
Sell the Longmont property. Although Bennett believes the property is a viable long-term investment, Freeman says the numbers aren’t impressive enough to keep it. Being an absentee landlord presents additional challenges, such as hiring a management firm to maintain the property.
Furthermore, the current state of the economy makes establishing a price for rent a bit tricky. Bennett had been getting $1,050 a month in rent, but has lowered it to $995 to attract a new tenant. Getting even that amount could be tough since area median rents are now around $700. “With a price that much higher than the average, it’s not likely that a tenant would stay long,” says Freeman. Generally, for properties valued at more than $100,000, the monthly rent should be .75% to .90% of the market value. Last June, Bennett’s property was valued at $180,200, down from $193,000 three years earlier. So the rent should be at least $1,352. Clearly, she can’t get that. He advises her to get out now, while she can still capture some gains. Freeman advised against purchasing a home in Idaho since Bennett is not planning to stay long.
Get more aggressive with her emergency fund. Having $60,000 to fall back on is a comfortable cushion. However, there are some decisions Bennett needs to make. As an alternative to putting everything into her money market account, which currently yields about 4%, Freeman suggests she allocate her money as follows: 40% cash, 35% bonds, and 25% income-oriented equities.
This mix should allow her to earn more, experience minimal fluctuations in principal, and seize the opportunity for some capital gains. For the equity portion of the account, he recommends
two exchange-traded funds from WisdomTree: the LargeCap Dividend Fund (DLN) and the MidCap Dividend Fund (DON). Both are low-cost funds that currently yield about 3% and 4%, respectively.
Fine-tune retirement funds. Bennett is heavily weighted (nearly 60%) in large-cap and cash equivalents in her investments for retirement. Ideally, Freeman says, she should have a moderate to moderately aggressive asset mix, with 5% to 15% of her investments in cash and fixed-income investments, and 85% to 95% in equities. Although the mix will provide for growth, it will be a bit more