David Hinson, then-president of Wealth Management Network in New York City, came up with a plan to keep King afloat in tough times and beyond.
Raise the rent to maximize cash flow. Currently, the North Carolina rental has a tenant who has been paying below market rent—$1,050—for the past four years (the market rate is $1,200). The rental, which is overseen by a property manager, is in a community experiencing new business growth, increasing the demand for rentals. Hinson suggests that King begin requesting the going rate. “Sylvia believes that she can get market rent for the property, which will likely increase her net cash flow by more than 100%,” says Hinson. Although King has considered downsizing by selling her primary residence, it would be best for her to wait, not only because of the down housing market, but also because she is currently upside down on her mortgage.
Add more money to emergency fund. King’s cash cushion could stand to be beefed up because she is a single mother of a young child. With $30,000 in reserve and lifestyle costs of $4,000 a month ($3,200 toward mortgages, car expenses run nearly $250, and homeowners and life insurance make up another $400), Sylvia has a little more than six months of financial protection in the event of an unexpected illness or second layoff. She’s frugal with her spending, but she still needs to make changes if she is going to protect her financial foundation. King should add a minimum of $6,000 so that she’ll have at least eight months worth of expenses in reserve. Although financial advisers suggest three to six months, considering the economy, and especially if you have young children, you should stretch that to six to eight months.
Merge retirement accounts. “This may result in lower fees and allow her to manage her assets more efficiently,” says Hinson. He adds that King’s time horizon is nearly 30 years, so she should consider an investment portfolio that includes a healthy portion of domestic and international equities. Despite current market woes, there has never been a 29-year period in U.S. history where the stock market underperformed the bond and cash market, says Hinson. He recommends that she begin investing 70% equities and 30% bonds and cash in 2010. As her cash flow improves she should step up her retirement savings a notch, by adding $5,000 annually into her IRA, says Hinson.
Research financing for business. King should do her research now to see how she will finance her business. She should research startup costs as well as how much it will cost to operate her business each month.
The U.S. dollar and Barbados dollar should remain fairly stable at 1 USD = 2 BBD. For example, a $58,000 US savings will equal approximately 116,000 BBD—a substantial amount for a nation where the average annual income is estimated at 8,300 BBD.
If King follows the advice, retiring to Barbados to start her business is well within reach.
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This article originally appeared in the March 2009 issue of Black Enterprise magazine.