On the road to financial fitness: B.E. updates the progress of our 2001 financial fitness contest winners. (Family Finances).
BLACK ENTERPRISE has been working to grow those percentages. At the core of our Black Wealth Initiative, a financial education and empowerment program, are 10 principles for disciplined saving and investing known as the Declaration of Financial Empowerment (DOFE). BE developed the Financial Fitness Contest in January 2000 to help readers, like you, fully embrace these principles.
Since its inception, we have identified 31 individuals and families in need of financial advice. We provided them with an initial one-hour consultation with a financial planner or investment consultant, and $2,000 to apply toward debts or to contribute to an investment account. Here we share the financial journeys of five of our recent winners, to see just how far they have come and how much they have left to accomplish.
JANUARY WINNERS: TINA AND PATRICK ALEXANDER SAN ANTONIO, TEXAS
January 2001 Financial Fitness winners Tina and Patrick Alexander were burdened with debt, which included $13,000 left on an SBA-guaranteed loan they received for a Computer-Tots franchise which failed after three years. Following the advice of Certified Financial Planner and President of the AFP Group in Houston, Cheryl Creuzot, the couple paid off the loan--which was at the highest interest rate, 10.5%--by doubling their $570 monthly payment and applying the $2,000 contest winnings toward the debt.
The couple has embraced DOFE principle No. 5: To engage in sound budget, credit, and tax management practices. They sliced their credit card balances in half, to about $2,200, and reduced a $9,000 personal loan Patrick took out for courses toward becoming a certified Microsoft engineer; it's now around $4,500. The couple also bought a new car assuming a $470 monthly car note.
The Alexander children, 11-year-old De'Jaune and 19-year-old Dmetrius, have also gained financial knowledge. De'Jaune has earmarked a portion of her allowance and cash gifts for a savings account, while Dmetrius rebuffs the courtship of several credit card companies. "He has been bombarded with offers by credit card companies," says Tina. Dmetrius did take out a $5,000 student loan for college, however. He also received scholarships to attend St. Mary's University in San Antonio, where he is studying industrial engineering.
One slight setback is that Tina--a former reservations clerk for Southwest Airlines while also working as an assistant auditor for the Texas State Senate--now has one job instead of two, reducing her annual gross income from $42,085 to $31,000. She still has about $1,000 sitting in a 401(k) retirement plan from her job with the state senate, and $2,047 worth of employee stock from Southwest Airlines. She rolled over $5,900 from Southwest Airlines' profit-sharing plan into a traditional IRA gaining 3.6% interest. She also has another $1,292 in a 457 salary-deferral plan with the Texas State Senate. "I am looking into different ways to invest the money that is still at my old jobs," says Tina, who is now a fiscal officer for the city of San Antonio.
Minus the extra income, the Alexanders have changed their spending habits by not eating out as much and having their son live at home instead of on the college campus. They have also developed a budget to pay bills and secure more money to invest for retirement They still have the challenge of building up their cash reserves and starting an education fund for De'Jaune.
FEBRUARY WINNER: JOYAH PUGH NEW YORK, NEW YORK
Since winning the contest last winter, Joyah Pugh, a 25-year-old dancer and administrative assistant in municipal research with the U.S. Trust Co. of New York has kept in step with her finances. She used $1,000--half her winnings--to pay off one of her student loans. (She still has about $14,000 in student loan debt.) She then used the $50 per month she was putting toward that loan to supplement her savings, which now total more than $5,000, in accordance with the advice of Shuron A. Morton, a personal financial advisor with American Express Financial Advisors in New York
Pugh invested the other half of her winnings in an S&P 500 Index Fund. "I thought the index fund was a good first investment for someone who didn't know a lot about investing and was new to the market," says Morton. Pugh has since transferred her money into the Muhlenkamp Fund (MUHLX), a mid-cap value fund.
Pugh has been studying and following the market. Despite recent downturns she realizes that, because of her age, time is on her side. "I can watch my investments as they grow, and learn along with them," says Pugh, who altered the investment mix in her 401(k), which is valued at around $7,200, to include the Excelsior Blended Equity Fund (UMEQX); the Excelsior NY Intermediate Fund (UMNYX), a high-yield fund; and the Excelsior Value & Restructuring Fund (UMBIX), a growth fund. "I decided on a blended fund because I didn't know which small- or large-cap stocks I wanted to own; this way I get a different mesh of stocks in one bundle. As far as the high-yield fund, I liked the portfolio manager's style." She now contributes 10% of her salary, which increased from $30,000 to $36,000, to her 401(k).
Pugh follows DOFE principle No. 9: To maximize my earning power through a commitment to career development, technological literacy, and professional excellence. She intends to build a career in finance. With the hope of entering a top M.B.A. program come fall 2003 or 2004, Pugh has been researching and applying for various grants, scholarships, and fellowships.
In the meantime she faithfully sets aside money for savings and investments. Each month, $200 is automatically deducted from her checking account and added to her index fund. Sometimes as much as $325 gets deducted, depending on whether she gets paid for any dance gigs. Right now she is doing consulting mostly on a volunteer basis, which may not help boost her coffers but it does fulfill her soul.
AUGUST WINNER: DARYLL GRIFFIN WASHINGTON, D.C.
Events of Sept. 11 followed by an economic downturn and an unstable stock market made many investors jittery. August winner Daryll Griffin was no exception. Griffin and his twin sister, D'Angela, initially planned to invest the family's inheritance of $70,000 in the stock market, but have since become more risk averse, leaving the money in a money market account earning about 1.5% interest. Griffin's personal investment goals are now leaning more toward security and capital preservation rather than capital appreciation.
Griffin adheres to DOFE principle No. 2: To be a proactive and informed investor. Receiving a modest $1,000 salary raise, Griffin decided to increase his regular contributions to his 403(b) retirement plan at work--from 12% to 15% of his pretax annual salary of $50,500. He also reallocated his assets adding a bond fund and a money market fund to his existing mix of small-cap, large-cap, mid-cap, and international mutual funds. Another major change is Griffin reallocating 50% of the money applied to his 403(b) into fixed-income vehicles.
"By the end of this year I want to move about 25% of the money [in the 403(b)] into the bond fund," says the 34-year-old staff associate for the U.S. Conference of Mayors in Washington, D.C. "The remaining 25% will go into my mutual funds." Before June, Griffin's 403(b) account was valued at $47,000, but it has since dropped to $44,000.
Given that the savvy investor had done such a great job at structuring long-term and intermediate investments, Pierre Dunagan, president of the Dunagan Group, a financial advisory firm in Chicago, suggested that he focus on short-term instruments. Griffin, who describes the market as "freefall," has set aside $12,000 (or six month's worth of living expenses) by continuing to make regular, monthly contributions of $160 to his money market account. He also used his $2,000 tax refund, plus another $2,000 in repaid debt, to beef up his emergency funds.
Griffin put $1,750 of his contest winnings into his money market account, the remaining $250 was added to his taxable mutual funds, Oppenheimer Main Street & Growth Income A (MSIGX) and the T. Rowe Price European Stock (PRESX). He still owns shares of individual stocks. While Dell (Nasdaq: DELL) and General Motors (NYSE: GM) took at beating, positive returns from Marvel Enterprises (NYSE: MVL) helped keep Griffin's stock portfolio level at about $4,000. He plans to leave his mutual funds, stock, and Roth IRA as they are. He will continue to invest in his mutual funds through dollar cost averaging, putting around $50 a month in one and $35 in the other. He intends to contribute the maximum allowed ($3,000 annually) to his Roth IRA, which is valued at $7,000.
Griffin is quick to point out that he paid off his $2,000 credit card debt and refinanced his mortgage a second time, saving about $60 a month in payments. "This enabled me to continue to save the way I wanted to," he says, "and at the same time take advantage of some social activities, such as traveling."
OCTOBER 2001 WINNER: ARLENE MATTHEWS-TALLEY PHILADELPHIA, PENNSYLVANIA
Newlyweds Angelo and Arlene Matthews-Talley have spent the last year learning how to manage their money as one household while, whittling down combined debt. Arlene concedes that they did follow some of the advice given by Mark A. Mitchell, a registered advisor with AXA Financial Advisors in San Juan Capistrano, California. But other changes are still needed.
"One of [our] biggest conquests was getting in touch with a tax advocate to [help] clear up some of the problems we experienced with our 1998 tax disallowance," says Arlene, 40. Angelo, 41, owed the IRS $6,000 as a result of taking earned income tax credits for which he was later deemed ineligible. Mitchell directed Arlene to file a Request for Innocent Spouse Relief so that her tax refund would not be seized to pay off Angelo's debt.
"He now owes $0. Our tax debt has been cleared due to the 1998 tax allowance, our monthly payment agreement, and our filing jointly with the injured spouse claim. We would not have known how to go about this had it not been for [Mitchell's advice]," adds Arlene. The couple also received a tax refund, which was originally $2,700, but they only received $671 since part of the money was used to settle any and all back taxes.
An employment change had a significant affect on them. Angelo took on a part-time job with Five Star Cleaning, earning nearly $300 every two weeks, to help supplement the family's household income. In addition, he accepted a new position as a mail service courier with the University of Pennsylvania, which carried a $5,000 salary increase bringing his annual salary to $30,000. Arlene now works in the neonatology department at St. Christopher's Hospital for Children in Philadelphia.
The couple used half of their $2,000 winnings to help buy braces for their 15-year-old daughter, Ashli, and the other half to pay off Arlene's school loan. Now in her second year of nursing school, Arlene is receiving full tuition reimbursement from her employer. The couple also made arrangements to almost double the monthly payments on their $8,000 credit card balances in order to pay off that debt more quickly. They made the last payment on their $5,000 car note last month. In practice here is DOFE principle No. 5: To engage in sound budget, credit, and tax management practices.
Arlene, however, has not gotten around to rolling over her 403(b) account, which totals $1,682, into an IRA. Nor has she been able to read-just their disability insurance coverage, but she plans to do so the next enrollment period. Since the Talleys are just getting adjusted to their added income, there are still a few things that need to be addressed. "We have not monitored our cash flow [as of yet] but we are currently in the process of devising a working budget along with building emergency savings and a college fund," says Arlene.
DECEMBER 2001 WINNER: LAURA JOHNSON RICHMOND, CALIFORNIA
First on Laura Johnson's agenda after winning the contest last December was ridding herself of debt. She used her $2,000 contest winnings to help pay off $7,000 in credit card balances. The $10,000 car note is also gone. "We continued to double up payments on our credit card debt to get them down," says the retired 59-year-old school administrator in Richmond, California.
Laura and her husband, Art, also refinanced their $200,000 mortgage from 7.5% to 6.5%. The point difference allowed the couple to better shore up their savings. They now have $20,000 socked away compared to $8,000 a year ago. She still has about $6,000 in her checking account, plus the undeveloped land in Clear Lake, California worth $20,000.
Johnson's retirement household income has remained unchanged at $60,000 (or $5,000 a month from her pension), but she did gross an additional $20,000 from her consultancy business. She has yet to consult a tax professional about writing off some of her expenses, but that is on this year's agenda.
As with many investors, Johnson experienced a reduction in her retirement account; her 403(b) is down in value to $119,000 from more than $134,500. "I am trying to wait to see what happens," she says. "I really don't need that money to live on at this particular time. I am still looking to hold on for the long term and try to take advantage of the market upswing." As time passes, Johnson plans to reassess her asset allocation mix and consider moving some of the money into more fixed-income vehicles.
When it comes to protecting their assets, Laura and Art have been less diligent. Because they both have children from previous marriages, it is critical that the couple adopt DOFE principle No. 10: To ensure that my wealth is passed on to future generations.
Mark A. Mitchell, who has also worked with previous contest winners, including the Talleys, emphasized the importance of creating an estate plan, including wills and trusts, to keep their assets out of probate. He also recommended that they get long-term illness insurance in the event either of them becomes severely ill or impaired. Laura says she is starting to take steps in that direction.
All of our contest winners have fully grasped the concept that accumulating wealth has little to do with the size of one's paycheck. It has everything to do with how well you use your hard-earned dollars. The idea is to pay yourself first. Make saving and investing part of your daily life.
For more information on DOFE or to sign up for the 2003 Financial Fitness Contest, go to www.blackenterprise.com. You can also call 877-WEALTHY to get a complete list of all 10 DOFE principles, your free Wealth Building Kit, and details on our contest.
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|Author:||Brown, Carolyn M.|
|Date:||Oct 1, 2002|
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