Building your retirement nest egg

Black Enterprise, April, 1996 by Donna Hemans, Fairey. Juliette

DOLLARS AND SENSE

Khalif determined that the Smiths' involvement in Amway was a money drain, partly because they weren't deducting business expenses, and partly because their profit margin didn't justify the amount of money or energy they expended on the business. "They weren't deducting the wear and tear on their car, the cost of the starter kit and the purchase of refreshments for meetings," says Khalif, adding that these costs totaled about $6,000. Once he deducted these expenses, the Smiths were surprised to find that they'd only made a profit of about $40. The couple has since stopped selling Amway, with Sean conceding that he wasn't the salesman he thought he could be.

Neither of the Smiths were enrolled in 401 (k) plans. Khalif immediately remedied that situation. Sean's employer matches 6% of his monthly $100 contribution, and he also maintains a $1,000 individual retirement account with American Express, which gathers 16% interest a year. Pamela contributes $350 a month from her paycheck to a thrift savings plan offered by her company.

On Khalif's advice, the Smiths also traded their term life insurance policies for universal policies of $100,000 each, at a cost of $65 a month. Finally, Khalif set up a mutual fund for the couple and an education fund for their son, Kristopher, who was born in November 1994. The growth funds are called International and New Dimensions, respectively.

In addition to financial advice, Khalif offered the Smiths some practical advice. To fulfill their dreams--including Pamela's of becoming a doctor--they would have to make very real, immediate and ongoing sacrifices, he warned.

REALISM AND RESPONSIBILITY

Overall, the Smiths are a typical family with commonplace dreams. Until they hired Khalif, they saved in the short term for what they wanted and otherwise spent freely. Now, they plan for the future and invest in the stock market. "Their financial future depends on aggressive saving and investing, and continuing to streamline their expenses," Khalif says. Even with that, he adds, they are unlikely to be able to retire before age 62.

It's been a year since the Smiths received their budget from Khalif and, since each received a raise at work, they've fallen off the budget bandwagon. Circumstances change, Sean notes, and budgets must change along with them. Despite the necessary sacrifices, he and Pamela have started planning for her to begin medical school next year. She is taking two pre-med courses at Georgia State University paid for by her employer. They will take out loans to pay whatever portion of tuition she doesn't receive in grants. Still, Pamela admits, "It's going to be tight."

Luckily though, the Smiths now have a much clearer understanding of what that means than they did before seeking Khalif's counsel. They are prepared and willing to make whatever adjustments are needed, without sacrificing the long-term gains they've made so far. "Basically, he's made us aware that we're still young but that time is running out to save for retirement," says Sean. "He's got us on a pace now that's left us some cushion."