totaling over $20,000, with interest rates ranging from 3.54% to 8%, and a $17,000 car note. Since she has accumulated over $70,000 in equity in her home, Clark suggests she open a home equity line of credit to consolidate her debt. She should be able to get a home equity rate in the low to mid 4% range. Since the interest is tax deductible, not only will she be able to write off the interest payments, but she will also lower her monthly payment and simplify her debt obligations. “It has been my experience [that] if consumers are able to focus on one or two bills instead of multiple bills, they will be able to reduce their debt obligations sooner,”notes Clark.
Dorsey also has $2,800 in credit card debt at 13.99%. Clark advises she eliminate the credit card debt by using the $2,000 Financial Fitness contest winnings and taking the rest from her checking account. After simplifying her debt situation and investing her existing assets, she can then begin to focus on her childhood dream of becoming a criminal or family lawyer. She should be careful not to incur additional loans for law school until she sees success from her financial plan.
Invest for retirement and the future. At age 34, Dorsey has over 25 to 30 years before retirement; therefore, she should be investing her discretionary assets in growth investments. In the next couple of months, she expects to receive about $4,000 in a settlement from her car accident last September. Since she has a good salary, a significant monthly surplus, and thousands on hand in checking and savings accounts, Dorsey should use most of the proceeds to open an investment account and invest in small- and mid-cap mutual funds and individual stocks. She should establish an automatic investment account with a mutual fund family and draw money monthly from her checking account to invest in several growth funds.
Maximize 401(k) contributions. Another firm recently bought out Dorsey’s company. Unfortunately, she failed to meet the deadline to set aside pre-tax contributions to her 401(k). She won’t be eligible again until October. When the time comes, Dorsey should put the maximum contribution into her 401(k). This is another way to build wealth without concentrating on the process. She should invest the proceeds in growth funds through her plan. This strategy will invest pre-tax dollars and build wealth over time while reducing her taxable income.
Continue investment education. One way Dorsey can narrow down her search for the best mutual funds is to use the BE mutual fund overview and top mutual fund listing (see “Caught in a Storm,” this issue) as a guide. The Investment Company Institute (www.ici.org/funds/) offers a wealth of investor information, and WorldWideLearn (www.worldwide learn.com/investment-education.htm), a directory of online education, lists a host of online financial education resources (many of them free) that investors can tap in to. Also, BE’s Wealth Building Kit (available for download at blackenterprise.com/wbkform.asp or by calling 877-WEALTHY) explains investing in simple terms and lists many