Reaching the Next Level

BE takes a look at the 2008 Financial Fitness contest winners to see if theyre closer to a secure financial future.

One pressing issue that has been addressed was whether or not to do renovations on their home. The adviser recommended putting renovations on hold and waiting until after graduation in May and increasing salaries before taking on additional debt. He also recommended that they focus on rebuilding savings and paying down auto loans.

Jarvis and Jelani have delayed doing major renovations but needed to make plumbing repairs that affected one of their bathrooms. The project cost $900, which they took from their emergency savings (which has been replenished).

The Advice: Stop spending money on family members. The $500 per month they spend helping others should be put toward their retirement accounts and debt reduction. When giving to friends and family, it’s important to clarify whether it’s a loan or a gift. Without clarity, there can be significant strain on relationships.
The Action: Jarvis and Jelani say they’ve learned to say no over the past year. Family members who were previously unemployed found jobs; others secured better jobs. In addition, Jelani has increased her contributions to her Thrift Savings Plan (the retirement savings plan for federal employees) to 7% to get the maximum match; although Jarvis does not receive a match, he also increased his contributions to 7%. Furthermore, the couple’s investment portfolio has recovered some of its stock market losses.

The Advice: Rebuild the emergency fund: The risk of foreclosure on their new home could increase in the event of a job loss, extended illness or injury, or some other emergency. Jarvis and Jelani should concentrate on getting their emergency fund account up to at least $15,000 over the next 24 to 36 months.
The Action: The couple amassed an additional $14,000, using the $2,000 contest winnings and overtime earnings as well as money they got back from overpayment of their escrow and taxes when they closed on the house. But they put that money into their IRAs and left the original $5,000 in their emergency savings.

The Advice: Get a handle on the car loans. No more than 12% to 15% of net monthly income should go toward total transportation expenses.
The Action: They continue to pay on their three car loans; however, Jarvis’ mother is paying a large portion of the loan for the car she drives, while the Hagewoods pay the insurance and some maintenance. That car will be paid off next September, leaving Jarvis and Jelani with the remaining loans due in 2011 and 2012.

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