Taking steps toward financial independence: our 2003 financial fitness contest winners are reaching their goals with solid fiscal planning.WHAT A DIFFERENCE A YEAR MAKES. Anyone who is seriously committed to getting his or her financial act together can make significant strides by taking advantage of the wisdom of a financial adviser. A brighter financial future is on the horizon for anyone willing to seize the opportunity. BLACK ENTERPRISE'S 2003 Financial Fitness Contest winners have improved their prospects for building wealth in a relatively short time. They've designed a well-crafted plan, received encouragement from their adviser, and started to make smart money moves. Here's a look at what happened to four of our winners from last year. WINNERS Jacqueline & Kim Jackson The Jacksons are emerging from a very complicated financial situation in fine fashion. For starters, thanks to raises, bonuses, and Kim's overtime, the couple has bolstered their household income from $85,000 to $106,700. They refinanced their home this summer, going from an 8% adjustable-rate mortgage Adjustable-rate mortgage (ARM) A mortgage that features predetermined adjustments of the loan interest rate at regular intervals based on an established index. The interest rate is adjusted at each interval to a rate equivalent to the index value plus a predetermined spread, or with prepayment penalty Prepayment penalty A fee a borrower pays a lender when the borrower repays a loan before its scheduled time of maturity. to a 7.5% fixed-rate mortgage with no prepayment penalty. With the new mortgage, their payments have increased from $928 a month to $1,012 because they took out cash to put toward the down payment for a new home they are building, which will be finished in February or March of next year. When that happens, they are planning to rent their current home and refinance Refinance 1. When a business or person revises their payment schedule for repaying debt. 2. Replacing an older loan with a new loan offering better terms. Notes: When a business refinances they typically extend the maturity date. it to an interest-only mortgage. The Jacksons also refinanced the home equity loan they had taken out to renovate a third house they inherited inherited received by inheritance. inherited achondroplastic dwarfism see achondroplastic dwarfism. inherited combined immunodeficiency see combined immune deficiency syndrome (disease). from Jacqueline's father. The renovation caused a $12,000 shortfall, which they've rectified rectified refined; made straight. by using savings and their $2,000 contest winnings to trim some of the debt before they increased the loan amount from $39,000 to $77,000. The Jacksons also went from a 9.5% ARM to a 4.9% Option ARM, which gives them four different payment options to select from each time they make a payment. The Option ARM will help them in the event it takes awhile a·while adv. For a short time. Usage Note: Awhile, an adverb, is never preceded by a preposition such as for, but the two-word form a while may be preceded by a preposition. to find a renter, because it gives them the option of making a lower payment. By refinancing Refinancing An extension and/or increase in amount of existing debt. their debt, the Jacksons have gained about $330 more a month to work with, which they are putting toward the down payment of the home they are building. While they are proud to soon be the landlords of two properties, the Jacksons still have challenges. The family has been affected emotionally, as Jacqueline's father passed away this year, and the new house will cost double their current $139,000 home. They've also bought a $24,000 car and a time share in Orlando, Florida The city of Orlando is a major city in central Florida and is the county seat of Orange County, Florida. According to the 2000 census, the city population was 185,951. A 2006 U.S. , for which they pay $169 a month and have a $7,500 balance. But the couple is optimistic op·ti·mist n. 1. One who usually expects a favorable outcome. 2. A believer in philosophical optimism. op . "We feel as though we're on the right track," says Jacqueline. Tiffany Tiffany, Tiffanie (UK) a semi-longhaired version of the Burmese cat. It has a fine, silky coat in many colors. Hall used to read articles about people who earned less money than her, but seemed to be better off financially. These days, she likes her own story. For one thing, she paid off her Lexus RX The Lexus RX is a mid-size entry-level luxury crossover SUV produced by Toyota Motor Corporation. It is the world's first mid-size crossover SUV. In North America, Europe, Oceania, and parts of Asia, including Singapore as a 2003 introduction and Japan as a 2008 introduction, it is 300 SUV six months ago. She had nearly $20,000 left on her loan, and started paying $2,000 a month to help it disappear. By the time she was down to $8,000, Hall charged the balance to a zero-interest credit card and kissed it goodbye. While she still owes $5,000 on that credit card. she incurs no interest until September Until September is a 1984 romantic drama set in France. It stars Karen Allen as an American tourist in Paris who falls in love with a married Frenchman (Thierry Lhermitte). External links 2005, by which time there will be so little left that she'll withdraw money from her savings to pay it off. The $125 she pays on the credit card bill is a far cry from the $415 car payment. She took the planner's advice and opened a tax-exempt money market account, to which she applies the difference of what she would have paid--$290, monthly. Hall is also feeling good about her salary. With the cost of living increases and step raises, the contract attorney's moved up from $70,260 to about $80,000. The jump has given her saving power. Hall increased her contribution to her 403(b) from 5% to 10%, and is putting in a total of $1,000 a month into her money market account. "Having that car paid off is a big thing off my back. I've found that I'm a good saver and I'm pretty much debt free now," she says proudly. Since we last talked to Hall, her mother has changed her mind about wanting to move to a condo and will stay in her own home. Consequently, Hall, 33, is now focused on saving for a home of her own instead of buying her mother's. The fact that she only pays $400 rent to her mother will give her the ability to build funds quickly. "I'm not going to rush; I want to move out in style--do it right." Married life agrees with the Worleys. As planned, their special day took place in September 2003. They even managed to save enough cash to pay for half of the $15,000 shindig shin·dig n. 1. A festive party, often with dancing. Also called shindy. 2. See shindy. [Probably alteration of shindy. and honeymoon cost. Their parents paid the rest. To say the least, their marriage is off to an eventful e·vent·ful adj. 1. Full of events: an eventful week. 2. Important; momentous: an eventful decision. start. By October's end, Kim, 30, was expecting. Eric began graduate school in September, working toward a master's in education administration so he can land a better position, stop working two jobs, and make more than the 555,000 he earns now. Although Kim will soon have to start repaying the 550,000 she owes in undergraduate and graduate school loans, their debt picture has greatly improved. Eric recently refinanced the mortgage like the planner suggested. While the reduction from a 7.5% rate to 6.7% didn't change the monthly payment much, Eric took out money and paid off the remaining 57,000 in old credit card debt Credit card debt is an example of unsecured consumer debt, accessed through ISO 7810 plastic credit cards. Debt results when a client of a credit card company purchases an item or service through the card system. that was haunting him. His student loans are in deferment deferment Delaying of an obligation. See Default, Medical student debt. Cf Forbearance. since he's in grad school, which gives him breathing room. The Worleys also spent 54,000 of the money from their refinancing to remodel re·mod·el tr.v. re·mod·eled also re·mod·elled, re·mod·el·ing also re·mod·el·ling, re·mod·els also re·mod·els To make over in structure or style; reconstruct. the basement to accommodate Eric's home office and otherwise enhance the space. The bedroom he was using for his office will now go to the baby. The couple is making strides. Eric paid off his old car, sold it, and used the proceeds to help buy a new 525,000 Chevy Tahoe. "Now that our debt is under control we can focus on saving," says Eric, 29. They have about 52,000 left from the refinancing, which will go toward building their emergency fund. "We're feeling pretty satisfied, she more than I," says Eric. "I'm anxious to move to the next phase of my career. I don't want to have to work two jobs." Michael Haney isn't letting go of his dream of being debt free at 40, having half a million dollars by age 50, and $1 million by 60. And why should he? He's willing to take action. In February of this year, he landed a new job as treasury manager for a company that manufactures, develops, and sells specialty healthcare products. His salary jumped from $40,000 to $60,000. With wife Regina's salary of $35,000, their household income is fast approaching six figures. That extra income has given them the wherewithal where·with·al n. The necessary means, especially financial means: didn't have the wherewithal to survive an economic downturn. conj. Wherewith. pron. Wherewith. to make positive changes. The couple has been able to dramatically cut their spending for big-ticket items big-ticket item Managed care A popular term for an expensive therapeutic or diagnostic procedure , now that much of their house is furnished. The Haneys took out a home equity line of credit and used the money to pay off Michael's 1996 Lexus. They got an interest rate of just over 4% and the interest is tax deductible That which may be taken away or subtracted. In taxation, an item that may be subtracted from gross income or adjusted gross income in determining taxable income (e.g., interest expenses, charitable contributions, certain taxes). . Though they still have $7,000 in credit card debt between them, with Michael's salary increase, they've been attacking it aggressively. Their savings have improved too. He is putting 10% of his $60,000 salary into his 401(k). Regina has increased contributions to her 401(k) from $80 a month to $220. The couple not only opened a second 529, plan to which they are contributing $80 a month, but they've increased contributions to the first 529 plan from $100 to $200 a month. "I don't think all of this would have been possible without the extra income," says Michael. As for keeping their finances separate, they still have separate accounts, but now dual signatures are required, and each of them knows the ins and outs ins and outs pl.n. 1. The intricate details of a situation, decision, or process. 2. The windings of a road or path. of the other's accounts. "We know what we're responsible for. There's accountability. I don't think we need more than that," says Michael. For now, they are concentrating on paying off credit card debt and saving, saving, saving. Says Michael, "We have a plan; it's feasible. All I need now is the cooperation of the financial markets." To enter the Financial Fitness Contest or to download the BE Wealth Building Kit, visit www.blackenterprise.com. WINNERS Jacqueline & Kim Jackson THE ADVICE Obtain an interest-only mortgage Interest-only mortgages allow borrowers to pay interest, but no principal, throughout the life of the loan, which is usually 15 years. The result is lower monthly payments. The downside Downside The dollar amount by which the market or a stock has the potential to fall. Notes: You might hear someone say that the downside on stock XYZ is $10. What that means is that the stock could fall by this amount if things got bad. ? If the property loses value the Jacksons would have to make up the loss against the original mortgage if they want to sell the property (but they would have to do the same with a traditional mortgage). * THE FOLLOW-THROUGH The Jacksons refinanced the mortgage on their own home and the home equity loan. They plan to refinance their first mortgage again when they rent it out and will get an interest-only mortgage as recommended. THE ADVICE Use positive cash flow to increase savings Reducing the mortgage payments will give the couple positive cash flow to increase their savings, not only for an emergency fund and retirement but also for their daughter's college education. * THE FOLLOW-THROUGH The Jacksons are using the extra $330 a month from the refinancing to apply to the down payment on their new house. They also hired a financial planner Financial Planner A qualified investment professional who assists individuals and corporations meet their long-term financial objectives by analyzing the client's status and setting a program to achieve these goals. to assist them with reallocating their retirement plans. Kim has 30% of his holdings in an S&P 500 Class 1 Fund, 40% in International Small Company Fund, and 30% in Bond Fund-High Income Portfolio Class A. Jacqueline's assets are similarly reallocated. Their retirement plans have grown from $27,611 to over $60,000. Jacqueline's company's stock options are now worth more than $13,000. Kim will open a Roth IRA Roth IRA An individual retirement plan that bears many similarities to the Traditional IRA. Contributions are never deductible, and qualified distributions are tax-free. A qualified distribution is one that is taken at least five years after the taxpayer established his/her first , to which he will contribute $55 a month. The couple is considering opening a joint mutual fund and have $90 monthly allocated toward their daughter's 529 savings plan. THE ADVICE Restructure insurance Get a combination of permanent and term life policies. * THE FOLLOW-THROUGH The Jacksons have purchased $250,000 term and $100,000 permanent life insurance on Jacqueline, and Kim's application is pending for $1 million term and a $100,000 permanent life policy. They plan to increase the amount of permanent life insurance and reduce term coverage annually. THE ADVICE Draft living will and other legal documents In order to avoid probate probate (prō`bāt), in law, the certification by a court that a will is valid. Probate, which is governed by various statutes in the several states of the United States, is required before the will can take effect. and its inherent financial costs (court costs court costs n. fees for expenses that the courts pass on to attorneys, who then pass them on to their clients or, in some kinds of cases, to the losing party. , legal fees, travel expenses, and time off from work), have an attorney prepare: a pour-over-will, which identifies any assets outside of the trust; a living will, which outlines wishes should you be placed on life support; and a durable power of attorney durable power of attorney A legal document conveying authority to an individual to carry out legal affairs on another person's behalf. for healthcare and durable power of attorney for assets, which designate medical and financial decisions for you. * THE FOLLOW-THROUGH Top on the to-do list in the next month or so, is finalizing their will and estate planning Estate Planning The overall planning of a person's wealth, including the preparation of a will and the planning of taxes after the individual's death. Notes: Contrary to popular belief, estate planning involves much more than preparing a will, and it is not only for the documents. WINNER Tiffany Hall THE ADVICE Establish a business, and shelter taxable income Under the federal tax law, gross income reduced by adjustments and allowable deductions. It is the income against which tax rates are applied to compute an individual or entity's tax liability. The essence of taxable income is the accrual of some gain, profit, or benefit to a taxpayer. Get a tax ID number and set herself up as a consultant, which will allow her to deduct de·duct v. de·duct·ed, de·duct·ing, de·ducts v.tr. 1. To take away (a quantity) from another; subtract. 2. To derive by deduction; deduce. v.intr. business-related expenses--supplies, travel, and entertainment for conferences. She could also take advantage of an existing SEP-IRA SEP-IRA Simplified Employee Plan - Individual Retirement Account . * THE FOLLOW-THROUGH Though she didn't formally set up a business, Hall has pursued different streams of income, such as the mystery shopping Mystery shopping is a tool used by market research companies to measure quality of retail service. These companies send mystery shoppers to 'act' as shoppers in return for some combination of cash, store credit, purchase discounts, or reimbursement for the goods or services the planner suggested, doing everything from test-driving cars, to eating at restaurants, for example. She's also taken a class to become a travel agent and has handled travel bookings, where she splits the commission with an agent who has the required license. THE ADVICE Increase streams of income Aim for having five avenues of income outside of the 9-to-5 gig. * THE FOLLOW-THROUGH Hall plans to explore freelance legal writing, as she has seen how a few hundred dollars here and there adds up. THE ADVICE Take over mortgage payments Put name on deed, take over the house note and taxes, thereby reducing tax liability, as mortgage interest and taxes are deductible. * THE FOLLOW-THROUGH Since her mom is no longer moving, Halt is simply saving for her own home. THE ADVICE Build Up assets Change to a tax-free money market account and keep the interest earned. Put the $2,000 contest winnings in the tax-free money market account. Reallocate Verb 1. reallocate - allocate, distribute, or apportion anew; "Congressional seats are reapportioned on the basis of census data" reapportion allocate, apportion - distribute according to a plan or set apart for a special purpose; "I am allocating a loaf of government securities and fixed-income investments in 403(b) plan to more growth-stock vehicles as the market starts to rebound. * THE FOLLOW-THROUGH Hall did open the tax-exempt money market account, put the $2,000 contest winnings in it. and has been steadily adding to it monthly. She has also changed her 403(b) allocation to a variety of large, small, mid-cap, and international stock funds. THE ADVICE Create an estate plan Set up wills and trusts for mother and daughter. In the event of an untimely death the state would automatically assume Hall's assets, not her mother or closest relative, * THE FOLLOW-THROUGH She and mom both have wills, and Hall purchased a life insurance policy that would provide her with $150,000 if something happened to her mother. They have vet to set up trusts. WINNERS Eric & Kim Worley THE ADVICE Consolidate debt. Debt is a priority, consolidate and pay less interest to get out of debt sooner. Consider a home equity loan. * THE FOLLOW-THROUGH The Worleys opted for refinancing. They didn't shave shave (shav) 1. to cut at or parallel to the surface of the skin. 2. to remove the beard or other body hair by such a process. 3. to cut thin slices from or to cut into thin slices. much off their mortgage payment, and against the planner's wishes, they took out money to pay off debt. Getting rid of debt was their top priority. THE ADVICE Refinance the mortgage If there isn't much equity in the home, refinancing is another option. A lower interest rate could free up some cash to pay down debt. Do not refinance and take out cash to pay off debts because it would increase the mortgage. * THE FOLLOW-THROUGH The Worleys have $2,000 from the refinancing that they will put toward the emergency fund, and with less debt they are anticipating finally being able to start saving. THE ADVICE Step up savings and investments Build an emergency fund of at least three months' worth of living expenses. * THE FOLLOW-THROUGH Building on the money left over from the refinancing, the Worleys are in a better position to save for an emergency. THE ADVICE Revisit re·vis·it tr.v. re·vis·it·ed, re·vis·it·ing, re·vis·its To visit again. n. A second or repeated visit. re life insurance policy Eric should eliminate the $50 a month he pays on a $150,000 variable life insurance policy. Instead, Kim should get $250,000 in term insurance. * THE FOLLOW-THROUGH They have not made any changes to their insurance yet. Eric says he's not sure what he wants to purchase, but will make a decision soon. With the wedding, grad school, two jobs, remodeling remodeling /re·mod·el·ing/ (re-mod´el-ing) reorganization or renovation of an old structure. bone remodeling , and a baby on the way, they've been preoccupied. WINNERS Michael & Regina Haney THE ADVICE Make lifestyle changes Cut back on expenses. Reconsider spending strategies, such as Regina's choice to lease cars. Each time she leases a new car it costs $1,000 to make the swan. * THE FOLLOW-THROUGH The Haney's have furnished much of their house, so they've stopped shelling out big bucks for household items. Regina still has four years to go on her lease, so she can't make a change just yet. THE ADVICE Pay off debt Consolidate the $6,000 car loan. credit card debt, and student loan. * THE FOLLOW-THROUGH They took out a $20,000 home equity line of credit, which they tapped to pay off Michael's car loan. THE ADVICE Maximize income Put $150 in Michael's mutual fund, the T. Rowe Price T. Rowe Price (NASDAQ: TROW) is an independent global investment management firm and mutual fund manager based in Baltimore, Maryland. It was founded in 1937 by Thomas Rowe Price, Jr.. T. Capital Appreciation Fund, and $150 in the 529 college savings plan. Michael should bump up his 401(k) contribution to 15% of his salary (or the max). Both should get more aggressive in their investing options. * THE FOLLOW-THROUGH The couple has bested the planner's recommendations, increasing their contributions to the 529 plan to $200, instead of $150. Regina has increased her contributions from $80 to $220 a month. Furthermore, Michael receives 1% of his salary in company stock and is eligible for a pension completely paid for by the company. THE ADVICE Open up a second 529 plan The gains are tax-free and the contributions Provide a tax deduction Tax deduction An expense that a taxpayer is allowed to deduct from taxable income. tax deduction See deduction. to the plan owner. Revisit estate plan. * THE FOLLOW-THROUGH They opened the second 529 plan and are saving $80 a month for their younger son's education. THE ADVICE Purchase additional life insurance Buy a minimum of $250.000 and acquire disability insurance. * THE FOLLOW-THROUGH Michael and Regina have both beefed up their life insurance to $250.000, and are looking into disability insurance. |
|
||||||||||||||||||||
Printer friendly
Cite/link
Email
Feedback
Reader Opinion