Financial Fitness Contest Winner No. 71 - Page 2 of 3

Financial Fitness Contest Winner No. 71

them to pay off the loan in 11 years, freeing up money in time for Tayshaun’s college finances; Malcolm, a 21st Century Scholar, can attend any public college in Indiana for free. As for the $17,000 in credit card debt, Smith recommends that the couple first pay off the card with the lowest balance and the highest interest rate until they have paid off all their accounts.

Adopt smarter tax strategies. The Evanses should stop relying on Turbo Tax. “With their revenue stream, they need more advanced accounting,” says Smith. “They need to get a CPA.” Since Tayshaun is in day care, J.M. should take advantage of the cafeteria plan at his new job, which will allow him to have day care expenses withheld on a pretax basis. And if the Evanses take advantage of the depreciation of their rental property, they’ll receive a $3,400 a year tax deduction, which should result in $1,067 in federal tax savings for them.

Implement savings strategies. Since they are planning another child, they must scale back expenditures by eating out less. And because they rack up additional charges for exceeding their limits on their cell phones, they should switch to prepaid phones or find a plan that provides more minutes for less money.

Increase investments. By all means, J.M. should buy his discounted company stock. Once he gets $25,000 worth of stock, he should diversify. Smith believes it would be prudent for the Evanses to divert $300 of the $650 they are putting into their money-market account each month into a small-cap value, mid-cap value, and global fund, with a no-load or low expense ratio. He suggests Vanguard Global Equity Fund, Third Avenue Value Fund, or Royce Opportunity Fund.

J.M. should also consider redirecting the $370 per month he receives for child support into a 529 plan for Tayshaun. Moreover, the Evanses should max out the contributions on their 401(k)s and open a Roth IRA with their $2,000 contest winnings.

Create an estate plan. “If something happens to J.M., his sons will go back to their mothers,” Smith says. “With a living trust he can designate what funds should go to the boys and how that money is to be spent on them.” A trust holds cash, securities, real estate, life insurance, and other assets that are transferred to a trustee on behalf of its beneficiaries. Smith suggests Tara act as the trustee of the living trust. J.M. also has $850,000 in term life insurance through his company. He should think about how he would divide that money between his two sons, while keeping in mind the needs of Tara and their future child.

Financial Snapshot: J.M. and Tara Evans


Gross Income $122,000 (including estimated bonus)
Primary Residence $182,000(market value)
Rental Property  $110,000(market value)
Checking 5,200
Savings 5,000
Money Market 2,600
J.M. 401(k) 10,000
Tara 401(k) 4,000
J.M. Mutual Fund 12,422
Total $331,222


Student Loans $163,000