investing

Build emergency cushion

Profile: Elizabeth Bryant
The problem:
Savings are scattered; investments are over-diversified.
The plan:
Pay off high-interest debt first; then build up emergency fund.

Elizabeth Bryant
Elizabeth Bryant, 38, of New Jersey is a single mother with three children -- a 12-year-old daughter and two sons, ages 15 and 9. She works full time as a legal secretary and has been with the same firm for the past five years. Elizabeth is a renter, but would like to eventually purchase a home.

Elizabeth lists her financial goals as saving three to six months' expenses in a liquid account and perhaps eventually purchasing a home, though that isn't a high priority. She also wants to know, "Am I on track?"

Key issues

Insufficient emergency savings
Carrying credit card debt, all at above-average interest rates due to previous bankruptcy
No IRA
No college savings accounts for the kids
401(k) balance is over-diversified

Overview

Elizabeth has been rebuilding her credit from a previous bankruptcy in 2005. As a result, her car loan and most of her credit cards carry high interest rates. She has a total of six credit cards, four of which have balances at interest rates as high as 23.99 percent. On three of the cards, the balances are $500 or less, but one card carries a $1,500 balance at 14.9 percent. She must be particularly careful to resist the lure of credit cards as she had accumulated $60,000 in credit card debt before filing bankruptcy.

The balance sheet, assets and liabilities
Elizabeth keeps close track of household income and expenses, with monthly household expenses averaging $3,700. Her current emergency savings of $2,800 is spread between two high-yield savings accounts, and she contributes a total of $230 per month to these accounts. She also has $1,300 in T. Rowe Price Spectrum Growth fund, a fund of funds focusing on large company stocks, and is contributing an additional $50 per month to that.

	This report was prepared by Bankrate Senior Financial Analyst Greg McBride, CFA.