Young, single, and free of debt: Tiffany Hall is securing her retirement by saving, using smart tax management, and debt-free living - Family Finances

Black Enterprise, May, 2003 by Carolyn M. Brown

TIFFANY HALL BEADS A LOT OF ARTICLES ABOUT PEOPLE who earn less money than she does, yet seem to be better off financially. "The individuals in those articles had accumulated assets such as homes, rental property, and investments," explains the 31-year-old contract attorney from Lathrup, Michigan. Now Hall wants advice on how she can acquire assets, stretch her income, and manage what's left after all her bills are paid.

Hall, who earns $70,260 a year, says she's lucky to have relatively little debt, namely a $19,800 auto loan on her Lexus RX300 SUV (with three years left to pay). Unlike most people who spend 10 or more of their working years paying back student debt, Hall paid off $8,000 in college loans 18 months after entering the workforce. "I was able to get graduate assistance for law school, so I didn't have a lot of undergraduate or law school debt," says the 1996 graduate of Southern Illinois University School of Law who also has a master's degree in public administration.

An only child from a single parent household, Hall says she owes a lot to her mother who made financial sacrifices on a teacher's salary so Hall could go to college. "She even had to delay her retirement because she had accumulated so much debt on my behalf over the years," says Hall. Her mother retired from the Detroit Board of Education in 2001. Looking to give something back, Hall has been living at home for the last five years, paying $400 rent and helping out around the house.

Her immediate goals are to pay off her car note, buy a house, and continue saving for early retirement. In fact, the legal advisor for the U.S. Army TACOM (Tank-automotive and Armaments Command) has taken commendable steps toward building wealth. She has $1,000 each in her savings and checking accounts; $8,500 in a Scudder money market fund; $9,400 in an American Funds account; $3,350 in a SEP-IRA; and $10,400 in her 403(b), to which she contributes 5% of her salary (the maximum is 13% with a dollar-for-dollar matching contribution of up to 3%, and 50 cents to the dollar for the next 2%), Hall also has a little more than $1,000 in a payroll savings account at work (Federal Employee Retirement System), to which $20 is deposited every paycheck.

Hall seems to have what everyone desires these days--job security. She has earned two $10.000 raises in the last two years, noting that government employees are hired at a specific grade and are paid on scale. "Since I've hit my target grade every year, I will get only step increases and cost of living increases." she says. Whereas the average worker changes careers every two to three years, Hall says she loves her job and plans to stay for a while.

* THE ADVICE

Hall is a conservative investor and a frugal spender. Her only real luxury is an occasional vacation. When it comes to money management, Hall is averse to debt and market losses. But she should be more concerned about her tax situation. A single, black female with no children, living at home, and making good money, Hall's monthly expenditures are minimal. But like many people in her situation, she's not coming out ahead financially, says Gall Perry-Mason. first vice president of financial services for Fahnestock & Co. in Grosse Pointe, Michigan.

Since Hall doesn't own a home or have any other tax write-offs, her tax liability is extremely high. She is in the 30% tax bracket. So, a large percentage of her income goes toward paying taxes. Instead of working for assets by paying on a home mortgage, Perry-Mason says Hall is actually working for the government twice--first as an employee and second as a taxpayer. BLACK ENTERPRISE had Perry-Mason consult with Hall to help her devise a tax-savvy plan. The following are her recommendations:

* ESTABLISH A BUSINESS, AND SHELTER TAXABLE INCOME

Since she has expressed an interest in working outside of her day job, Hall should get a tax ID number and set herself up as a consultant (sole proprietor or single-member limited liability corporation).

This will allow her to deduct business-related expenses--supplies, travel, and entertainment for conferences--when she files her taxes. More importantly, she can take greater advantage of her SEPIRA, which she three years ago during a short stint `as an independent contractor. Hall can shelter some of her taxable income by contributing money to that account on a regular basis. Under the current tax law she can contribute up to 20% of the first $200,000 she earns.

* INCREASE STREAMS OF INCOME

"Everyone should strive to live on Fifth Avenue." says Perry-Mason. Not the New York City strip famous for its designer shops and high-income patrons, but rather having five avenues of income outside of one's regular 9-to-5 gig. Marketing herself as a legal consultant would mean additional income for Hall. Owning rental property, public speaking, freelance writing: law journals or trade publications, and testing consumer products are other possible income sources. Perry-mason adds that Hall could even become a mystery shopper. The skills Hall has acquired as a contract lawyer--such as being detail-oriented--would bode well for writing evaluation reports on particular stores, restaurants, or business establishments. She san use the additional income to prepay her car note, as well as contribute more money toward her savings. Perry-Mason advises Hall to work with a skilled accountant to make sure that she takes the proper business deductions, as well as to determine if she will have to make quarterly tax payments on her freelance income.