Financial Fitness Performance Review

It’s that time of year to see how well some of our recent Financial Fitness Contest winners fared in meeting their financial goals with the advice given by Black Enterprise and its team of financial advisers. With $2,000 to get them started, our previous winners managed to navigate a volatile market with rampant foreclosures and record low interest rates, yet still improved their lifestyles. See how these three winners used the money and the advice.

October 2010  BRYAN MITCHELL
Bryan Mitchell, 26, knew he needed to cut his expenses to pay down his $120,000 student loan debt. He was earning $40,000, and most of his income was going to the cost of living solo in Connecticut. But it wasn’t until he won the contest that he actually began to make it happen.

“It was in the back of my mind to get a roommate, but I wasn’t gung ho until talking to the financial adviser and breaking down the numbers, and seeing how much I would save,” says Mitchell.

He has now cut his rent to $500 a month, down from the $600 he used to pay on a one-bedroom, by moving to a two-bedroom and getting a roommate. In addition to the $100 savings on rent, Mitchell also now shares the utility bills to save even more.

Since winning the contest he has also snagged a new job in the financial services office at Western Connecticut State University earning $45,000 per year, or about an extra $200 per paycheck. And Mitchell has begun an eBay business selling e-books, which yields around $500 to $800 per month.

“I put an additional $500 toward the principal of the loan,” says Mitchell,

who pays $1,200 per month on his student loan. “I’m still making payments, although they are technically deferred, to keep them from incurring additional interest,” he explains. So far he has paid back $3,000. His current employer is footing the bill for his master’s degree.

While the loans still take a large portion of his income, Mitchell says, “I feel the outlook is a lot more positive now. Before it was a little bleaker, the student loans ran all of my decisions.”

THE ADVICE
Trim living expenses. He has the potential to save $200 per month by getting a two-bedroom apartment at $800 a month and splitting the expenses with a roommate.

How he responded: Mitchell was able to find a roommate and is now splitting the rent on a $1,000-per-month apartment. He has found that by also splitting the utilities he is saving at least an additional $200 per month that also goes toward the student loan payment.

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Advice: Boost discretionary income and use a percentage to pay down loan principals.

How he responded: Mitchell is now selling e-books online on eBay and making an extra $500 to $800 per month. He allocates at least half of it to his student loan principal and the rest to discretionary spending for entertainment.

Advice: Build a cash reserve. While his main goal is debt reduction, preparing for emergencies should never be forgotten.

How he responded: Mitchell put the $2,000 winnings in his savings account, doubling the amount he has on hand for emergencies.

Advice: Stay put with 401(k) contributions. Mitchell should stay at the 5% contribution level for his 401(k) account and not worry about any other investments right now.

How he responded: Mitchell reduced his contribution from 5% to 4% when he switched employers last year but his new employer, the State of Connecticut, matches 8% so he has increased his 401(k) account balance from $2,300 to $5,300 since winning the contest.

March 2010  EBONY SMITH

Ebony Smith, 31, got married since winning the Financial Fitness Contest, but she has not lost track of her personal financial goals. “I have a spreadsheet, and I’m pretty anal about it,” says Smith, who updates her net worth every month. A financial analyst at a major global consulting firm, Smith is still on her way to having a net worth of $1 million by the time she is 40 and $5 million by the time she is 55.

BE estimated that Smith would need to invest $33,000 per year to reach her goal. Although she fell short of that mark, and she used about $14,000 from her savings for her wedding in April, she still managed to increase her 401(k) from $3,800 to $29,000 since we last met with her. Smith now receives a 100% match from her employer for up to 6% of her salary, a perk she did not qualify for a year ago.

In 2010, Smith was experiencing a cash drain from her investment property in Wheaton, Maryland, that was renting for less than the cost of upkeep. But by refinancing it last year to a 4.75% interest rate, down from 5.75%, she cut her mortgage payment by $214. Considering Smith had put down a sizable down payment when she purchased the condo, she had equity available in the unit. “I took out $8,000 in equity and paid down my most expensive student loan that had 8.75% interest,” explains Smith of how she shrunk her student loan debt from $135,000 to $125,000 since winning the contest.

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She and her new husband, Sheldon Sampson, 33, purchased their residence in Plymouth Meeting, Pennsylvania, in a short sale. The couple’s new home appraised for $355,000 and they have a $289,000 mortgage, leaving them with another $66,000 in equity to add to their net worth statement.

THE ADVICE
Sell the condo. She should sell her rental property and use the proceeds to pay off her student loan.

How she responded: Because of poor market conditions, Smith did not sell the condo but decided to refinance it to a lower interest rate and extract $8,000 in equity, which she applied to her highest-interest student loan.

Advice: Keep funding retirement accounts. She would need approximately $33,000 per year to accomplish her financial goals.

How she responded: Smith contributed 11%, or about $11,000, of her income to her 401(k) last year and $2,000 to her IRA. Combined with her company match, these contributions and the market fluctuations accounted for an increase of more than $25,000 last year.

Advice: Continue the healthy savings habit.

How she responded: Smith didn’t save much outside of her 401(k) last year because she contributed with her husband toward their wedding and a 15% down payment on their new home. Smith applied the $2,000 contest winnings to her emergency fund and says that she and her husband have created a new budget that would allow them to contribute approximately $1,300 a month to regular savings and $1,656 a month toward retirement savings.

June 2010  MALCOLM JOHNSON

When we last visited Malcolm

and Joanne Johnson, the couple and their two children, Luke and Kaya, were living on one income. And their vacant rental property contributed to a $4,000 budget shortfall every month. But despite applying $150,000 of their savings to home renovations, the Johnsons have rebounded in the black.

“Right after the story, we set out on a remodeling process and that’s where a lot of that savings drainage went,” says Malcolm, 34, of the couple’s Los Angeles dream home that they completely gutted in 2010. The couple’s savings decreased from $180,000 to $30,000 in just one year.

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“It was worth it. This is the home we will stay in for the long haul,” says Malcolm, a former NFL player who is now a vice president of commercial real estate at a multinational bank. Fortunately, the couple also found a tenant in less than a month of the story publishing, so they are breaking even on the mortgage of their rental property. “At this point if we sell our current rental property, we will lose what we paid for it. So we plan to stay at break even now that we have a tenant in it,” says Malcolm.

To fill any remaining shortfall, Joanne has also found steady contract work as an attorney, which brings in an additional $5,000 per month. With Joanne’s recent employment and the renovations all done, the couple is now trying to rebuild their emergency fund to at least $60,000.

Malcolm says winning the contest and getting the advice was good. “We consider ourselves to be financially savvy. But it’s always good to periodically revisit any plan that you set out.”