Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, September 6, 1993 TAG: 9309030417
SECTION: MONEY PAGE: 6 EDITION: METRO
SOURCE: MAG POFF STAFF WRITER
DATELINE: LENGTH: Medium
In the same period, however, they have increased their net worth by 152 percent from $187,400 to $360,421 on their way to their goal of an early retirement.
They did it through professional financial planning.
Smith is not their real name, but they are actual residents of Southwest Virginia. The Roanoke Times & World-News used the fictional name to protect their privacy in 1987 when they took part in a newspaper series on financial planning.
Then they were a working couple in their late 30s. Without children, they were what sociologists called Dinks: Double Income, No Kids.
Even before that, the Smiths had worked hard at their finances. Besides their own studies, they had consulted with several planners who worked for them on a commission basis.
Through the newspaper feature, they met with F. Fulton Galer, a certified public accountant now with McLeod & Co. of Roanoke. Galer has no specific investment products, such as stocks, insurance or mutual funds, to sell the Smiths.
He suggested a more conservative approach to life and disability insurance protection, but taking more risk in their investments.
Galer pointed out then that half of their investable assets - the money outside of their pension plan - sat idly in a money market bank account. Of the rest, 23 percent was in equity mutual funds, 15 percent in tax-free municipals and 12 percent in government securities.
That distribution, he said in 1987, was too conservative for a couple in their 30s. Their municipals and government securities would not appreciate, and taxes then were not a problem.
He suggested putting 60 percent of their portfolio into equities, invested for growth by diversifying into several different types of mutual funds.
"With the amount of cash you have - and as young as you are - it pays to be a little risky," Galer said then.
The Smiths had another question at that time. They were considering purchasing a better house and renting out their existing home.
Gaylor ran the figures and determined that their expected earnings through rent would equal only 1 percent on their investment.
Instead, he urged them to borrow against the home's equity to remodel it to their standards.
Smith, now in his early 40s, said he and his wife took Gaylor's advice on virtually all counts.
They increased their life insurance and obtained disability coverage.
The Smiths remodeled their house, which increased its value from $60,000 to $75,000. He knows that because he had the place appraised after the work was done.
Although they financed that remodeling project through a home equity loan, they have over the last six years reduced their debt on the house from $43,000 to $12,860.
Their most immediate goal, Smith said, is to pay off the rest of the equity line by the end of next year. That would leave them debt-free.
They did all of this although their joint income has remained level. Smith has received salary increases, but his wife switched to a part-time job several years ago.
He has no more money market accounts, having moved his savings into stock funds that have grown more rapidly.
Now he and his wife have had another session of financial planning. This time they paid for advice from Andrew Hudick of Fee-Only Financial Planning Inc. of Roanoke.
Smith said they followed all of the new recommendations as well, except for updating their wills. They are trying to decide on final distribution of their estates to charities.
They routinely put $9,500 a year into his retirement account and $1,800 into hers besides other savings programs. He buys occasional U.S. Savings Bonds and invests money in their mutual funds.
The Smiths have no written budget. In the last six years they have visited Europe and been on a cruise.
Their secret, he said, is "careful living" and watching daily expenses.
They do this with the aid of Quicken, a computer software program that tracks and categorizes household expenses. It balances his checkbook, and it produced his latest financial statement too.
He knows exactly what he spends for donations, groceries, subscriptions and even caring for the dog.
Smith said he makes all purchases with checks or his credit card so that he can analyze where his money is going each month. He uses his USAir credit card as a convenience and to earn frequent flyer miles toward a free trip.
Hudick said the Smiths' greatest asset is their ability to save their money.
He said Smith, if he continues his saving habits, will easily be able to retire in his mid-50s. "I think he'll do it."
Smith said he's repeatedly worked with financial planners because he gets a new perspective. He picked and chose from their various recommendations.
"It's worth the money for us at this point in our lives," Smith said.
by CNB