Engineering a solid future: Alton Moss and Catherine Charles are learning that a blueprint for financial success starts with common goals and full disclosure - Family Finances

Black Enterprise, June, 2002 by Carolyn M. Brown

TWENTY-THREE-YEAR-OLD ALTON MOSS JR. IS ON THE right path to building financial wealth, Even though the 2000 grad from North Carolina A&T State University is new to the workforce, he has funded a cash reserve, started to invest in his company's 401(k) plan, established a Roth IRA, and purchased his first home. Over the last year he has also managed to reduce $9,000 in credit card debt by $3,500.

The Iowa City, Iowa, resident is an engineer looking to move up within the major consumer products company where he works, "I am currently taking graduate courses at the University of Iowa. I hope to change careers and make more money within the first year of getting my M.B.A.," says Moss. By getting an advanced degree and shifting gears to work in the marketing department, Moss anticipates boosting his salary from $63,000 to about $73,000.

An ambitious investor, Moss is striving to achieve financial independence so that he can enjoy an early retirement at age 47. Since he is a new investor, his assets are still blossoming--about $2,275 in his 401(k), $2,500 in a Both IRA, $1,500 in a money market fund. and a few shares of Wal-Mart (NYSE: WMT) worth $300. He also has about $8,000 saved in a checking account. Thinking toward the future. Moss is not only concerned about getting a better grip on his own financial affairs but also those of his live-in girlfriend, Catherine Charles, 27, who had accumulated roughly $15,000 in debt. "She has devised a plan for paying back those debts, but I want to make sure she understands the value of money [and controlled spending]," he explains.

Charles is a former teacher who is pursuing a master's degree in school counseling at the University of Iowa. She works at the university as a class supervisor and has been fortunate enough to quality for grants and other financial aid to pay for her degree. She also receives a stipend from which she pays about $600 a month toward eliminating her debt as she and Moss prepare for marriage. Charles, who admits she didn't feel the need to discuss her debt with Moss, says she has trimmed it to $6,000. "We are both supposed to graduate in the spring of next year, and at that point, my debt should be eliminated and his should be lower as well, which is something I think should happen before you get into a marriage."

In addition to the $5,500 left to pay on Moss' credit card, he only has $5,500 in equity on a $106,000 two-bedroom condo. He originally paid $1,102 monthly on his mortgage but recently refinanced the loan from an interest rate of 9.25% to 6.63%. He has $9,000 left on his car loan and $5,000 in student loans, which are deferred while he attends graduate school. Luckily, his employer will pay 100% of the cost of his M.B.A. at $1,100 per class,

But Moss understands that there may be weightier debts to be paid if he and Charles many. "I'm very aware that [unresolved] financial situations in a relationship can destroy a marriage," he says, (See archived story "The Wedding Bell ... Greens?" at blackenterprise.com.)

THE ADVICE

To help Moss stay on track and construct a financial plan that will help him meet his investment goals. BLACK ENTERPRISE had him consult with Mark A. Mitchell, a registered financial representative with AXA Advisors in San Juan Capistrano, California. The following are Mitchell's recommendations:

* COMMIT TO THE SAME GOALS.

At first glance it appears that Moss and Charles have philosophical differences regarding finances. They both must be willing to commit to the same quality of life and have a coordinated approach to managing their money. This means analyzing and categorizing their expenditures, determining which are necessary and which are discretionary. They must make smarter purchases, taking into account what they buy and how they pay for it. They must limit purchases with store credit cards that charge up to 24% interest. If Moss remains the major financial contributor in the relationship, he may end up paying off her debt as well as his own, which will hinder his ability to accumulate wealth. He has defined his financial goals and the time horizon by which he wants to achieve them (retirement at age 47), she should do the same.

* START CONTRIBUTING AGAIN TO HIS 401(K).

Moss started out contributions the maximum allowed--about $875 a month--to his 401(k). But after a couple of months, he stopped to focus on saving money for his condo. Now that he owns the condo, he needs to begin a systematic plan for investing and stick with it if he ever hopes to achieve his early retirement goals. Mitchell advises that he maximize his qualified retirement plan by contributing the limit allowed again, which will also lower his tax bill.

* INVEST IN GROWTH MUTUAL FUNDS.

It is important that Moss have the right asset mix and the right categories when it comes to his investments. A general recommendation, based on his age, would be to establish a well-managed portfolio of blue chip growth-oriented stocks outside of his 401(k). To that end, the $2,000 in contest winnings should be placed in Moss' Roth IRA. Mitchell says the objective is to provide capital appreciation, so it's not a bad thing if two or more of the five funds he currently holds in his Roth have similar fund objectives. But, because of the various market cycles, he must make sure his is best protected by having a diversified portfolio or varied asset mix including aggressive growth and fixed-income investments.