RN or a teacher. Their biggest obstacle is that they would have to pay for their education themselves. They are both employed by the government and aren’t eligible for employer-paid tuition.
William has thought about getting involved in the vending machine business part time to supplement the family’s income. He estimates that he could get his business up and running for $10,000 and make $400 a month for spending 20 to 25 hours servicing three or four snack machines.
The Starks family has their work cut out for them but they’re encouraged. “We’ve just started with a budget. So far we’ve been able to stick to it,” says William. “We’re staying the course.”
THE ADVICE
BLACK ENTERPRISE had Danny Freeman, a financial adviser with Darda Wealth Management in Winston-Salem, North Carolina, review the Starks’ finances and goals. He says they’re on the right track by addressing their debt. “The key thing for them to remember is that they didn’t accumulate it overnight, so they shouldn’t try to get rid of it overnight,” says Freeman. “They should develop a systematic plan to attack their debt, and with discipline and improved budgeting, they should be able to eliminate it completely in three years or less.”
Here are Freeman’s recommendations:
Get strategic about debt. The Starkses have two credit cards with relatively low balances of $1,000 and $1,500. Unfortunately, those cards have high interest rates, around 18%. Freeman says the couple should pay off those two cards in 18 months by increasing the payment on one of them to $70 a month and increasing payment on the other to $100 a month. Taking care of that small debt will free up money to be put toward other debt.
He also advised the family to pay at least $150 a month on their other, higher-balanced debt. “They should consider using cash lump sums, such as tax refunds or bonuses, to accelerate the liquidation of credit card debt,” he says.
Reallocate retirement assets. Freeman says the 401(k) William has from his former employment is overexposed in cash and fixed income; those two classes hold a little more than 50% of his assets. “This is of particular concern because as interest rates rise, fixed income investments can be negatively affected and possibly underperform,” he says. Freeman would like to see the 401(k) reallocated to the following: 10%, Pimco Total Return; 25%, T. Rowe Price Mid-Cap Value; 50%, Dodge & Cox Stock; 15%, EuroPacific Growth. Freeman says that because William is still young and because these funds are designated for retirement, he can assume more risk, which will give him the opportunity for more return.
Start the children’s college funds. If the children attend four-year public universities in South Carolina, it will cost William and Julanda between $200,000 and $240,000. At that price, they would need to save $800 to $900 a month. Based on their current income, that’s not feasible, but it’s important that they don’t delay saving any longer. Freeman suggests using the $2,000 contest winnings to start 529 college savings plans. He