their home out of the equation, it would be somewhat difficult to reach his goal at his current rate of investing,” says Clark. There are things, however, that the Haneys can do to improve their economic outlook.
The couple should establish a five- or even three-year time frame as to how long they will cut back on outside expenses. They need to make some lifestyle changes, such as going from leasing a car to owning a car. Every three years, Regina leases a new car, which costs $1,000 each time she makes the swap. She is paying $440 a month on a 2003 Toyota 4Runner, but Clark says she would save money in the long run if she eliminated the leasing option and bought a car outright.
PAY OFF DEBT
The Haneys need to do some consolidating. The couple refinanced their $141,000 30-year mortgage, from 6.75% to 5.38% interest. It would behoove the couple to get a home equity loan. Any interest they incur will be tax deductible. Rates are currently around 4.5%, but after the tax deduction it is really 2.8%. Taking the money from the home equity loan, the couple should consolidate his $6,000 car loan at 10% interest and $339 monthly payment, his $4,700 credit card debt at 9% (after the 0% introductory APR expires), his $6,000 student loan at 8% and her $8,000 in debt on three credit cards averaging 12% interest. This way, they could reduce their debt from roughly $500 to $300 in total monthly payments.
Clark suggests Michael take the savings and begin investing $150 in his mutual fund, the T. Rowe Price Capital Appreciation Fund, and $150 in the 529 college savings plan. Moreover, Michael should bump up his 401(k) contribution to 15% of his salary (or the max). Roughly half of the money in his 401(k) is invested in an S&P 500 index fund and the other half is in a balanced fund. Clark recommends keeping the S&P 500 fund but switching the other to a mid cap or large cap growth fund, a more aggressive option that’s appropriate for his age and the number of years he has left before retirement. Regina currently is investing in a growth and income fund. Since she is relatively young, she should be more growth oriented and get out of the fixed-income end. Clark recommends she switch to a large cap growth fund, because of the upside potential in growth mutual funds.
OPEN UP SECOND529 PLAN
Clark suggests opening a second 529 plan because the gains are tax-free and the contributions provide a tax deduction to the plan owner. He further suggests moving the money in their current 529 plan out of the Alaska Fund and into the T. Rowe Price S&P 500 Index Fund, as the S&P 500 Index has outperformed 90% of all mutual funds in good and bad times.
REVISIT ESTATE PLAN
Clark adds that the couple needs to better protect their assets, which includes purchasing additional life insurance and acquiring disability insurance (they both have a