Gwendolyn V. Kirkland, a certified financial planner with Kirkland, Turnbo & Associates in Matteson, Illinois, helped Small develop a financial plan.
Develop a budget. Small does not have a written budget and it’s important for him to get his expenses on paper so that he can see exactly how much he is spending. “He needs to determine the amount going out and coming in. From there, he needs to figure out the areas that need to be reduced or eliminated,” says Kirkland. She recommends using budgeting software such as Quicken to assist with tracking expenses.
Cut out the extras. Small spends $350 a month on meals on and off campus because of his hectic work and school schedule. However, it would be in his best interest to cut back and make more meals at home. Small could also stand to get rid of the social club membership, which he says he’s only used twice in the last two years. He also says he could cut his own lawn. Making these changes would add more than $300 a month to his savings.
Increase savings. Small recently started saving 10% to 15% of his monthly take-home pay and has about three months worth of living expenses saved. Considering the economy and his responsibilities as a homeowner, he should have at least six to eight months saved. He’ll need to add another $8,000 to $13,000, which would give him about $21,000 in reserves. He should use the $2,000 contest winnings to build this account.
Work toward increasing retirement contributions. After Small builds up his cash reserve, he should start to increase his retirement savings. He places $50 a month into his 401(k), (for which he receives a 100% match), and $150 a month into his 403(b). Small recently started contributing to his 401(k) when he started working with his current employer two years ago. The 403(b) is a rollover from his previous employer. However, he should increase his retirement savings to about $600 a month.
Diversify retirement portfolio. Small is investing 100% in stocks in both his 403(b) and 401(k). “In order to participate fully in the markets, Mr. Small would want to diversify and include a percentage of fixed-income investments in his portfolio. The fixed-income investment percentage would give him another asset class besides the equity markets,” says Kirkland. Small should invest at least 30% in bonds in both his retirement and savings accounts. Kirkland makes this conservative recommendation because of the current economic climate.
Small has the following in his 403(b): 38% large cap, 14% mid cap, 16% small cap, 26% global and international equity, and 4% specialty. Kirkland recommends 10% to 15% global, 10% to 20% small cap, and 5% to 10% specialty. As far as large and mid, she recommends that he stay within the same range. Kirkland suggests that Small look into a bond index or a corporate bond fund for the remainder of his portfolio. In his 403(b) Small has: 70% in a Fidelity Contra Fund and 30% in a Fidelity International Discovery Fund. Kirkland recommends that 30% of Small’s portfolio be in bonds.
Obtain long-term care insurance. Small has $110,000 in term life insurance through his employer as well as long- and short-term disability. Kirkland suggests that Small also obtain long-term care insurance, which would provide assistance in the event of a catastrophic illness or an event where extended care is needed.
This story originally appeared in the September 2009 issue of Black Enterprise magazine.