Reaching For Financial Success


suggested by the planner. They also spent $1,000 of their contest winnings on tuition costs. (They split the remainder of the winnings as follows: $500 in a savings account and the rest on dinner and a couple of gifts.) Carla’s lack of college funding is part of the inspiration for their focus on savings. To avoid the same drama when it’s time for Caryn, 11, to attend college, Mary and Carlton are exploring alternative funding options.

By May 2004, however, the Warners will gain more breathing room when Carla graduates from college and they will be finished paying off the car. Free from those major expenses, they will double up on mortgage payments, possibly paying it off sooner than 2010. They have yet to decide when they will buy out the ownership stake of her brother, who co-owns the home with Mary as part of their inheritance from their father.

The 40-something couple is also paying closer attention to their own retirement. David upped his contributions to his Thrift Savings Plan from 6% to 7%. However, he changed his asset allocation to a more conservative position, contrary to the adviser’s advice. He put 75% of his assets in a government bond fund instead of 75% into growth mutual funds. But, he is rethinking that strategy given the more promising stock market. As for Mary’s retirement account: her company hasn’t started offering the 3% match nor has she been able to increase her contributions just yet.

The biggest change in the Warners’ financial life is their renewed commitment to saving. “Savings is a learned thing. I wish I had grasped the concept when I was single and throwing money away. I’m try
ing to teach my daughters so they won’t make the same mistakes,” says Mary. “Just a little bit of money makes more money if you do it all the time. Pay yourself first.”

THE ADVICE:
Reduce debt payments
Use home equity credit line to pay off $13,000 car loan. Use the savings, along with money set aside in credit union, to pay off remaining debt.

Finance tuition costs
Have daughter Carla seek financial assistance, and prepare for daughter Caryn’s college costs by investing $75 a month in a 529 College Savings Plan instead of a savings account.

Maximize employee savings plans
Contribute the maximum to Mary’s 401(k) and shift assets in Carlton’s plan to a more aggressive portfolio of 75% growth funds and 25% balanced funds.

Invest contest winnings
Invest prize money in Mary’s existing Roth IRA, keeping the account’s allocation of growth mutual funds.

Protect home with insurance
Purchase enough term and accidental death and disability insurance to cover liabilities, including the home equity loan.

THE FOLLOW-THROUGH:

  • The Warners used their credit line to eliminate $3,000 in credit card debt but chose not to use it to repay the car loan.
  • They used an additional $11,000 from the credit line to pay for Carla’s tuition, supplementing the $5,000 she received in financial assistance.
  • Mary hasn’t increased her contribution and Carlton went more conservative with his assets, putting 75% into a government bond fund.
  • Half the money went

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