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CASE 1

At 27, funding his future and saving for a home

October 19, 2008

Brett's top priority should be to pay off his credit card debt, which yields an immediate 15% return on his money. Next comes the emergency fund, which generally should hold enough cash to cover four months of expenses -- around $8,000 in Brett's case. His bank account gets him most of the way there, but he needs to top it off as soon as possible.

With housing in a slump and businesses girding for a recession, architecture work is starting to dry up. He should continue putting money in his 401(k), although funding a Roth IRA (maximum annual contribution: $5,000) is an option if there's extra cash.

At his age, he should maintain an aggressive investment stance in his retirement accounts: 80% in stocks, 10% in hard assets such as commodities or real estate (as an inflation hedge) and 10% in bonds.

With any money left over, Brett can begin saving for a house by investing in mutual funds through a low-cost provider such as Vanguard, although he should take a more cautious approach because he'll probably tap that money within 10 years.

Brett

Brett, 27, is single with no children. He works as an associate at an architecture firm and rents an apartment in Silver Lake.

Assets

* 401(k): $7,500

* Bank savings account: $5,000

Debt

* Credit cards (15% interest rate): $3,500

* Auto loan (5.5%): $15,000

* Student loans (4.6%): $20,000

Annual income

$50,000

Annual savings

401(k): $6,000

Objectives

* Manage debt

* Establish "rainy day" fund

* Set up a long-term savings plan to buy a home and fund retirement

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