Financial Fitness Performance Review

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Advice: Boost discretionary income and use a percentage to pay down loan principals.

How he responded: Mitchell is now selling e-books online on eBay and making an extra $500 to $800 per month. He allocates at least half of it to his student loan principal and the rest to discretionary spending for entertainment.

Advice: Build a cash reserve. While his main goal is debt reduction, preparing for emergencies should never be forgotten.

How he responded: Mitchell put the $2,000 winnings in his savings account, doubling the amount he has on hand for emergencies.

Advice: Stay put with 401(k) contributions. Mitchell should stay at the 5% contribution level for his 401(k) account and not worry about any other investments right now.

How he responded: Mitchell reduced his contribution from 5% to 4% when he switched employers last year but his new employer, the State of Connecticut, matches 8% so he has increased his 401(k) account balance from $2,300 to $5,300 since winning the contest.

March 2010  EBONY SMITH

Photo by Kevin Allen

Ebony Smith, 31, got married since winning the Financial Fitness Contest, but she has not lost track of her personal financial goals. “I have a spreadsheet, and I’m pretty anal about it,” says Smith, who updates her net worth every month. A financial analyst at a major global consulting firm, Smith is still on her way to having a net worth of $1 million by the time she is 40 and $5 million by the time she is 55.

BE estimated that Smith would need to invest $33,000 per year to reach her goal. Although she fell short of that mark, and she used about $14,000 from her savings for her wedding in April, she still managed to increase her 401(k) from $3,800 to $29,000 since we last met with her. Smith now receives a 100% match from her employer for up to 6% of her salary, a perk she did not qualify for a year ago.

In 2010, Smith was experiencing a cash drain from her investment property in Wheaton, Maryland, that was renting for less than the cost of upkeep. But by refinancing it last year to a 4.75% interest rate, down from 5.75%, she cut her mortgage payment by $214. Considering Smith had put down a sizable down payment when she purchased the condo, she had equity available in the unit. “I took out $8,000 in equity and paid down my most expensive student loan that had 8.75% interest,” explains Smith of how she shrunk her student loan debt from $135,000 to $125,000 since winning the contest.

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