Tyvi Small is pursuing a doctorate in higher education administration. But when it comes to personal finance, he admits he could use a little after-school tutoring. The 31-year-old Knoxville, Tennessee, resident has a newly purchased home, a fulfilling job, and no credit card debt but he says he lacks financial discipline. As a single man with no dependents, Small spends more than he should– and therefore saves too little. Now, however, he’s determined to get his finances in order. “I entered the Black Enterprise Financial Fitness Contest because I want to get my finances in the best shape possible. I want to get on the right track,†says Small, a diversity coordinator at the College of Business Administration, University of Tennessee.
Shortly after graduating from the University of South Florida with a bachelor’s degree in communication in 2001, Small began pursuing his master’s degree in education. At the same time, he began to work for the university full-time as a recruiter and resident director, which required him to live on campus. He worked there until completing his master’s degree in 2004. Two perks came with the job: free room and board and free tuition. This idyllic situation freed up cash, allowing Small to purchase a 2001 Mitsubishi Gallant and pay the loan in full. He grew accustomed to the extra spending money and spent freely.
But those rent-free days are over for Small. He now lives in Knoxville, where he is working and pursuing a Ph.D. at the University of Tennessee. As an employee of the university his tuition is fully covered. Last June, he bought a three-bedroom, two-and-a-half-bath single-family home for $154,500 with the assistance of an FHA loan. (His 800 credit score helped him qualify.) Small is now responsible for a $1,178 monthly mortgage payment. But he still spends money as if his life hasn’t changed.
Small hasn’t adjusted his expenses to reflect his new obligations and he realizes it’s time to become strict about managing his money. “Because I don’t have credit card debt or a lot of expenses, there are things I splurge on that I could probably do without. Sometimes I overindulge,†says Small. Among the purchases he could eliminate are meals out (which run about $350 a month), a social club membership ($71 a month), and lawn maintenance ($70 a month).
Some of that carefree spending is coming to an end. Small says that after a year of being a homeowner he’s ready to be more disciplined about his finances.
The Advice
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.