This year has been tough for almost everyone. Belts are tighter and wallets are opening less often. Finances are strained as paychecks have been cut and jobs eliminated. Black Enterprise reached out to all 11 of last year’s Financial Fitness contestwinners to see how they fared. Despite the rocky economy, many of last year’s winners have done fairly well. One winner managed to double his emergency savings and is preparing to purchase his first home. Another paid down high-interest credit card debt. The third has learned to say no to loans to family members.
MAY 2008 WINNER | PARAISIA WINSTON
“Law school was a big financial gamble,†says Paraisia Winston. She’s not sure yet whether she’s won or lost. With graduation now behind her, she’s left with the fallout–some $203,000 in student loans.
She was counting on a $145,000 salaried job at a law firm to be her get-out-of-debt-free card, but the offer was rescinded because of cutbacks. So she cobbled together part-time jobs and student loans to get by. Fortunately, last year she got a summer job paying $45,000 working as an associate in a law firm. That post saved her. Winston got serious about paying down her credit card debt and reduced it from $20,000 to $4,000. She called her creditors and told them the minimum payments of $600 a month she was paying on her three cards was too high. She got breathing room with a reduction to $222. By simply asking, she was also able to get her interest rate lowered from 24% to 9%. Winston, who is on a payment plan, closed two of the accounts; she now has only one active credit card, and that has a zero balance. She also paid off her car loan. “I’m now living a cash-only lifestyle,†says Winston, who graduated in May.
The 26-year-old made other big decisions. She left Chicago in the fall to take a job in Denver as a law clerk for a federal district judge. She now earns a base federal salary of $70,000.
Winston has second thoughts about the condo she purchased before starting law school. “I wasn’t quite ready for everything that comes with homeownership, such as taxes and repairs. It was too much of my budget.†Now that she lives in Denver, she rents out the condo, which is in Chicago. Unfortunately the tenant’s $1,000 rent covers only part of the mortgage;
Winston says she is starting to feel more optimistic. She passed the bar in October, and her new job will make her more marketable to higher-paying government or large law firm jobs. She’s not sure where she’ll eventually settle professionally, but she’s attracted to the flexibility that government offers.
The Advice: Take control of finances. Winston’s basic expenses exceed her take-home pay by at least $1,656 every month. They included a $450 car note and a $600 monthly credit card bill. Winston should seek a part-time job or look for other ways to earn extra cash.
The Action: Winston got a part-time job paying $14 an hour (working 15 hours a week), and later got a better part-time job paying $18 an hour (working 30 hours a week). She then landed a summer job paying $45,000, which she used to pay her tuition and pay down her credit cards.
The Advice: Chip away at debt. Some of the funds in Winston’s money market account could be used to pay off her American Express card. After graduation, she should revisit her financial plan and develop a budget to pay off credit card debt, her car loan, and then her school loans.
The Action: Winston created a budget and now sticks to it. She renegotiated her credit cards and reduced her balance from $20,000 to $4,000 by using much of her summer job earnings. In addition, she paid off her car loan and applied the $2,000 contest winnings toward debt. She is considering seeking a position in public interest work, which offers school loan repayment assistance.
The Advice: Maximize existing savings. Winston should place the $1,500 she lent to a friend and any other unexpected sums of money in her money market account. She should review the gift IRA her grandparents gave her to see if she can improve the returns. She should also work toward building an emergency fund that would cover six to nine months of expenses.
The Action: Winston used the loan repayment to pay down debt. She reviewed the gift IRA and improved her returns by about three-quarters of a percent. She didn’t increase her savings much because she relocated, but now that she has a tenant she’ll be able to save since she’s living rent free with relatives in Denver.
JUNE 2008 WINNER | THE KNOX FAMILY
Marcel and Judith Knox surprised
themselves. “I didn’t think we could save like this,†says Marcel. In a little more than a year, they boosted their savings from $28,000 to nearly $90,000 by squirreling away unexpected extras such as $3,000 of the $5,000 in tax refunds they received last year, putting the rest toward miscellaneous expenses. They put the $2,000 contest winnings in their joint money market account. Most of the growth in their savings, however, has come from their tough decision to bank almost all of Judith’s $65,000 salary.Marcel and Judith, ages 46 and 39, have lived on one income before. Judith was home with their children from July 2001 through September of 2004. The Knoxes continue to make do with their 10-year-old car, and they refuse to pay more than roughly $10 per month for basic cable. They weren’t eating out much before, but now they eat at home more than ever. “And when we do eat out, it’s nothing expensive,†says Marcel. His $82,000 salary goes toward rent, bills, and other household expenses.
Their savings strategy has paid off. The couple is currently looking to purchase their first home. “The savings has given us a better cushion for a down payment, moving expenses, and furniture,†says Marcel.
While austerity rules in the Knox household, they know it’s important to live life too. “You have to get away from the day-to-day grind,†says Marcel. For the first time in many years the family took a road trip this summer, taking in the National Great Blacks in Wax Museum in Baltimore; the Hampton University Museum, the oldest African American museum in the United States; and Hershey Park in Hershey, Pennsylvania.
The Advice: Prepare for retirement. The couple receives about $4,000 a year in tax refunds. They should adjust their withholdings so they can use the money for retirement savings. In addition, they should explore an S&P 500 index fund in Marcel’s retirement plan.
The Action: Marcel immediately adjusted his withholding. While Marcel and Judith did not purchase an S&P index fund, they did purchase a couple of energy stocks and Citibank shares when the price dropped to just over a dollar.
The Advice: Accelerate the timetable for a home purchase. The Knoxes should begin looking to purchase a home. As soon as they make a purchase, they should shift their focus to retirement savings.
The Action: The Knoxes did quicken their pace toward moving and hope to be in a new home this month.
The Advice: Get a credit card. Get a credit card and pay the balance in full each month to build a strong credit history. The couple will need a strong credit rating when the time comes to purchase their home.
The Action: The couple has a department store credit card but despite their excellent credit scores they haven’t yet applied for a major credit card. Marcel says he may get a traditional credit card after the Credit CARD Act, which provides several consumer protections, takes effect in February.
The Advice: Save for college costs. Prepare for the children’s college education by researching scholarships. After closing on the home, strive to save $800 monthly toward upcoming college costs.
The Action: The couple has begun aggressively looking f
OCTOBER 2008 WINNER | THE HAGEWOOD FAMILY
Jarvis and Jelani Hagewood have made several positive changes. The last time we spoke to the Clarksville, Tennessee, couple, they had hit a few bumps in the road. Among them was the fact that they were assisting others financially. Jarvis and Jelani had spent about $8,000 over three years helping family members. They also faced hefty car loan payments totaling $1,800 a month for three cars, one for Jarvis’ mother.
Since appearing in Black Enterprise last October, the couple has committed to paying down their car loans and mortgage. Jarvis and Jelani, ages 35 and 39, are both still in school and on schedule to graduate next year, and fortunately they’ve managed not to accumulate more debt. “We still have no credit card balances and pay the cards in full when we do use them,†says Jelani. After she graduates, Jelani plans to return to the military part time by serving in the National Guard so she can receive benefits such as life insurance, tuition assistance, and retirement.
The Hagewoods have also improved their spending habits by purchasing items in bulk and on sale. “We eat out a lot less and we’ve found ways to cut our energy bills around the house,†says Jelani.
One pressing issue that has been addressed was whether or not to do renovations on their home. The adviser recommended putting renovations on hold and waiting until after graduation in May and increasing salaries before taking on additional debt. He also recommended that they focus on rebuilding savings and paying down auto loans.
Jarvis and Jelani have delayed doing major renovations but needed to make plumbing repairs that affected one of their bathrooms. The project cost $900, which they took from their emergency savings (which has been replenished).
The Advice: Stop spending money on family members. The $500 per month they spend helping others should be put toward their retirement accounts and debt reduction. When giving to friends and family, it’s important to clarify whether it’s a loan or a gift. Without clarity, there can be significant strain on relationships.
The Action: Jarvis and Jelani say they’ve learned to say no over the past year. Family members who were previously unemployed found jobs; others secured better jobs. In addition, Jelani has increased her contributions to her Thrift Savings Plan (the retirement savings plan for federal employees) to 7% to get the maximum match; although Jarvis does not receive a match, he also increased his contributions to 7%. Furthermore, the couple’s investment portfolio has recovered some of its stock market losses.
The Advice: Rebuild the emergency fund: The risk of foreclosure on their new home could increase in the event of a job loss, extended illness or injury, or some other emergency. Jarvis and Jelani should concentrate on getting their emergency fund account up to at least $15,000 over the next 24 to 36 months.
The Action: The couple amassed an additional $14,000, using the $2,000 contest winnings and overtime earnings as well as money they got back from overpayment of their escrow and taxes when they closed on the house. But they put that money into their IRAs and left the original $5,000 in their emergency savings.
The Advice: Get a handle on the car loans. No more than 12% to 15% of net monthly income should go toward total transportation expenses.
The Action: They continue to pay on their three car loans; however, Jarvis’ mother is paying a large portion of the loan for the car she drives, while the Hagewoods pay the insurance and some maintenance. That car will be paid off next September, leaving Jarvis and Jelani with the remaining loans due in 2011 and 2012.