In addition, she owes $17,000 on a used car she purchased in 2009. Her monthly car payment is $400. With gas prices averaging around $4 a gallon in Maryland, what’s really drained her cash was the $500 a month she paid for gas to commute to work just outside Washington, D.C. Now she’s using a public transportation subsidy offered to federal employees, which saves her around $350 a month.
As for her retirement savings, McLeod withdrew $10,000 from her 401(k) to make a down payment on a three-bedroom, single family row-home which she purchased for $130,000 in 2006. She was able to take advantage of tax laws that allow first-time buyers to withdraw up to $10,000 from their retirement account penalty-free. But that withdrawal left her with $3,200 in her employer sponsored retirement account to which she is contributing 7% of her salary.
McLeod has also been investing in individual stocks outside of her 401(k). She has purchased shares of companies including Pfizer, General Motors, and General Electric. She uses an ING ShareBuilder account, to which she contributes $30 biweekly. Her cash reserve funds are modest at about $6,000 in savings and money market accounts.
The Advice
McLeod needs to reduce expenses and increase her emergency savings. She is upside down on her car and home, and has a negative net worth. black enterprise and Walt L. Clark, president and CEO of Columbia, Maryland-based Clark Capital Private Wealth Management, created a plan to help McLeod better manage her finances.
– Eliminate credit card debt. McLeod needs to get rid of her $4,800 credit card balance. She is contributing about $400 a month toward that debt. By September she can pay down the debt using the $350 a month that she will save on gas. By eliminating this short-term debt, she can begin to add more capital to her savings.
– Kick spending habit. “She needs to find other places to spend time such as going to a park; somewhere she won’t be tempted to spend money. When she does go to the mall she needs to not bring any credit cards and bring little cash,†says Clark. be recommends that McLeod register with Shopaholics Anonymous, which assists with recovering from compulsive spending.