Increasing earning power through education: the Richardsons have a financial curriculum that includes advanced degrees and greater investments.Rafael and Janice Richardson of Montgomery, cAlabama, have dedicated their lives to education. The young couple--he's 32 and she's 34--are both teachers. Up until last September, the Richardsons had a household income of $82,000. But since Rafael left his job as a high school science teacher to pursue a doctorate in educational leadership fulltime, the two now rely on Janice's $35,000 salary as a primary grade school teacher. "Once I complete my Ed. D. in another three years, I'll be able to teach at the college level," says Rafael, who anticipates a $15,000 increase in his salary, raising him to almost $65,000. Janice has a master's degree master's degree n. An academic degree conferred by a college or university upon those who complete at least one year of prescribed study beyond the bachelor's degree. Noun 1. and is considering pursuing her educational specialist certification in the hopes of bumping Bumping can refer to:
n. One of two divisions of 15 to 18 weeks each of an academic year. [German, from Latin (cursus) s .) Meanwhile, the couple must find a way to pursue higher learning higher learning n. Education or academic accomplishment at the college or university level. while building up their retirement savings. Right now, they have about $14,800 in retirement savings from their IRAs and 403(b) accounts. They're also concerned about their debt, particularly since Rafael is debt-averse. "In college (undergraduate), I ran up $3,000 in credit card debt Credit card debt is an example of unsecured consumer debt, accessed through ISO 7810 plastic credit cards. Debt results when a client of a credit card company purchases an item or service through the card system. . I got behind on my payments. It was a terrible experience having creditors hound hound, classification used by breeders and kennel clubs to designate dogs bred to hunt animals. Most of the dogs in this group hunt by scent, their quarry ranging from such large game as bear or elk to small game and vermin; ground scenters trail slowly with the head me," he says. The Richardsons would like to reduce their debts by paying extra on their balances. They owe about $1,000 in credit card debt, $12,000 on what's left of a home equity line of credit, $22,600 in student loans, and $175,000 on their house note. When the couple recently refinanced their mortgage, they were able to roll over a prior home equity loan ($30,000 for home repairs) and the majority of a home equity line of credit ($33,000) that they'd taken out to buy a 2001 BMW BMW in full Bayerische Motoren Werke AG German automaker. Founded as an aircraft engine manufacturer in 1916, the company assumed the name Bayerische Motoren Werke and became known for its high-speed motorcycles in the 1920s. . "[With the home equity line of credit], we got a lower interest rate--4.5%. Plus we could write it off on our taxes," explains Rafael. "That was a better deal than taking on a new car payment." The Richardsons add, "We are very conservative at this stage in our lives." Married seven years, the Years, The the seven decades of Eleanor Pargiter’s life. [Br. Lit.: Benét, 1109] See : Time couple plans to have children down the road. Beyond saving for retirement, they are already thinking about building generational wealth. THE ADVICE Financial adviser Cheryl Creuzot, president and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. of Wealth Development Strategies in Houston, notes that in terms of budgeting and cash flow management, "the Richardsons have done an excellent job holding down their spending." However, she adds, "they don't have the wherewithal where·with·al n. The necessary means, especially financial means: didn't have the wherewithal to survive an economic downturn. conj. Wherewith. pron. Wherewith. from a budgetary standpoint to do a whole lot of saving because he is not working right now." To aid the Richardsons in developing a financial plan, BLACK ENTERPRISE paired the couple with Creuzot. The following are her recommendations: APPLY FOR GRANTS AND SCHOLARSHIPS. Even with the $15,000 fellowship, Creuzot says Rafael needs to explore other options to pay for school. He can check with the Council of Graduate Schools (www.cgsnet.org/ResourcesForStudents/fellowships.htm; 202-223-3791) and the National Association of Student Financial Aid Administrators (www.nasfaa.org; 202-785-0453). MAINTAIN A CASH RESERVE. The Richardsons currently have $11,400 in a money market account. Most planners like their clients to have three to six months worth of living expenses saved up. The Richardsons' monthly expenses are relatively low at $2,200, therefore, six months of living expenses would equal $13,200. Creuzot says the couple should pay off the $1,000 credit card debt with half of their cash prize winnings and add the other $1,000 to their reserve. FOCUS LESS ON DEBT. Creuzot says there is such a thing as being debt averse a·verse adj. Having a feeling of opposition, distaste, or aversion; strongly disinclined: investors who are averse to taking risks. to a fault. The Richardsons should employ additional monies toward growth and retirement opportunities instead of accelerated debt reduction. Because they are in a low tax bracket Tax Bracket The rate at which an individual is taxed due to a particular income level. Notes: Each income class is taxed at a different level. Generally, the more you make the more you are taxed. (15% marginal and 10% effective tax rate), every dollar of interest they're paying is really costing them 90 cents. Creuzot says Rafael made a smart, one-time move by consolidating his $22,600 student loan debt (undergraduate and graduate) to get a low rate of 4%. Since he gets to deduct de·duct v. de·duct·ed, de·duct·ing, de·ducts v.tr. 1. To take away (a quantity) from another; subtract. 2. To derive by deduction; deduce. v.intr. the interest, he's paying 3.6% after taxes. Also, the couple recently refinanced from 6.88% to 5.875% on a 30-year fixed mortgage, saving $300 monthly on a home they built for $125,000 that has increased in market value to $275,000. TAKE TAX CREDIT. Rafael should deduct the interest on his student loan. He can also take advantage of the academic costs he is incurring by using the $2,000 Lifetime Learning Credit Lifetime Learning Credit A federal initiative whereby a person is eligible for a non-refundable credit for a specific amount spent on higher education tuition and fees during the year. Notes: These fees can be for the person, his or her spouse, or his or her dependents. available to graduate students beyond the first two years of college or professionals attending classes parttime to improve or upgrade their job skills. IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. Publication 970 and Form 8863 offer complete instructions (www.irs.gov). READ JUST RETIREMENT GOALS. The couple wants to retire early--age 55. But in order to do that, they would need to save $19,000 a year. That's not plausible at this point nor once Rafael re-enters the workforce, says Creuzot. She recommends that the Richardsons retire at 60. This is more realistic since they are in their early 30s, still pursuing their education, and planning to add children to the mix. If they retire at 60, they would only need to save $11,000 a year. Currently, Janice is saving $4,000 annually through the retirement system of Alabama. The state plan automatically withholds 5% of an employee's pay, plus the state matches 6.56%. If Rafael is able to get a university job at $65,000, he will contribute another $7,500 in retirement savings (5% withholding Withholding Any tax that is taken directly out of an individual's wages or other income before he or she receives the funds. Notes: In other words, these funds are "withheld" from your wages. and 6.565% match). BUY MORE INSURANCE. At the time of death of either spouse, the Richardsons want to have enough money to pay off any debts, including the mortgage, and leave the surviving spouse with a monthly income of $3,000 until age 65. They each currently have $500,000 of term insurance, but really need to have $750,000 in coverage to meet the above objectives. The Richardsons Financial Snapshot: HOUSEHOLD INCOME Gross Income $35,000 ASSETS Cash Reserve $11,400 IRA (his) 3,100 IRA (hers) 3,000 State Retirement (hers) 3,500 State Retirement (his) 5,200 Market Value of Home 275,000 Value of Two Cars * 33,000 Total $334,200 LIABILITIES Mortgage $175,000 Home Equity 12,000 Line of Credit Student Loan 22,600 Credit Card Debt 1,000 Total $210,600 NET WORTH $123,600 * ACCORDING TO KELLEY BLUE BOOK |
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