BLACK ENTERPRISE - YEAR 2003 APRIL ISSUE
FEATURE
Family Finances
Adopting A Wealthy Attitude
Robert Jones has embraced the idea of acquiring wealth. Now he must take concrete steps.
By Carolyn M. Brown
Robert Jones, a 34-year-old tax auditor for the Cook County Department of Revenue in Chicago, is not unlike most young people who in their early work life spend money for immediate gratification—focusing more on wants than needs. He spent most of his 20s traveling extensively. "If someone called and said let's go somewhere, I would pick up and go," says the Chicago native. "I was carefree." While everyone deserves an occasional vacation, Jones never planned financially for those trips or any miscellaneous expenses, he simply financed his travels with a combination of cash and credit cards. He racked up a hefty debt in the process—more than $12,000.

Poor spending habits are not so much an issue today for Jones, who has since changed his behavior. "Once I turned 30, I started looking around at [my] finances," says Jones. He didn't like what he saw: too little savings and too much debt. So a year and a half ago, he started spending within his means, keeping a realistic budget, and tracking his level of debt. He embarked on an accelerated debt repayment plan by doubling up on payments. He also started paying cash for his purchases.

"I wasn't producing any savings or money for retirement. So, I decided to be a producer instead of a consumer," explains Jones. "I had about $7,000 worth of student loans. That is down to $900. I now have a budget that I follow religiously."

Jones has about $15,400 in debt, most of it a $13,000 car note on his 2001 Chrysler Jeep. He has roughly $20,000 in savings and investments, including his company pension, Series EE bonds, and individual stocks [Wal-Mart (NYSE: WMT) and United Parcel Service Inc. (NYSE: UPS)]. An immediate goal, Jones says, is to purchase a two-unit brownstone so he can live in one unit and rent the other—and then use the rental income to cover his living expenses. The homes he has his eyes on are priced between $182,000 and $260,000.

Jones has also found ways to supplement his income. In addition to the annual $36,000 salary he earns from his full-time job, he has a part-time gig with ESPN Zone earning $640 biweekly. Jones hopes to increase his salary by 15% to 20% in the future. He has taken time off from pursuing an M.B.A. at Loyola College to study for the exam to become a certified fraud examiner, which will enable him to create informational seminars around identity theft and credit repair. He plans to return to the M.B.A. program this summer, taking one of the five remaining courses he needs to graduate.

While he may have gotten off to a slow start, Jones is on the right track. He says his primary goals now are "to build my business and to build my assets."

THE ADVICE
In the last two years, Jones has gone from being a spender to being a saver. He is contributing $161 per paycheck to his pension, $75 to a 457 retirement plan, and $36 toward bonds. By adopting a new attitude about reducing his debt, Jones has created a positive, healthy, and profitable interaction with his money, says Kimberly A. Helm, a financial advisor with American Express Financial Advisors in Edina, Minnesota. BLACK ENTERPRISE had Jones consult with Helm to help him realize his short-term and long-term objectives. The following are her recommendations:

MAXIMIZE INCOME, INCREASE CASH RESERVES

Based on a cash flow analysis of his expenses and income, Jones has about $825 in discretionary income each month.


Currently, his expenses are low. He needs to maximize his current living situation by saving as much as he can in cash reserves. He has $1,500 in checking and $8,400 in savings. He needs to salt away at least $10,000 (six months worth of living expenses). He should also put the $2,000 cash winnings from BE into his reserve, since he will more than likely have to tap into this fund for a down payment on a home. Once he makes the transition from an apartment to the two-unit dwelling, he needs to continue to maintain and minimize expenses by buying items in bulk, shopping with coupons, eating home-cooked meals, and conserving on energy use to reduce utility bills.

OPEN ROTH IRA
Jones needs to add a Roth IRA to the equation, which allows him to contribute a maximum of $3,000 a year. He is saving systematically, which is good, says Helm. Now it's just a matter of making sure that he hits all sectors of the markets. He needs a more balanced portfolio of large-cap, small-cap, and value funds. In today's volatile market, large-cap growth funds are taking a hit. Therefore he needs to diversify his portfolio so that his investments complement each other—when some stocks lose value, others increase in value. He should also consider investing in mutual funds to minimize risk. For Jones, mutual funds are a better investment than individual stocks right now.

GET DISABILITY INCOME PROTECTION
Since one of his long-term goals is to retire at age 55, Jones needs to protect his current income by supplementing his employee insurance coverage with an individual disability income protection policy. Disability income protection makes sense for him because he still has 20 years of employment left. If during that time he were to get hurt and become disabled, his retirement target age would change. Whereas workers compensation pays for injuries sustained on the job or occupational illnesses, disability insurance covers injuries sustained anywhere—on or off the job, whether work related or not. Most people have disability insurance through their employers, but group plans generally only cover up to 60% of income. Single individuals should get an outside policy that covers up to 70%.

STAY THE COURSE IN PAYING OFF DEBTS
Jones doesn't need to make any adjustments to his liabilities. His student loan is deferred while he is in school, therefore he should concentrate on paying off the remaining credit card debt. Once that is done, he should use one card for necessary purchases and pay off the balance every month. He has a two-year car note that is $553 per month at 6.74%, so there's no need to refinance. After the car is paid for, he can add that $553 to his savings and investments.

Winner No. 37 Robert Jones
Financial Snapshot:

HOUSEHOLD INCOME
Gross Income $51,360
ASSETS
Savings $8,400
Pension 6,000
457 Retirement Plan 3,300
Stocks 2,000
Checking 1,500
EE Bonds 950
Total $22,150
LIABILITIES
Auto Loan $13,000
Student Loan 900
Credit Cards 1,500
Total $15,400
Net Worth $6,750