BLACK ENTERPRISE - YEAR 2002 JANUARY ISSUE
FEATURE
Consumer Empowerment
Tightening Your Belt
Ten Simple Money-Saving Tips For The New Year
By Leslie E. Royal
Tiffany M. Fletcher of Philadelphia likes the good life. Raising her two grandchildren Zaikeyah, 17, and Komayah, 4, she spends at least $400 per month eating out with them at Applebee's, Houlihan's, and other area restaurants. She loves to shop for them and herself, buying the latest designer fashions and the hottest new CDs and albums. Having an annual income of more than $70,000 as co-owner of D&T Auto Body Shop, she should be able to indulge herself. But at 55, Fletcher has a newly opened savings account, is in credit card debt, and although she is near retirement age, she has no retirement fund.

"I am embarrassed to say that I don't save money," Fletcher confesses. "I'm always helping out family members. I stay on the go and don't have time to cook. Therefore, I eat out a great deal. The girls [also] like to have the latest clothes. There's always impulse buying. I just don't know where my money goes. I would just like to try to figure out a way to save money, get out of credit card debt, and invest in our future. With the economy as it is, I could be out of work and down to zero tomorrow. When you are self-employed, nothing is guaranteed. I need some savings to fall back on."

According to the 2001 Retirement Confidence Survey, Fletcher is one of the 31% of African American workers who have nothing saved toward retirement, versus 19% of all American workers. We spoke with several experts who gave us 10 commonsense, money-saving tips for the new year. Like Fletcher, you, too, can make tightening your financial belt a New Year's resolution during this time of recession, layoffs, and downsizing, so that you'll have a sizable nest egg saved up to cushion any financial hardships.

Don Blandin, president of the American Savings Education Council (ASEC), states consumers should immediately: 1. write down their financial goals and commit to saving regularly; 2. pay down their debts; 3. set aside an emergency fund; and 4. do a retirement savings calculation. Consumers can figure out how much to save by using ASEC's Ballpark Estimate worksheet at www.asec.org or www.chooseto save.org, or get a copy of Black Enterprise's Wealth Building Kit by calling 877-WEALTHY or the Black Enterprise Wealth Building Journal (John Wiley, $19.95) for guidance.

Consumer expert Clark Howard, host of The Clark Howard Show (www.clarkhoward.com), a nationally syndicated radio program, says the majority of people have no idea where their money goes. He offers this advice for consumers who are starting to save: "For two weeks, I would like for you to walk around with a little spiral notebook that will fit in your pocket or purse. Write down every expense--large and small. After two weeks, sit down with your spending list and grade each expense A through F. [Items with an A grade are things that you "absolutely" need, and items with an F grade are things that you "absolutely don't" need.] Those that get a D or F are out of your life. If you need to free up more money, then maybe the Cs can go away, too. You will be amazed how much money re-enters your life."

Once you've finished your two-week assignment and are ready to initiate some strict self-discipline, you are ready to implement the following money-saving tips:

1. RENEGOTIATE THE INTEREST ON YOUR DEBT. If you have been paying your debt in a timely manner, you've got leverage. Call your creditors and ask for a lower interest rate (below 9%). You can also transfer your balances to a lower interest credit card. Just be aware that the interest rate may only be offered on a temporary basis, so you need to pay off the balance in full before the special offer ends.

2. TAKE ADVANTAGE OF NEW TAX LAWS. Connect with your accountant early so you can get the full benefit of the new tax laws. Also, you might ask for suggestions on how to currently restructure your finances so you can get a jump on this year's taxes.

3. BUY A HOME. If you can afford it, the current interest rate makes it a perfect time to buy a home. If not, you should find ways to save for a down payment. Consider getting a roommate or border to split the costs of your household bills so you can save money and build a little nest egg. In some cases, move in with a parent or other relative to save even more money. "Take about three-fourths of the rent payment that you would have saved and put it in a money market account. In 12 months, you may have the equivalent of a down payment for a home, if that's what you are saving for. If you make the sacrifice for 12 months, it will allow you to have more flexibility in your planning," says Erwin M. Matthews, CPA, owner of E. Matthews & Associates, a financial advisory branch of American Express.

4. CURTAIL YOUR PERSONAL EXPENSES. Ladies can choose a simple hairstyle that is not too costly or high maintenance. Males can choose to go bald. Fletcher pays $65 weekly to get Zaikeyah's hair done. She spends $65 every two months on her own braids, and $30 each month on a pedicure. If consumers save only $15 per month on a manicure, they will have $8,933 over 25 years, assuming a 5% annual rate of return. "If you [frequent salons] consider pampering yourself at home instead of going to the salon for manicures, pedicures, and hairstyling. Enlist the help of a friend, if needed, and save the cost of a salon visit for special occasions," says Blandin.

5. DECREASE YOUR TRIPS TO THE DRY CLEANERS. When possible, buy clothing that is machine washable. For "dry clean only" items, consider using Dryel (www .dryel.com), a product that enables you to freshen up your clothes and remove light stains by using your home dryer. Also, use a few squirts of Febreze (www.febreze.com) to rid your clothes of strong odors. Although neither product will allow you to completely cease your dry cleaning visits, they do enable you to get longer wear out of your clothes.

6. STOP EATING OUT--UNLESS YOU CAN EXPENSE IT. Bring your snacks and lunch from home each day--it's the cheaper, healthier choice. For big price breaks, shop at wholesale grocery outlets and share memberships with friends. "Cut back on buying cigarettes, snacks, and sodas at the office. Go to the store and buy them in bulk. You will save at least $2 per day, and with 260 working days in the year, that's a savings of $520. With that money, you can put away about $43 per month in mutual funds and start earning a 12% interest rate," says Matthews.

7. MINIMIZE YOUR PRESCRIPTION COSTS. If you're a member of an employer-sponsored health plan, you may only have a co-pay of $5 to $10 for your prescriptions. But if you are responsible for covering the costs of your own medications, there are several ways you can reduce these costs. Buying prescription drugs online can save you 20% to 30%. AARP offers discounts on mail orders for people over 50. "Using mail order and generic prescription medications will save you a fortune. Most doctors have no idea what medicines cost. It's up to you to quiz your doctor when he or she writes a prescription and ask if there is a generic substitute that will work. Also, you can order your medicines online from Canada and save a minimum of 25%," says Howard.

8. REDUCE YOUR ENTERTAINMENT EXPENSES. Fletcher and her granddaughter, Zaikeyah, are music lovers, so she buys about five classical and five R&B CDs per week at $14.99 each. Instead, you should try trading CDs with your friends or go online at www.kazaa.com and www.audiogalaxy.com. "As African Americans, we spend disproportionately more on CDs and records than other ethnic groups," says Bill Reynolds, principal in the Institutional Investor Group at The Vanguard Group, an international investment firm based in Malvern, PA. He suggests you check with places that sell used CDs. Borrow CDs, books, videos, magazines, and newspapers from public libraries or access them online. You can also eliminate cable television, particularly if you're not watching it. In addition, tap newspapers and magazines for a list of free cultural and civic-sponsored events, and spend your vacations visiting museums, national parks, government facilities, waterfronts, and other free venues. Cut your entertainment spending by at least $20 a week and you could multiply that $1,040 annual savings into a hefty $26,000 over the next 25 years.

9. DRIVE DOWN THE COSTS ASSOCIATED WITH YOUR CAR. First, you should always keep your car in top condition by getting it checked out by a reputable mechanic at any sign of trouble. A delayed response could cost you. Also, carpool, ride your bike, walk, or take the train or bus whenever possible. "Carpooling is a great idea," says Matthews. "This can save on gas and car maintenance. The average person spends almost $20 per week on gas. At $743 in annual savings, you can use that as your cash reserve or begin building your portfolio."

10. BE ON A CONSTANT HUNT FOR BARGAINS AND WAYS TO SAVE. Cancel magazine subscriptions to publications you don't read. Instead of renting headphones on your next flight, bring your own. Also, you might enjoy savings by selecting domestic items (such as cars or furniture) over imported ones because homegrown products are usually less expensive. In addition, look into substituting generic brands for designer labels whenever you can, and don't underestimate the value of buying items on sale or pinching pennies in areas that you once ignored. Now is the time to seek out the loads of retailers offering deals in response to the slowed economy and post-tragedy. The key is to take advantage of savings wherever you find them because, as Howard points out, "having cash, not flash, puts you in charge."

For more information on saving and pre-retirement planning, sign onto www.asec.org and call 800-998-7542 for brochures such as The Power To Choose, Ballpark Estimate, and Savings Fitness: A Guide to Your Money and Your Financial Future. Also, sign up for Clark Howard's free monthly newsletter at www.clark howard.com.


TOP SAVINGS MISTAKES
1. Not modifying your spending habits and committing to saving money
2. Not taking advantage of your company's match in a 401(k) plan, or participating in a defined contribution plan
3. Not appropriately/correctly allocating your assets to meet a specific goal or time horizon
4. Not setting a specific dollar target or financial goal
5. Not knowing how much you have, where you are spending, and how much you need to save for the future (failing to plan for retirement)
6. Cashing out your retirement plan (Instead, roll it over into an IRA or your new company's retirement plan)
7. Not allocating at least six to nine months of savings toward an emergency fund
SOURCE: AMERICAN SAVINGS EDUCATION COUNCIL (ASEC)


RETIREMENT PLANNING TIPS

* Start by figuring out how much you will need to save for retirement--fill out a retirement planning worksheet like ASEC's Ballpark Estimate at www.choosetosave.org
* Begin to modify your spending habits and commit to saving money
* Get involved with your company's 401(k) plan or defined contribution plan immediately
* Consider putting money into an IRA (Roth or regular)
* Contribute to a tax-sheltered savings plan
* Set up an automatic "savings" deduction from your paycheck, at least once a month, to go directly to a savings vehicle (e.g., 401[k])
* Consider buying a U.S. savings bond
* Saving for retirement is a long-term strategy, so you should consider equities as one possible savings vehicle to build up your nest egg

SOURCE: AMERICAN SAVINGS EDUCATION COUNCIL (ASEC)



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