Staying on Track

Like mother, like daughter. And that’s just fine by Dasha Lundy. Her mother, Carolyn, never paid full price for anything, and she doesn’t either. The money lessons Mrs. Lundy imparted to her daughter are paying off. Three years ago, at the age of 26, Dasha purchased a three-bedroom, two-bath house in Knoxville, Tennessee, for $100,000. Early in life, her mother taught her to save, beginning with coins in a piggy bank. By her teen years, Dasha was putting aside portions of money gained at Christmas and throughout the year into checking and savings accounts. Her mother taught her the importance of saving at least 10% of whatever she had.

Lundy, who is single, earns an annual $53,000 from her position as a physical therapist. She has about $25,000 in her 401(k), and roughly $15,000 in her checking and savings accounts. Other than her mortgage, her only debt is $30,000 in student loans. The 29-year-old has a bachelor’s degree in chemistry and physical therapy, a master’s in physical therapy, and is on track to earn a doctoral degree in physical therapy this August. Lundy went back to school because she would eventually like to teach physical therapy. The doctoral degree also increases her earning potential and offers options: She might, for instance, complement her current job with a part-time teaching position at a community college. Aside from the additional income, Lundy says she would enjoy sharing her knowledge.

Lundy isn’t afraid to go against the grain. In fact, she refused to let negative talk from some of her peers sway her when she announced plans to purchase her first home. “Some people have the mentality that you should wait until you get married to buy a house. Some even told me that if I had my own house, I would scare men off because they would think I’m ‘Miss Independent,’” recalls Lundy. “Well what if Prince Charming never comes? I have to take control of my life,” she says.

What sparked the idea of homeownership? A few years ago, Lundy attended a church conference that featured a 22-year-old homeowner. “I moved back home with my parents for a year to save, and I was able to come up with $10,000 for a down payment,” says Lundy, who rents out a portion of her house, which brings in $4,800 a year.

Lundy is looking for new ways to hone her financial plan, and seeks some reassurance that she is on the right track when it comes to building wealth.

Take advantage of tax breaks
. Lundy should take advantage of the fact that interest paid on student loans is tax deductible. In addition, she may be eligible for perks such as the Lifetime Learning Credit, which offers up to $2,000 per year. Lundy can search the Internal Revenue Service Website and go to the section labeled “Tax Benefits for Education” for details.

Leverage education. Lundy will have her Ph.D. by August, and wants to teach in the future. Instead of waiting, Lundy should get started after graduation by teaching at a local college so she can bring in additional income and gain teaching experience. Lundy  should also look into consulting in the healthcare field to add another income stream. This will help her chip away at student loan debt.

Manage risk.  “Dasha’s on such the right course with her finances, my biggest concern is that something could go wrong and take her off course, such as a major accident or illness. I want to be sure she has sufficient disability coverage,” says Delia Fernandez, a certified financial planner with Fernandez Financial Advisory in Los Alamitos, California.

Lundy’s company pays for long-term disability, which covers 60% of her pay to age 65, but that doesn’t kick in until she’s been disabled for 45 days. So, she can either take money out of savings to bridge the gap, or pay an additional $5 a month for a short-term disability policy, which her company also offers. “It’s well worth it,” says Fernandez. Another risk management move: Lundy should place the $2,000 contest winnings in her emergency savings account.

Maximize retirement plan. Lundy is moving in the right direction. She’s contributing 10% of her salary to her 401(k), and her employer match is 6%. “If her account grew at only 7% per year, she would be able to retire at age 60 and spend what she’s spending now, plus have some extra for travel,” says Fernandez. Lundy should also look into investing in an IRA to complement her 401(k) so that she can build up retirement savings.

Fernandez says her 401(k) is in the Fidelity Freedom 2025 fund, which automatically allocates a portion of her funds to U.S. and international stocks and bonds, depending on her target date for retirement or other goals. Right now it’s 70% in stocks and the remainder in bonds. “This is an easy way to properly allocate your funds across different asset classes without having to make the investment decisions yourself,” says Fernandez.

Although Lundy says she feels like she needs to be better educated about finances, Fernandez says her instincts are on target. “She bought a house at 26 and still has savings. She is leading by example and will likely continue to do so.”

This article originally appeared in the February 2010 issue of Black Enterprise magazine.