Suspending the spending: without a budget, the hills' high income won't stop them from having negative net worth.

WILLIAM AND SUNDARKIA HILL KNOW a lot about spending. When William graduated from college in 2001, he made a lot of money, and he admits to spending quite a bit of it.

"There was no such thing as a budget. We traveled a lot to D.C. and North Carolina and spent a lot on nightlife," says William, a 27-year-old nuclear pharmacist. Then there was Sundarkia's engagement ring, their 2003 wedding and honeymoon, and the pricey 2003 Escalade they purchased. Add in the down payment for their $220,000 Atlanta home, and things started getting out of hand. "We always had some major purchase that got in the way of our saving," says William.

The urge to splurge was a way of life for the Hills. With William's $95,000 salary (and another $25,000 from moonlighting), plus Sundarkia's $30,000 salary as a research associate for a medical practice, the Hills ran up thousands in credit card debt. Sundarkia had accrued $6,000 in credit card debt before they got married, and by May 2003, their combined debt equaled $15,000.

The Hills have diminished their credit card debt to $6,000 by using the money William earns moonlighting to double the minimum payment. Their concern now is that, between the two of them, they owe $65,000 in student loans. And with $25,000 left to pay on the Escalade, they still have a mountain of debt.

The Hills have also set up a budget and stick to it most of the time. "We have a lot of what we need now, so I think a lot of the spending is behind us," says William. "We still have to work on cutting down on the nightlife."

It's important for the couple to stick to their budget because, last month, William began an M.B.A. program in health administration at Georgia State University. Although he will continue to work full time and his company will reimburse his tuition, he'll probably end his moonlighting gig to have more time to study. The couple's income took another hit this month as Sundarkia started working part time while she pursues her doctorate at Georgia State. She is scheduled to graduate in 2008.

Once their debt is under control, they will build an emergency fund, save aggressively for retirement, and pursue real estate investment. The Hills also hope to purchase another car and start a family after Sundarkia graduates. They know they have to lose their appetite for spending if any of this is to become a reality.

William is optimistic: "When I get out of my program in two years, I can expect a base salary of $150,000. And in four years when Sundarkia has her master's and Ph.D., she's looking at six figures. We're going to be all right."

THE ADVICE

To help the Hills sort out their financial strategy, BLACK ENTERPRISE called on Kathy Williams, president of Williams Financial Services Group in Oklahoma City. She has the following recommendations:

Continue debt reduction. There's no getting around the fact that the Hills must learn to spend less. While they have made strides in this area, Williams still believes their level of debt is troublesome. "To fit comfortably into the guidelines of their income, their goal should be no more than 10% of gross income dedicated toward debt repayment, which includes transportation expenses and other debt. Currently, it's nearly 15% of their gross."

Sticking with their debt reduction plan is particularly important because the Hills are planning to start a family in the next couple of years, and they will need a second vehicle soon (because of their commitments to school). "When the pitter patter of little feet arrive, more expenses than ever will materialize," says Williams. "They want to be able to handle it."

Because they are young and their earning potential in the near future is strong, their net worth is going to increase rapidly, which bodes well for their future. Says Williams: "They're going to be able to put money in their pockets instead of debt holders."

Reduce 401(k) contributions temporarily. According to Williams, the young couple is on the right track for investing toward retirement and building an emergency fund. Although Sundarkia is not enrolled in a retirement plan, William is currently investing 13% of his pre-tax compensation in his 401(k) plan. His employer matches 50% of his contribution up to 6%.

William also purchases his company stock twice a year on an after-tax basis, and places $100 per month into a money market account for the couple's emergency fund and $200 a month into a stock purchase account earmarked for accumulation.

Williams advises William to temporarily reduce his 401(k) contribution from 13% to 8%, and use the extra proceeds for debt reduction. Such a move should be able to free up about $360 per month, which Williams recommends they use to eliminate the credit card debt, then their car note, and then the school loans.

Increase life insurance coverage. Currently, William has a $250,000 whole life insurance policy with Northwestern Mutual that is $190 per month. According to Williams, it would be more practical to convert to term insurance now and use the savings to reduce debt, which will help the family prepare for their new vehicle purchase. William also has a $1,000 per month disability benefit with a 90-day elimination payable for life with Northwestern Mutual that Williams says should stay in place.

Temporarily suspend activity in the independent brokerage account. William purchases stock by contributing $100 per month into a ShareBuilder account. Williams says he should divert that money into the couple's money market account for a total contribution of $200 per month. This account would then serve as a cash reserve set aside solely to cover critical, unexpected needs such as a sudden loss of income or an unexpected financial crisis. They should build the account until they have at least three to six months of ordinary living expenses at their disposal. They can apply the $2,000 contest winnings toward the emergency fund.

Financial Snapshot: William & Sundarkia Hill

HOUSEHOLD INCOME

Gross Income                $150,000

ASSETS

Market Value Home           $220,000
Value of Car                  35,000
Checking                         500
Savings                        2,500
Joint Checking                 1,500
ShareBuilder                     500
ShareBuilder Money Market      1,700
Stock Purchase Program         2,500
His 401(k)                    20,000
Total                       $284,200

LIABILITIES

Mortgage                    $207,000
Student Loan                  65,000
Car Loans                     25,000
Credit Card                    6,000
Total                       $303,000

NET WORTH                   -$18,800