Full-Time Financial Planning - Page 2 of 3

Full-Time Financial Planning

OK. I’m growing in my profession and my earning potential is only going to improve.”

The Advice
Walt L. Clark, president and CEO of Clark Capital Financial (www.clarkcapital.net) in Columbia, Maryland, offered his advice to help Bishop sort out the complexities of her situation.

Manage debt smartly. Bishop has low balances on several credit cards with high interest rates. Clark says he normally would have Bishop explore establishing a home equity line of credit to consolidate some of her debt, but she recently purchased her home, so it has not yet accumulated enough equity for her to do that. Clark recommends that Bishop monitor home sale prices in her area over the next six to 12 months, then explore the option of a home equity line of credit if her home has significantly increased in value. And “the interest on the home equity loan [would be] tax deductible,” says Clark.

If she doesn’t qualify for a home equity loan after a year, it may make sense to wait until she has to start repaying her student loans before she applies for one, says Clark. She could then use some of the loan proceeds, plus some of her savings, to take a bite out of her debt. The interest on her student loans is tax deductible as well.

But for now, Clark recommends that Bishop use her $2,000 in contest winnings, along with some of her savings, to lessen her credit card debt.

Get serious about saving. Clark would like to see Bishop raise her 401(k) contribution to at least 10%, with a goal of reaching the maximum contribution over time. “If she has concerns about how much it will affect her pay, she can contact the administrator of the plan and ask them to send her a contribution breakdown for each percent increase to the maximum,” says Clark. The employee retirement plan also offers many benefits, such as a reduced tax rate, tax-deferred saving, company matching incentives, and borrowing privileges.

Now that she’s a homeowner, Bishop is expecting a substantial tax refund. Clark recommends that she use the money to build an emergency fund equal to three to six months of living expenses, which everyone would benefit from should a crisis arise. Furthermore, since Bishop only claims one exemption on her W2 form, Clark thinks it would be a good idea for her to increase that number to three or four (this would include her mortgage interest deduction). He says she won’t notice any changes to her tax returns because of the write-off she’ll get from her home, and she’ll save more each month to pay off additional debt.

Expect the unexpected. With so many responsibilities, Bishop cannot afford to be without disability insurance. Clark recommends that she obtain a policy in the event she is unable to work.

And lastly, Clark says Bishop might consider contacting AARP for any suggestions regarding financial assistance for her mother.

“She’s going to get tax savings from homeownership, she’s working on reducing debt, and she’s contributing to her company’s retirement plan,” says