Big ambitions require big results. Freddie Lee Sherman and his wife, Yolanda, are ambitious about building a business that will sustain them in the near future and throughout their retirement years. The Corona, California, couple’s business and Website, Illustrationsnetwork.com, is expected to launch this spring and will showcase the work of minority artists and photographers to big corporations. Sherman plans to act much like an artist representative, charging corporations a royalty fee to use the artist’s work, collecting a 10% — 15% referral fee, then paying the artist 25% — 50% of the royalty fee, and keeping the rest. Even though the Shermans have had offers from outside investors, Freddie Lee and Yolanda plan to run the business themselves.
The 33-year-old creative director with Niles, Illinois-based Halo Industries, a promotions agency, also does freelance design work, pulling in a combined $150,000 a year. Yolanda decided to quit her job as a substitute teacher to become a full-time homemaker when she had their second child, Alex, two years ago. The 32-year-old photographer does, however, take on freelance assignments shooting weddings or studio work to help out with the family finances. She says she can make about $2,000 to $3,000 a month.
The couple’s biggest expense is the $170,000 mortgage on a home purchased in 1999. They have $2,500 in credit card debt and a combined $5,000 left to pay on student loans from their days at California State University Fullerton in Fullerton, California. The high school sweethearts, married nine years, have a little more than $24,000 in investments, including a money market account worth $5,000, two Roth IRAs valued at $2,800 each, $5,000 from one-year’s eligibility in Freddie’s 401(k) plan with Halo (which has a 50% company match), and $9,000 in a traditional IRA, which lost $9,000 during last year’s market downturn.
They also want to create a $10,000 emergency fund. They recently opened up a custodial account for their 13-year-old daughter, Adriel. Adriel puts in $20 from allowance and cash gifts each month, a total of $350 thus far. In addition to saving for their children’s college education, the Shermans want to maximize their retirement funds. “We don’t know where to start,” says Yolanda. “I have been looking, but it is all so overwhelming.”
The Shermans are putting more sweat equity than financial equity into their business. Freddie earns enough to support the family — about $120,000 after taxes. But because he is an independent consultant, he should direct more of his self-employed income into tax-deferred vehicles, advises Percy E. Bolton, a certified financial planner and president of Percy E. Bolton Associates Inc., in Los Angeles. “He will reduce his tax liability and increase his net worth by contributing more to his 401(k) plan [15% vs. 3%],” says Bolton. He’ll also benefit more from his employer’s generous 50% match. BE had the Shermans consult with Bolton. His other recommendations are as follows.
REALLOCATE ASSET MIX IN 401(K)
Freddie’s asset mix is 50% in the Montag & Caldwell Growth Fund (MCGFX), 25% in the Vanguard 500 Index Fund