Regaining control: a big tax bill prompts the McCoys to take charge of their finances.

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HE WAS MAKING A MAJOR TRANSITION, but when Hoover McCoy retired from the Air Force, financial uncertainty and money woes were, at most, only a remote concern. After 22 years in the military, Hoover was ready to move on. It was in 2001 that the Oklahoma City resident took a position as a program analyst with the Department of Defense. Having relocated several times throughout his career, Hoover, 52, and his wife, Kathy, 49, were looking forward to staying put for a while. While in the military, the couple, along with their two sons, Hoover III and Christopher, lived in Germany, California, Kansas, and Nebraska.

Now several years later, it seems as though things have worked out well Hoover's civilian earnings, combined with his military pension, are almost three times more than his military salary alone. And Kathy, who had worked at a variety of jobs during Hoover's military career, became a teacher and assistant director of the Metro Tech Head Start program in Oklahoma City. Today the couple brings in a household income of about $120,000.

While the couple's finances are in good shape, things weren't always so smooth. They've learned a number of lessons along the way. In terms of managing his finances, Hoover says that despite his nominal Air Force salary, tax savings were significant due to various tax-exempt allowances for military staff, such as the Basic Allowance for Subsistence and Basic Allowance for Housing.

After he transitioned to civilian life, however, Hoover's financial situation became more complex as he and his wife hit a major financial road bump.

It was tax season and the couple received a $4,000 bill from the Internal Revenue Service. "After I retired, I didn't make the necessary tax withholding adjustments," Hoover says. "That's why we received the tax bill."

The McCoys had to scramble to pay off the bill, using a combination of credit cards, modest savings, and help from family members.

Credit card bills also shook things up for the couple, since much of their income had been allotted for daily living expenses and other bills. They didn't have any real savings plan or budget. "We were floundering and coming up short when it came to paying taxes and managing our money," Hoover says.

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He needed a solution to this tax dilemma, so Hoover formulated a plan to get the family's finances back on track, vowing to never again fall prey to unexpected tax bills and poor money management. Of course, the first priority was to adjust his federal withholdings in order to meet his annual tax obligations and avoid future bills from Uncle Sam.

Today, with a healthy annual income--and a home valued at more than $210,000--the McCoys are determined not to let past financial mistakes creep back into their portfolio. The couple chose to make the investment of seeking professional help and began to work with Kathleen Williams, president of Williams Financial Services Group in Oklahoma City. With her help, the couple has transformed their financial life over the past four years.

"I encouraged them to establish an emergency account for unexpected expenses," Williams says. "I also advised them to reduce their debt and advised Mrs. McCoy to establish a 403(b) retirement account." Williams' advice for minimizing debt included paying off credit cards by establishing a solid financial budget and strategy in order to be debt free in a certain period of time. Williams also encouraged them to make the maximum annual contributions to their retirement savings accounts. A couple of their current mutual fired holdings include Van Kampen Strategic Growth (ACEGX) and Principal Investors SAM Balanced (SABPX). By being proactive and seeking professional assistance, the McCoys feel that they are on firm financial footing for the first time in years.

"Our finances are better now than they have ever been in the past," Kathy says. "We have our adviser maintain our emergency fund, and we keep an adequate amount in our checking account." She says the family has three credit cards and only one of them carries a balance. That card is used as a supplement to emergency funds when needed for unexpected car or home repairs.

Perhaps it was climbing out of the abyss of financial uncertainty that has made the McCoys diligent and steadfast when it comes to finances. "We were big on seeing what the amount of our checking account was and nothing else," Kathy says. "We were not investing the extra money in the account or saving it in a manner that was beneficial to us." Hoover says having the peace of mind to pay a $4,000 tax bill is a lot better than having no money and a $500 tax bill.

"We feel that we are in a position to not be as concerned about taxes as we were in the past," he says. "Thanks to some of the advice and investment strategies implemented by our financial planner, we will be totally debt free in seven years." This includes paying off their cars loans, a student loan balance of $20,000, and their $160,000 mortgage.

The McCoy's Advice:

Don't sit on your cash. Invest. Depositing money in a long-term investment account is wiser than simply maintaining a large balance in a low- or non-interest-bearing checking account. The McCoys maintain an adequate balance in a checking account to cover monthly obligations and invest the additional funds in high-yield investments.

Keep an eye on taxes and withholdings. If you frequently relocate to other states, determine if you need to adjust your tax rate. State taxes vary, so review the tax laws and determine if you must make adjustments to avoid facing a big tax bill each year.

Plan for the future. Set aside a regular amount in a retirement vehicle such as a 403(b) or 401(k). Whenever possible, contribute the maximum annual amount allowable.

Establish an emergency account. The McCoys' financial planner oversees an emergency savings account in case of unexpected expenses. It's also a good idea to keep one or two low-interest credit cards free and clear of a balance in case of an emergency.

Find a good financial planner. When in doubt about how to handle your finances, shop around for a reputable financial adviser.

Declaration of Financial Empowerment

From this day forward. I declare my vigilant and lifelong commitment to financial empowerment and hereby pledge the following:

1 I will use homeownership as a foundation for building wealth.

2 I will be proactive in managing my budget, credit, debt, and tax obligations.

3 I will maximize my earnings potential, live within my means, and commit to saving and investing at least 10% of my income.

4 I will ensure that my investments are properly diversified and correspond to my current financial goals.

5 I will immediately commit to a program of retirement planning and investing.

6 I will preserve and protect my assets through proper financial and insurance planning.

7 I will ensure that my children receive a thorough education on financial and business matters.

8 I will ensure that my wealth is passed on to future generations through proper estate planning.

9 I will actively support the creation and growth of viable, competitive black-owned enterprises.

10 I will use a portion of my wealth to strengthen my community.