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Linda Warren is not unlike most 30-somethings. Over the next two years, she dreams of owning her own home. The Cleveland native is also gearing up to meet astronomical college costs by the time her two-year-old daughter, Ebony, turns 18.
While Warren is not saddled with heavy credit card debt or student loans, she has gotten off to a slow start in terms of saving and investing. A single working mother, Warren says her biggest financial hurdle is the $450 a month she shells out in day care expenses. “I will have that expense for another two years; after which, I will have that money freed up to invest,” she says.
Warren understands the value of investing through 401(k) retirement plans. It wasn’t until recently, however, that she worked for someone who offered such a company-sponsored savings plan. After two years on the job, the executive assistant to a plant manager at DuPont is eligible to participate in a 401(k) plan, with her company matching half of her contributions.
Warren, who is the youngest of five children, admits that while she was growing up her parents never talked about buying stock or the importance of good credit. Over the years, she has read up on the stock market and how to maintain good credit. She hopes to work for her current employer another 10 years or more, giving her plenty of time to maximize her retirement savings.
Linda Warren has the opportunity to dramatically improve her financial standing. For one, she’s not overburdened with debt. And at age 33, she has plenty of time to build a sizable nest egg and put herself in a position to pay part of her daughter’s college tuition. To help Warren reach her goals and craft a realistic financial plan, black enterprise had her meet with Cleveland-based Stephen Washington, a financial advisor with Allison Street Advisors.
Participate in her company’s 401(k) savings plan. Warren should start immediately contributing to her 401(k) plan. Realistically, she should try to contribute up to $200 a month out of her salary, since one of her main objectives is to save for a down payment on her first house. Once she has purchased a home, she should consider contributing the maximum amount allowed ($10,500 annually) to her 401(k). In addition, she should invest her 401(k) dollars in a large-cap growth stock mutual fund and, as her assets begin to accumulate in the plan, she can diversify her holdings. Given her age and number of years to retirement, a large-cap growth stock mutual fund would be a good place to start.
Continue building up her child’s college fund. She should continue to invest $50 a month into the Stein Roe Young Investors Fund, a large-cap growth fund that invests in child-oriented companies. Once Warren purchases a home, Washington advises, she should try to contribute between $100 to $150 to the fund.
Place winnings into a money market account. Warren should take the $2,000 that she received as a winner of the be Financial Fitness Contest
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