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Living within Your Means & Creating a Financial Strategy

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By Dave Marcus

RISMEDIA, Sept. 24, 2008-(MCT)-Bernadette Bissoondial, 33, and her husband, Terrence, 34, are teachers who pride themselves on living within their means and saving for the education of their two children.

They usually have a combined income of about $200,000, but this year it is less because Bernadette is staying home to be with their 3-month-old son. They bought a $500,000 house in Bellmore a year and a half ago, and make sure they pay the mortgage and bills on time. They even paid off a piggyback mortgage early.

A few months ago they stopped contributing to a 403(b) — a retirement plan for employees of the government and nonprofit groups — because they were losing money. Until then, they had liked the retirement plan, which lowered their taxable income and offered earnings that were tax-deferred.

Every month, they put $600 into tax-free 529 college savings plans for their children. For years, they also bought stock in consumer companies such as Coca-Cola.

They are careful with their money, said Bernadette, who teaches high school economics. “We don’t buy anything we don’t need,” she said, “and I don’t hesitate to use a coupon.” Earlier this month, she flew to Disney World on vacation with her sister and her older son, taking advantage of reduced airfare, hotel rates and free food. Total cost: $1,000.

Bernadette said she realizes she’s lucky because teachers’ jobs are more secure than those in the private sector. Watching the stock market’s gyrations, Bernadette wonders whether she and her husband should jump into the stock market now. The Bissoondials also considered buying a timeshare because it might save money for future vacations.

A Financial Plan

Ellen Douglas, a certified financial planner and president of Fiscal Wizard Inc. in Roslyn, New York, says the Bissoondials and other young families who share similar financial conditions need a real strategy.

Stopping a retirement plan like a 403(b) is not wise. Everyone has been down, so it’s best to stay on course.

Young professionals should be putting in the maximum allowed contribution.

A 529 plan for the children makes sense for long-term planning. Nothing beats dollar-cost averaging in a volatile market.

Young couples should have large-level term life insurance policies, maybe $2 million or more per person.

When it comes to income, ideally you should try to save 10%, keep 10% for discretionary spending and allot 80% for housing-related and other expenses. If you can save more, you can retire earlier.

Buying a timeshare for vacation is one thing, but it should not be seen as an investment.

Copyright © 2008, Newsday, Melville, N.Y.
Distributed by McClatchy-Tribune Information Services.

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