Chris Butler’s vision for his life is clear: to become a homeowner and landlord. Now, the 27-year-old is taking steps to turn this dream into a reality. He recently put in a bid for a duplex, which will provide him with a home and rental income. The Columbus, Ohio, property is selling for $207,000; Butler offered $189,000. “I was going to settle for the asking price, but I want to fight for a good deal,” he says.
The duplex, built in 1980, is in good condition. Butler expects a mortgage of about $1,200 a month. He’s anticipating getting a loan from the Federal Housing Administration and putting down 3% as a down payment. Whether this particular deal goes through, Butler is confident he will own property by the end of the year.
As a systems engineer/developer for Ohio State University, Butler earns $62,000 a year. He has taken some solid first steps by accumulating $23,000 in a pension, $2,200 in a 403(b), $3,000 in savings, and roughly $500 in individual stocks. As for debt, Butler has a balance of $2,500 on one credit card. His biggest burden is $42,000 in student loans.
Butler also has a problem with undisciplined spending. “I’m trying to figure out where my money is going,” he says. With a monthly take-home pay of about $3,400 and bills averaging $2,000, Butler has $1,400 in discretionary income. Just over $800 is deposited directly into a savings account; the rest, says Butler, vanishes. “I pretty much eat out for all my meals, so I bet that’s where a lot of my money is going,” he says.
The young techie wants to start a family and sees himself semiretired by the time he’s 40. What’s going to get him there? Let him tell it: “real estate and creating my own software company.”
BLACK ENTERPRISE recruited Larry Folmar of Folmar Financial Group in Southfield, Michigan, to take a look at Butler’s situation. “Chris has some right ideas about what is required to achieve financial success,” he says. “He just needs structure.”
The following are Folmar’s recommendations:
Eliminate credit card debt. While $2,500 isn’t a large sum of credit card debt, Butler is paying 15% in interest. Folmar suggests Butler set aside a portion of the $800 a month he puts into a high-yielding ING Direct savings account to pay down his balance. If he pays $300 per month, the debt will be eliminated in nine months. Getting rid of that debt is tantamount to receiving a 15% rate of return on an investment, says Folmar. In the future, Butler should exercise sound debt management, incliuding ending frivilous spending on eating out. “Never charge anything that cannot be paid off in 30 days and never borrow for pleasure,” advises Folmar.
Increase emergency fund. The $3,000 Butler has in savings is a good start, but Butler needs to save up an emergency fund equal to nine months of living expenses. “I’ve moved beyond recommending the traditional six months living expenses to compensate for the length of time it