Embracing financial responsibility: M'Kisha Shell is facing single parenthood and fiscal challenges head-on.

M'KISHA SHELL GETS IT NOW. AS A single mom, she understands that it's her responsibility to develop a financial plan for herself and her 5-year-ol daughter, Kayla.

The 26-year-old from Jamaica, New York, recently graduated with a bachelor's of science in business administration from York College. For the last four years she's worked as a customer service representative for an electrical manufacturing company, where she now earns around $33,000. Shell participates in her company-sponsored 401(k) plan and after three years has accumulated $7,900. She has $500 in savings bonds and contributes $50 a month to her daughter's 529 college savings plan. But she has no savings to speak of and only $750 in a checking account. Meanwhile, she has $5,000 in student loans and $4,000 in credit card debt.

Credit cards have proven to be Shell's undoing, especially when it comes to spending for her daughter. "I would buy not one or two, but three or four dresses at a time for her," says Shell. The credit cards have also been used for everyday items like groceries when there have been gaps in her income. "You think you'll pay it right back, but you don't. It all starts to add up," she laments.

While she works to control her spending, Shell is confident that she will find a resolution. She is also looking to find ways to add to her income to help pay day care expenses, which cost $375 a month.

Shell lives at home with her mom and younger sister but pitches in financially for food, cable, and the house phone. Those expenses, coupled with credit card payments, student loan repayment, and cell phone bills, stretch thin the $1,400 a month she takes home.

But the spirited Shell is not one to despair. She and her mother have talked about buying a home and running a home-based day care center in the Carolinas within the next three years. For that reason, Shell has delayed plans to free the nest. "It seems stupid to pay $1,000 a month in rent for an apartment when I could use that money toward saving for the business," says Shell. She estimates they will need at least $10,000 to $20,000 to get their business off the ground.

However, the first order of business for Shell is getting her debt under control. "Being debt-free is a priority," she says. In the fall, when Kayla begins first grade, child care expenses will drop to $75 to $100 a month, netting her a savings of close to $300. She plans to save that money for the business, an emergency fund, and an IRA.

Says Shell, "The next 12 to 18 months will be tough, but I have a game plan. I'm expecting great things."

THE ADVICE

To assist Shell with her strategy, we called on Vicki Brackens, a financial planner with MetLife in Syracuse, New York.

Brackens was struck by Shell's dedication to her daughter's well being and her desire for financial freedom. Shell's drive, says Brackens, increases the likelihood of her eventual success. But getting there won't be painless. Here's what Brackens recommends:

Make sacrifices. Brackens says Shell must build a cash reserve immediately. Six months of expenses would be ideal. The $2,000 contest winnings should go toward this goal. Throughout the year, child support payments should also be allocated to savings. Brackens suggests Shell take her things out of storage and apply that $40 a month toward savings.

End credit card splurges. M'kisha recognizes that impulse buying was a major contributor to the creation of her credit card debt," says Brackens, adding that, "She will commit to not purchasing any new clothes for herself for the next 12 months. It's a sacrifice, but doing so will allow her to accomplish building her cash reserves."

Continue reducing debt. "Reducing debt and the cost of servicing that debt is key to her future," says Brackens, who recommends Shell investigate consolidating the credit card debt into a lower interest, fixed-rate loan. But first, Shell should capitalize on the tax refund that she will get this year. That money should be applied to her credit card debt, paying off the highest interest rate cards first. When she begins to see the savings from the decrease in child care expenses, that money should go toward debt reduction and savings too, says Brackens.

Get tax advice. Shell should see a tax adviser or follow these tax strategies that could work in her financial favor:

* Change her tax filing status to head of household, which should lower the amount of taxes taken out of her paycheck throughout the year.

* Itemize her deductions rather than filing the short form to take advantage of the child tax credit and her deductible student loan interest.

* Claim the saver's credit, which is a nonrefundable income tax credit for contributing to her tax deferred retirement savings plan. This credit is in addition to the income tax deduction she receives for making contributions to a qualified retirement plan.

Plan for the future. Shell should meet with an estate planning attorney to discuss drawing up a will with guardianship provisions for Kayla, a durable power of attorney, and a healthcare proxy/declaration and/or a living will, says Brackens.

Given that her ability to work and earn a living is her greatest asset, Shell should purchase additional disability insurance to supplement what is provided by her employer and needs to re evaluate her life insurance coverage. She has a total of $280,000 in term insurance through her employer and a policy on her own, but Brackens thinks an additional $515,735 of coverage would be appropriate to provide for the future needs of her daughter.

Rethink investments. Brackens recommends Shell reposition her asset structure to more closely mirror her risk tolerance: 25% short-term bonds, 5% U.S. aggregate bonds, 10% U.S. high-yield bonds, 20% large-cap value, 20% large-cap growth, 5% mid-cap growth, 5% mid-cap value, and 10% international equity.

Brackens says, "M'kisha is taking control of her life and preparing for the future. She's put action behind her faith--that is the true evidence of a shift in behavior."

Financial Snapshot:
M'Kisha Shell

HOUSEHOLD INCOME

Gross home                    $34,300

ASSETS

Checking                         $750
Savings                            50
Savings Bonds                     500
401(k)                          7,900
529 college savings plan          593
1998 Oldsmobile Regency *       5,700
Total                         $15,493

LIABILITIES

Student Loans                   5,000
Credit Card Debt                4,000
Total                          $9,000

NET WORTH

* ACCORDING TO KELLY BLUE BOOK