Great advice is best when it’s put into action. Black Enterprise has once again identified past Financial Fitness Contest winners to find out if they followed our advice and that of our team of advisers, and are on the path to financial empowerment. Last year, Mother Nature–Hurricane Irene, tornadoes, floods, major earthquakes in Turkey and Japan–had a dramatic impact on the economy, as did a volatile stock market, high unemployment, fears of a double-dip recession, Europe’s financial crisis, and, for the first time, the downgrade of U.S. debt by Standard & Poor’s from AAA to AA+. Yet life went on. Some dreams were delayed, others pursued, and decisions made. Here’s where three winners stand now.
KENRIC & CHRISTINA BROOKS
JULY 2011
The Brookses were focused on selling their primary home and buying their dream house in the next couple of years. They’ve decided to put off that decision for at least a few more years and pursue their other dream–entrepreneurship. “Neither of us has quit our jobs, but with the amount of debt we have paid down and the amount we have contributed to savings, we can pursue our entrepreneurial dreams, at least part time,†says Christina.
They have become real estate investors and have set up an L.L.C. “We have lawyers, contractors, and realtors on our team helping us get off the ground. This is something I have wanted to do for a long time,†she says.
They have purchased six houses. “We currently have $262,000 in equity in these properties.†They plan to rehab some of the properties and sell others. Most will be rentals to build equity and sell later, says Christina. They purchased one property for $12,000 cash and put $8,000 of work into it. They rent it out for $650 a month. They are currently rehabbing another property.
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As for their greatest lesson from participating in the contest: “We have a long way to go to achieve our goal of financial freedom, which for us would mean being debt free except for a mortgage, with the ability to contribute to our children’s adult future and maintain a strong retirement plan. We have changed our ideas about saving and paying down debt. There is no point in aggressively saving when you are deep in debt. The best method is to pay down debt and then focus that newly freed up money on savings.â€
Overall Grade: B
The Brookses have done a good job of reducing debt and focusing on savings, but they should not let market volatility stop them from investing in their IRA. Stocks statistically do well over the long run and with a time horizon of about 30 years; they shouldn’t be turned off by market swings
Advice for Kenric & Christina Brooks
Advice: Delay new home purchase.
How they responded: They realized rushing wasn’t prudent and dealing with debt was a smarter priority. They have decided to wait for that dream house.
Advice: Earmark future earnings from research grants–set aside 50% for debt reduction and 50% for savings.
How they responded: They split a $23,000 grant evenly between savings and debt reduction. They put most of the debt portion toward their car loans and credit card bills, and have since gotten their credit card balance down to about $3,500.
Advice: Pay off debts without tax benefits first. Meet with a tax professional to identify items on which they can and cannot write off interest.
How they responded: They did not meet with a tax professional. “My husband handles the taxes. He is confident in the write-offs we currently take. As my real estate investing business grows, I may seek the guidance of a tax professional. For now, it is at a manageable level,†says Christina.
Advice: Pay off car loans in a year.
How they responded: They have paid off $9,889 on the car loan and have designated more than $1,000 a month on the loan, which will be paid off by early next year. However, they changed course to pursue real estate investing. They used those extra dollars to invest in six properties.
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Advice: Contribute at least 6% to retirement plans.
How they responded: Kenric and Christina each contribute 6%. The increase over the past year and a half has helped boost their retirement savings to about $62,000.
Advice: Put 50% of grant income into Christina’s IRA.
How they responded: Market jitters got the best of them. Fearing the worst, Christina put it in a savings account.
Advice: Increase 529 plan savings; $464 per month for the 10-year-old; $342 per month for the 7-year-old; and $228 per month for the 23-month-old.
How they responded: They contribute $150 monthly for each child. The Brookses hope income from their real estate investments will help pay for their children’s schooling. Christina, who is a professor, also hopes to stay in her current job, where her children could receive discounted tuition rates when they go to college.
Advice: Get an insurance policy that will cover total debt in case one of them dies.
How they responded: Christina’s job advanced her position to include benefits and she signed up for life insurance for herself and every member of the family. Kenric continues to hold a life insurance policy through his employer. Kenric is insured at $750,000, Christina at $400,000, and each child is insured at $10,000.
Advice: Evenly split the contest winnings between savings and debt reduction.
How they responded: They put $1,000 toward savings and $1,000 toward debt reduction.
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JOSEPH McKINLEY
September 2011
Joseph McKinley, 37, hasn’t forgotten what it was like to deal with a $21,000 debt load. He’s become a debt guru of sorts since being featured in the magazine. “I have had people come up to me at
Before entering the contest, his focus was solely on getting rid of debt, leaving other financial issues a distant second on his priority list. But McKinley has learned that he can do more. He’s been able to boost his emergency savings to $1,500 from virtually zero; save for retirement; get life insurance; and map out a plan for his children’s education.
“You have to take responsibility for your financial actions. It’s easy to lay blame, but it’s up to you to get yourself out of debt,†says McKinley. Secondly, “You’re never too young to start estate planning.†Since applying to the contest, McKinley sought the advice of an insurance professional and obtained life insurance. Don’t be shy about asking for help. “Use your Employer Assistance Program if you have one at your job. It’s free and they are there to help.â€
Overall Grade B+
McKinley has made some great progress, but he needs to know his credit score. Your credit does not matter only when you’re applying for a loan or a credit card, but it can affect insurance rates and employment opportunities.
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Advice for Joseph McKinley
Advice: Contribute at least 5% to an employer-sponsored retirement plan.
How he responded: He increased his contributions from 1% to 5%, for a total of about $100 a pay period over the last three months, which his employer matches.
Advice: Pay down debt and increase savings.
How he responded:
Advice: Continue paying $120 monthly on his $1,394 medical bill and aim to pay it off in 12 months.
How he responded: He was able to pay it off completely in 11 months.
Advice: Redirect $150 when finished with Discover bill, plus the $120 he had been putting toward his medical bill to retirement and savings.
How he responded: Due to a change in his work hours and a lack of public transportation, he was forced to drive, eating up $120 or more in expenses for gas.
Advice: Continue $305 monthly payment toward his car loan.
How he responded: McKinley is making those payments and has 15 months left on the loan.
Advice: Create emergency fund.
How he responded: He has saved $1,500–enough to cover nearly two months. His secret? “Every little nickel and dime I had in excess went toward my savings.â€
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Advice: Switch cable and cellphone providers.
How he responded:
Advice: Get life insurance and an estate plan.
How he responded: McKinley purchased a term life insurance policy for $50,000 and is in the process of drafting a will.
Advice: Consider a 529 plan to save for his youngest son’s education, and investigate grants and scholarships for his older son.
How he responded: He contributes $50 a month to his youngest son’s 529 plan, as does the child’s mother.
Advice: Monitor credit annually.
How he responded: “I went to BBB.org and found Identity Guard. It’s worth the $15 a month. There were a couple of things on my report, which I contacted the credit bureau about and they took it off.†He’s not sure if his credit score has improved, though, because he never checks his score.
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CHRIS WHITE
October 2011
When we last spoke with Chris White, 43, she struggled to grow her savings and curb her spending. Despite maintaining a budget on Mint.com, if White had a bad day her response was to go shopping.
Among her other issues, White has been working to restore her FICO score after watching it plummet from 710 to the 500s. In 2009, she filed for Chapter 7 bankruptcy to pay off $90,000 in business loans, and personal and business credit card debt after being robbed. With on-time payments on her car note and paying back two small business loans from the Intersect Fund in New Brunswick, New Jersey, she has been able to boost her score to the high 600s. “I’ve been slowly inching up, but I want to be in the 700s by next year,†says White.
But White’s main focus has been on growing her cash reserve. Since making the decision to change her mindset and how she manages her money, she puts $350 a month on a prepaid card for shopping, dinner, and entertainment. “Once that money that I budgeted for the month is gone then it’s gone. Before, I was going overboard and not giving myself boundaries,†says White, who has reduced her monthly spending by about $300.
To avoid dipping into her savings, White has set up online banking, but does not carry around the debit card. Having the money out of sight and out of mind is a strategy that has helped White grow her savings from $7,000 to $24,000 in the last year. She’s been saving about $500 a month from her job as an office manager for a tax-consulting firm in addition to the $2,000 she brings in per month with her consulting business and $5,000 a year from bartending.
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“To some people that may not seem like a lot [of money], but to me it is. When I had a business I didn’t think I could do it, I didn’t think it was possible. It took me 43 years to get it, but I can finally say that I have a savings account with some real money.â€
OVERALL GRADE B-
White has finally been able to build a solid savings, but we’d like her to revisit a couple of things. For starters, she needs to figure out how she can boost her retirement savings. If she continues investing 6% she’ll only have about $263,000 come age 65, which will only last her for about three years. White should also find a financial planner to work with on a continual basis.
Advice for Chris White
Advice: Get help to change financial behavior.
How she responded: White says she does not see a financial planner regularly and that she utilizes a free online financial planning system at Mint.com to help with her short-, mid-, and long-term goals, as well as track her spending.
Advice: Delay home-buying and business goals.
How she responded: White has put the house/condo purchase and business on hold, and is focusing on continuing to build her savings.
Advice: Curb spending.
How she responded: White has removed her checking and debit cards from her wallet and instead puts $350 on a prepaid card for the month and uses that for entertainment, shopping, and dining out. She has also removed herself from e-mails that alert her to shopping sales.
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White has also cut her $171-per-month storage unit by moving her former business’s equipment to the $75-a-month garage space that she rents in her apartment unit. She funnels the difference into her savings account and, for the past five months, has been selling the office equipment. So far, she has sold $1,700 worth and put that money in savings.
White kept her gym membership because her job pays $50 of the $189-a-month fee and because of all the amenities the venue provides. She also says she visits her gym four to six times a week.
Advice: Increase 401(k) contributions from 5% to 10%.
How she responded: White increased her contributions to 6% for a total of $240 a month and has about $22,000 in her account. She felt there was not a lot of room in her take-home pay to increase her contributions to 10%.
Advice: Sell second car.
How she responded: White did not sell the car, since it is of no added expense to her. It is only worth $2,800, and she says she’ll use it as a backup if her Chevy Camaro breaks down. Until then, she lets a friend drive it who takes care of all of the expenses.