Maintaining A No-Debt Lifestyle - Page 2 of 3

Maintaining A No-Debt Lifestyle

her cash flow, face her fear of debt, and control her spending. BLACK ENTERPRISE had Tony Epps, a certified financial planner with A.G. Epps Financial Group in Rye, New York, spend time with Clayton and analyze her situation. The following are Epps’ recommendations:

Epps was most impressed with Clayton, stating that, “There are very few people who carry so little debt.” In fact, the only liabilities she has are her mortgages.
However, Epps says if Clayton can rein in her spending and invest the money saved properly, she’ll easily solve her problems. But she spends impulsively. “She runs up a lot of [charges] on her credit card. I understand why she spent so much on the BMW — she’s been in several accidents and wants to feel safe. But the vehicle burns a lot of gas, and in Virginia, there are property taxes for vehicles. Although that car is paid for, it’s an expensive [luxury],” Epps says. He adds that the bike hitch and rack could have been purchased for a lot less.

To address her immediate cash-flow problem, Epps suggests Clayton sell the co-op. Since she bought it at a great price in the early 1990s, now is the time to take her profits from this property. The current market value is $68,000. Epps surmises that she could net $50,000 from the sale. She would no longer have the $1,000 monthly cost to maintain the co-op, nor would she have the expenses associated with traveling from Virginia to New York to rent the co-op.

Epps would like Clayton to have a total of $15,000 saved for emergencies. He advises that she put $8,000 of the profits from the co-op sale into three CDs laddered to mature in three, six, and 12 months, so she can renew them, hopefully at higher interest rates. He also suggests that she contribute $3,000 (the maximum annual allowance) to a Roth IRA. The remaining $39,000 could go into a variable annuity, which he favors since the money grows tax-deferred. Another advantage of variable annuities, Epps says, is the death benefit. Epps also suggests that Clayton put the $2,000 contest winnings toward her retirement.

Clayton typically gets a tax refund of $3,000 every year. Epps says by changing her exemptions from three to two, she could get more of her money now instead of later. “Even if doing so means she only gets $200 back, or that she owes $200 at the end of the year, she should stop loaning money to Uncle Sam and instead earn interest on that money by investing it.”

Epps says Clayton should refinance her 15-year mortgage on the Virginia home to a 30-year mortgage. With interest rates low, she could probably reduce her mortgage from $1,658 a month to just over $1,000. That’s more than $600 in her pocket. If she still wants to pay off the mortgage quicker, she could prepay an extra $200 toward her principal with a separate check. She would