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the POWER of One.

BUILDING A SOUND FISCAL FOUNDATION WHILE YOU ARE LIVING SINGLE

WHEN CHARLES SHANNON DECIDED 11 years ago to bid farewell to the corporate arena at the age of 35, he departed with a sizable nest egg--roughly $250,000 in pension funds and employee stock options. As a result of the divestiture of Ma Bell in 1984, Shannon had received shares in several telecommunications companies, including Ameritech, AT&T, Southern Bell, and Southwestern Bell. The former facilities engineer had devoted 12 years to the phone company in his native Detroit and had been investing since he entered the workforce in his early 20s. Shannon says he went solo in 1990 because downsizing was coming into play, which to him meant reduced promotional opportunities. "I thought I could apply my skills elsewhere, as opposed to staying put and [hitting the glass] ceiling," he says. That same year, he launched Diverse Enterprises, a business-services distribution company in Detroit.

Fortunately for Shannon, he isn't like most people living the "single life." Many singles play the dating and waiting game. They wait to buy their dream home as they search for the perfect mate; they wait to start an investment plan hoping to earn the ideal salary; or they wait until a tragedy strikes, such as a disabling injury or job layoff, before they plan for the unexpected.

Shannon hired a financial advisor to help him develop a plan, which included rolling over his money into a self-directed IRA and coming up with the appropriate asset allocation mix comprised of real estate, stocks, bonds, and mutual funds. Shannon has since watched his $250,000 portfolio more than double over the past 10 years. While he is still in search of Miss Bight, that hasn't kept him from hashing out the affairs of his estate--drawing up a will, buying life insurance, and setting up a living trust.

You don't have to be married with 2.5 kids and a pet to craft a lifelong financial plan. Everyone needs to address financial issues such as debt management, tax reduction, retirement savings, and estate planning. Better to deal with whatever money problems and poor financial management habits you have while you're single instead of waiting until after you've said, "I do."

PAY YOURSELF FIRST

There is a basic money principle that applies to everyone regardless of his or her marital status or financial situation. That is, "Pay yourself first," which means set aside money from every paycheck for savings and investing, even if it's only $50. Singles may have just as many financial responsibilities as married couples (e.g., rent or mortgage, car note, household bills), but they have only one income to cover those expenses, says Linda A. Barlow, a certified financial planner in Santa Anna, California. Barlow contends that singles "have a steeper hill to climb," because, "When you are single, you have to think differently about your financial future, because you have only one salary, one pension, and one Social Security check to depend on."

Shannon says his parents always taught him to save for a rainy day, which is why he puts his discretionary income in a liquid account (e.g., a money market). It serves as an emergency fund--three to six months of living expenses--something every single person should have.

Single women--heads of household, especially--have a lot of reasons to be conscientious about planning for their financial independence. "They live longer than men; they work about 11 1/2 years fewer than men (time out for pregnancies and raising small children) so they don't have as many years put in for a pension; they earn less than men for the same work [67 cents out of every dollar for black women]; and they get less in Social Security benefits," Barlow explains.

She goes on to say that there are two things that build wealth: time and money. "The more you have of one the less you need of the other." For instance, "A person who is age 25 could build a very nice nest egg by saving only $25 a month. If they wait until they are age 45, they are going to have to save $240 a month to achieve that same nest egg at age 65. So they have to save almost nine times as much if they wait 20 years."

A recent survey by Ariel Mutual Funds and Charles Schwab revealed that African Americans tend to wait until they earn six figures before they invest no matter how old they are. This gives couples with two incomes a head start on singles in building a nest egg. But the key is not how much money you make; it is what you do with your money, says Barlow.

In fact, being solo can work to your advantage, if you plan properly. Singles can take advantage of the fact that they only have one mouth to feed and one body to cloth and shelter. Set realistic goals about how you would like to live now and in the future, and then develop a financial plan to help you achieve those goals--even if you are living from paycheck to paycheck. Theoretically, single people should find it easier to pay themselves first.

SAVE TO THE MAX FOR RETIREMENT

You have probably heard it before: Contribute as much as you can to your 401(k) or 403(b) plan. After those plans are fully funded, contribute to a Both IRA. The participation level is still low, although the only stipulation is income, says Jonathan Sard, a certified financial planner with Financial Alternatives in Atlanta. For a single person to contribute to a Both, he or she can't earn more than $110,000 (adjusted gross income). Starting in 2002, the maximum annual contribution allowed will increase from $2,000 to $3,000, and in 2008, it will increase to $5,000 (For more tax advice, see "What the New Tax Law Means to You" this issue).

"Both the Both IRA and 401(k) plan come into play for retirement planning and tax planning," adds Sard. "By contributing up to the current allowable limits, you automatically lower your taxable income. Employer plans grow tax-deferred while the Both IRA is tax-free income at age 59 1/2."

However, "Most of the time, people limit their contributions to whatever their employer is matching instead of the maximum amount allowed--$10,500 for a 401(k)," says Sard. "So, if a company is matching 50 cents on every dollar up to 5%, the employee will stop there."

Tracy Lynette Salmon concedes that she was only investing 3% of her salary when she started contributing to her employer's 401(k) plan eight years ago. "In my mind, I was contributing--that was enough--not realizing that I wasn't taking full advantage of the plan," says Salmon, 36, who currently is the operations manager in the tariffs department of a New Jersey-based import-export firm. Today, she contributes 12% of her salary to her 401(k) plan. "Over the last four years, I have increased the amount in small increments. This way, I didn't notice the extra money coming out of my paycheck," adds Salmon. She was making in the high 20s out of college; her salary has more than doubled since then.

CONTROL YOUR SPENDING AND DEBT

Some single people fail to take full advantage of payroll deduction or 401(k) plans at work because they believe their current living expenses prohibit them from taking much-needed money out of their paychecks, says Barlow. "This is where budgeting is crucial. You have to find ways to cut costs to come up with additional discretionary income."

For example, get a roommate or take on a second job at a your favorite retail store and take advantage of the employee discount. While controlling your spending, advises Barlow, manage your debt. Stop using credit cards, especially department store charge cards, which tend to carry the highest interest rate.

Salmon is typical of people who graduate from college burdened with student loans, credit card debt, and a car note. According to the Student Loan Marketing Association (Sallie Mae), the average college graduate is already $13,000 in debt by the time he or she finds that first job. Salmon learned the hard way that "good credit is important in everything you do in life--whether you are buying a home or applying for a job," Barlow says.

"When you are in college you are bombarded with credit card offers. I wasn't responsible about paying my bills on time," adds Salmon, noting that it has taken her six years to rebuild her credit standing (For more on credit management, see "Creditors in Your Closet," this issue).

DIVERSIFY YOUR RETIREMENT BASKET

Many people make the mistake of not saving and investing outside of their retirement plans, says Larry E. Folmar, principal and president of the Folmar Group Financial Inc., a Southfield, Michigan, financial planning firm. He says this is a mistake because you don't want all of your money tied up in one place until you're nearly age 60. If you don't have a lump sum of money to invest, begin making systematic deposits into mutual funds of varying asset classes--large-cap growth, large-cap value, small cap, international, and so on. If you have about $15,000 you can afford to lose, invest in individual stocks. The strength of any investment portfolio is diversification.

Moreover, you'll need a blended tax strategy. One of the ways to reduce your taxable income is to buy a home or property. The taxes and the interest on mortgage payments are deductible. This can be a challenge for singles, because they only have one salary to qualify for a mortgage, says Barlow. But often they can take advantage of first-time homebuyers programs.

Indeed, Salmon is taking advantage of the low down payments (typically 3%) and low interest rates associated with such programs. "As my salary was increasing, so were my taxes. Since I am single and don't have any kids, I decided it was time for me to get a tax write-off," she jests.

PREPARE FOR THE UNEXPECTED

Most people have disability insurance through their employers--most group plans cover 60% of your income, Folmar continues. If they can afford it, singles should get an outside policy that covers up to 70% (depending upon your state or individual insurance company), he says. Also, whatever life insurance plan you have at work will suffice, since you don't have any dependents.

As a single, you have the power to determine your financial future, no matter what your current income is. Use that power to make the single most important decision of your life--investing in yourself.

To Do List

invest a portion of money from every paycheck you get.

* Maintain an emergency fund with three to six months of living expenses in it.

* Contribute as much as you can to your 401(k) plan.

* Cut your credit card use.

* Diversify your investments.

* Get extra disability coverage.
COPYRIGHT 2001 Earl G. Graves Publishing Co., Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2001, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

Article Details
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Title Annotation:managing your finances
Author:BROWN, CAROLYN M.
Publication:Black Enterprise
Geographic Code:1USA
Date:Oct 1, 2001
Words:1824
Previous Article:B.E. Guide to FAMILY Finances.
Next Article:solo PARENTING.
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