On The Road to Wealth

At the end of each year, we dedicate Wealth For Life to past winners of our Financial Fitness Contest to determine if they’ve been able to move forward with their financial goals. We hope that by highlighting the improvements of our 2009 winners, you will see that, despite depressed economic times, your financial goals are achievable as long as you take an active role in managing your money.

We’re not taking these tough times lightly. Unemployment, falling home values, and volatile share prices have fueled a lack of consumer confidence. But, while some workers have delayed retirement in response to the economic slowdown, others have discovered unique opportunities to pursue their creative interests, fine-tune their businesses, or re-evaluate how they manage their finances. The economic events of the last three years have shown us how critical financial education is for consumers and communities. As always, BE remains committed to helping you develop sound money management skills for you and for generations to come.

Laquita Blockson
As a business professor, Laquita Blockson, Ph.D. is no financial novice. But she admits there’s a big difference between knowing about money and applying that knowledge to your personal finances. Since participating in our contest last year, Blockson has created a regular regimen to help reduce her student loan and consumer debt. “I reduced all of my debt obligations to the minimum except for the highest interest rate credit card so that I could pay down the debt on that high interest debt quicker,” says Blockson.

She started contributing $1,000 a month on the high interest card versus the $750 she was previously paying. Her balance of $32,000 has been reduced to $20,000 in just 15 months. “At this rate, I should have this credit card balance eliminated by June 2012, if not sooner,” says Blockson.

In addition to reducing her overall debt, Blockson is also up for tenure in the School of Business and Economics at the College of Charleston in South Carolina. If Blockson gets tenure, she plans to further develop her consulting business, which would generate additional income. For now, her focus is on remaining marketable for tenure, which will provide her with job security.

“I had to make the choice and [accept] the tradeoff,” says Blockson. “It was important for me to spend my time trying to increase the number of journal publications that I have so that I can get tenure and promotion.”

Blockson continues to deduct her professional non-reimbursed expenses as she has since becoming a professor in 2000, including costs from consulting work and fulfilling speaking engagements through her consulting firm, Blockson Management Advising. However, she says that the challenge most professors experience in deducting professional expenses is that it is difficult to meet the required minimum deduction threshold (more than 2% of adjusted gross income (AGI)). So although the amount that she deducts is relatively small, it does reduce her tax obligation.

Blockson put half of her $2,000 winnings toward her debt, and used the other half to open up a Roth IRA.

BE’s 2009 Advice: Aggressively reduce debt. She should manage her debt by consistently paying more than the minimum, on time, each month.

How she responded: Blockson has been steadily chipping away at the more than $30,000 she owes on her credit cards with the high interest rates. By reducing the amount to the monthly minimums she was paying toward her school loans and low-interest/low balance credit cards, she has been able to apply the difference to the high interest credit card balance. In just 15 months she has paid down $12,000 of her debt.

BE’s 2009 Advice: Blockson can deduct research spending, and should hire a tax professional who is familiar with academic expenses.

How she responded: This is a practice that Blockson has always been aware of and continues to do during tax time. Although it’s difficult to meet the 2% AGI deduction threshold to see any true dollar savings, Blockson does reap the benefits of reducing her tax obligation.

BE’s 2009 Advice: Leverage skills to generate additional income. Although she has started her own consulting company, Blockson has been hesitant to promote her business for fear that it would jeopardize her chances to be awarded tenure.

How she responded: Blockson is currently under tenure and promotion review and will receive notification by mid-March 2011. If she’s granted tenure, she’ll have job security and will then work on taking on more clients. Until then, she’ll continue providing her consulting services to ongoing clients, but will spend the majority of her time investing in scholarly activities.  “It serves as my career currency which will help me to maintain my academic marketability,” says
Blockson.

Jason & Carol Wooden
Since we last spoke with the Woodens 14 months ago, they have made great strides in expanding their business and protecting their assets. In June 2010 they opened the JC Bartending Academy in Plano, Texas. The school offers hands-on bartender training, certification from the Texas Alcoholic Beverage Commission, and job placement assistance. To date, 85 students have graduated from the program.

“Despite the hard economic times, we have been able to train a skilled workforce and create job opportunities for all of our graduates,” says Carol, 31, who has a 15-year goal to leave her 9-to-5 and join her husband to run the bartending academy. Although the couple’s original plan was to be their own bosses in 15 years, Jason, 31, left his job as a high school guidance counselor to oversee the bartending business and school full-time as of June.

Shortly after winning the contest the couple had their first son, Jason, in July. Jason admits that having a child on the way was the “big eye opener” that made them realize it was time to get their finances in order. “We knew we had to do it but never took the time to initiate it. We needed to stop putting things off and get it done.”

The couple met with an attorney and developed a will and an estate plan to ensure that their wealth is distributed appropriately in the case of divorce or death. They also secured variable universal whole life insurance and secured general liability insurance for their business to protect their personal assets. As far as insurance policies they decided that two $500,000 policies would be enough to cover their expenses at the time of death. The Woodens also created a regular savings plan using an already established Roth IRA as their son’s backup college savings plan. So far they have saved $4,500.

The couple applied the $2,000 contest award to an interest bearing ING savings account.

BE’s 2009 Advice: Jason and Carol want to semi-retire in the next 15 years. However, it would be more realistic for them to delay retirement, while increasing their contributions to their employer’s plans to the maximum amount. The $2,000 contest winnings should be used to build up Jason’s retirement fund.

How they responded: The Woodens still want to be their own boss  by age 45. Instead of increasing their retirement contributions, they temporarily decreased them and used the funds to open their bartending school.

BE’s 2009 Advice: The couple should hire an attorney to draft trust and wills so that their wealth can be distributed appropriately in the case of divorce, or if one or both of them should die. They should name guardians for their child in their will. They should also retitle their rental properties into a trust in order to protect those assets.

How they responded: The couple put a will and estate plan in place to protect their business, son’s future, and their rental properties.

BE’s 2009 Advice: Purchase an umbrella liability insurance policy and additional business insurance to protect their assets.

How they responded: Carol purchased long-term disability insurance through her employer and Ameriprise Financial. They decided to obtain two life insurance policies worth $500,000 in coverage each versus the $4 million to $5 million that was suggested.

BE’s 2009 Advice: Open a 529 savings plan and start saving for their child’s education.

How they responded: After doing some research the Woodens felt that the 529 plan had a lot of restrictions that they didn’t want to get locked into. “You can only use the money toward college and if our son decided not to go to college we would have to pay additional fees to withdraw it,” explains Carol. For now, they decided to contribute to their Roth IRA.

Tyvi Small
When BE reviewed Tyvi Small’s financial picture more than a year ago, it was clear he was becoming a good saver, having recently started to put away 10% to 15% of his take-home pay. Still, he admitted, he needed to improve his discipline.

His top priority was identifying cuts in his personal spending. “I had to critically assess what was a need and what was a want,” admits Small who is diversity coordinator at the College of Business at the University of Tennessee. He cancelled his social club membership, which he says he rarely used. He also realized that he was spending $350 a month on meals.

To cut down on the cost of eating out, Small teamed up with his girlfriend, who he calls “the queen of the crock pot,” and developed a menu for the week. They have also made a habit of going grocery shopping together, reviewing store circulars, and using coupons for their purchases. Small says he also targeted grocery stores that offer lower prices and allow him to buy his food in bulk rather than just going to the closest store out of convenience. Small’s newly acquired taste for bargains and home-cooking have helped him realize a monthly savings of $200.

Small has also been able to increase his emergency cash reserves and says that he is months away from achieving his goal of eight-month’s worth of emergency funds.

In our review of Small’s retirement portfolio, we felt he was a bit too aggressive, holding 100% in stocks. To fully participate in the market, Small diversified and reallocated some of the eggs in all three of his retirement accounts.

“I didn’t even know prior to the contest that I needed to pay attention to all of this,” admits Small. After sitting down with the financial planner he was able to make note of how much he had in each account, the differences in accounts, and gained full understanding of his employer matching program.

“Talking to a professional laid it out for me in a way that I could understand and digest it,” says Small. “It gave me good direction in how to become more financially secure.”

BE’s 2009 Advice: Develop a budget and cut out the extras.

How he responded: Small calculated his monthly income and made a list of his monthly expenses. Putting pen to paper showed him that he had been budgeting for items that he didn’t really need. Small now prepares his own meals with the help of his girlfriend and does his grocery shopping in bulk. Although he has not cut out his lawn services, he has cancelled his social club membership ($71 a month)

BE’s 2009 Advice: Increase savings. Small has about three months worth of living expenses saved. Considering the economy and his responsibilities as a homeowner, he should have at least six to eight months saved. He should use the $2,000 contest winnings to build this account.

How he responded: After cutting out some of his expense, Small has been able to increase his saving to 20%, which he automatically deducts every pay period into his mutual fund, and currently has six months in emergency savings.

BE’s 2009 Advice: Diversify retirement portfolio. Small is investing 100% in stocks in both his retirement accounts. Small should diversify and include a percentage of fixed-income investments in his portfolio.

How he responded: Small continues to contribute the same amount to each account ($50 a month into his 401(k); $150 a month into his 403(b). He plans to increase his investment to $600 a month after he reaches his emergency savings goal of eight months. He now invests 70% in stocks and 30% in bonds to protect himself from market fluctuations.

BE’s 2009 Advice: Obtain long-term care insurance to provide assistance in the event of a catastrophic illness or an event where extended care is need.

How he responded: Small decided not to get long-term care insurance. After research and reviewing quotes, which were estimated at about $100 a month, Small decided instead to use the $100 to open a high-yield mutual fund. BE