Single & Fabulous
The Challenge:
Aaliyah, age 32, works for a private, pre-IPO tech company. She receives a base salary, fixed annual bonus, and variable bonus based on sales goals, with a total compensation target of $250,000. In addition, she’s received a combination of stock options and restricted stock units. Aaliyah has $100,000 in Federal student loans that she would like to pay off, and she also wants to purchase her first home. Her emergency fund is fully funded and she is maxing out her 401(k). She’s not sure what to do with the extra cash and wants to find a balance between saving, investing, and paying off debt.
Aaliyah’s Primary Goals are to:
- pay off her student loans
- purchase her first home
- manage her variable income and excess cash
Our Approach:
- Developed a cash flow strategy for managing income that included regular savings from base salary for planned vacations and “splurges”
- Developed guidelines for how to use fixed and variable bonuses to accelerate student loan payments and build a home purchase fund
- Analyzed whether to refinance student loans to private or keep as Federal
- Determined how much house she could afford given her income, expenses, and desired lifestyle
- Developed a strategy for exercising stock options and coordinated with her tax preparer to pay additional income taxes as needed
- Reduced her current tax liability by shifting from a Roth 401(k) to Traditional and contributing to a Health Savings Account
- Reduced investment costs and increased diversification in Traditional and Roth IRA accounts by changing to lower cost, more broadly diversified funds
The Results:
- Aaliyah is on track to pay off her student loans in 3 years.
- She’s saved enough for a down payment on a home and increased her emergency fund to prepare for home ownership.
- She’s starting to build a taxable investment account to compliment her retirement account investments.
Note: The above case study is hypothetical and based on experiences with actual Financial Staples clients. No portion of this content should be construed by a client or prospective client as a guarantee that they will experience the same or similar level of results or satisfaction if Financial Staples is engaged to provide financial advisory services.
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Copyright © 2016-2024 Financial Staples, LLC. All Rights Reserved.