Financial education

12:48 PM EDT on Monday, May 1, 2006

By PAMELA YIP / The Dallas Morning News

Nikki Givens' life has been all about focus.

Ricky Moon / Special Contributor NIKKI GIVENS Age: 31 Occupation: Accountant Marital status: Single, with two children, 8-year-old Adrianna, and 6-year-old Alexis Annual gross income: $61,000. That includes an annual bonus. Total assets: $162,243 Total liabilities: $166,970 Net worth: -$4,727 Goals: To get out of debt, so she can save for her children's college expenses and for her retirement at age 60 Biggest advantages: Has time on her side because she's young and is committed to improving her financial situation Biggest obstacles: Debt, not having a budget

Having come from a family of educators, it was a given that college was the next step after high school.

"I am the third generation who went to Langston University [in Oklahoma]," said Ms. Givens, 31.

The message from her family was: "To be successful in life, you have to continue your education. You should always want to learn something and find a better way."

She's passing those same values to her daughters, Adrianna, 8, and Alexis, 6.

"No one can take knowledge away from you, so the more knowledge you can obtain, the more powerful you are," Ms. Givens said she tells her kids.

But education costs money, and as a single parent, the financial onus rests on Ms. Givens.

Ms. Givens would like to focus on saving for her kids' education, as well as for her retirement at age 60, but first she must tackle an obstacle that's stopping her dead in her tracks — debt.

With $16,670 in consumer debt, Ms. Givens can't move forward until she pays that down or pays it off, said Mario Yngerto, a certified financial planner at Genesis Wealth Management. He worked with Ms. Givens on a Money Makeover sponsored by The Dallas Morning News and the Financial Planning Association.

"Why give somebody 18 to 20 percent of your money?" Mr. Yngerto asked. "That just makes absolutely no sense. If she didn't have that, she'd be fine."

The consumer debt excludes $13,300 on a car note and a mortgage with a $137,000 balance.

Of course, her car is a necessity and her mortgage is "good debt" because it's moving Ms. Givens toward full equity in her home, whose value should appreciate.

'Like a cancer'

But the consumer debt serves no purpose, Mr. Yngerto said.

THE PLANNER

Mario Yngerto is a certified financial planner at Genesis Wealth Management in Plano.

Mario Yngerto

Mr. Yngerto is on the board of directors of the Dallas-Fort Worth chapter of the Financial Planning Association, the trade group that represents planners.

He is the chapter's public relations director and is also a chartered financial consultant.

Mr. Yngerto studied finance and economics at New Hampshire College, which became Southern New Hampshire University in 2001.

HIS ADVICE

He advised Nikki Givens to:

• Focus immediately on paying off her consumer debt.

• Stop saving for now and use the money to pay off debt.

• Stop contributing to the two Coverdell Education Savings accounts she opened for her daughters and shift future contributions to her 401(k) and Roth IRA. But Ms. Givens should only start shifting the money after she's paid off her debts.

• Begin saving aggressively after paying off her debts.

• Consider buying term life insurance and increasing her coverage.

• Develop and stick to a budget.

"The challenge that we all have is we're all limited in how much income we make," Mr. Yngerto said. "We need to maximize the most from each dollar."

RESOURCES

• To find a financial planner, go to fpanet.org/public/index.cfm, the Web site of the Financial Planning Association. The toll-free telephone number is 1-800-322-4237.

"Debt is like a cancer, so we must treat it as such," he told Ms. Givens. "We not only need to find ways to reduce the total amount of current debt, but we must also stick with our monthly budget/cash flow plan and not create additional debt."

Ms. Givens said providing for her family as a single parent contributed to her debt. She makes $61,000 a year.

"You sit up here and you have a budget and say, 'I can do this,' " she said. But sometimes, unexpected events intrude.

"In one week, I had my car stolen, my apartment was totally flooded," Ms. Givens said.

She had to buy new furniture for her apartment. Her car, which was abandoned by the thieves, was stripped, and she had to make repairs before selling it.

"When you don't have ... [money], you end up having to borrow it," she said.

Ms. Givens must change that mindset, Mr. Yngerto said.

"We need to pay off this debt, otherwise, you'll never get ahead," he said.

Mr. Yngerto's advice for Ms. Givens?

• Roll over the money in her traditional IRA to her 401(k) and borrow from that to pay off her credit card.

"This would reduce your debt, free up your additional monthly cash flow, and you would be paying yourself back instead of paying a credit card, thereby replenishing your 401(k) to its former status," Mr. Yngerto told Ms. Givens.

• Stop saving for the time being, so she can use the money to pay off debt.

Ms. Givens has no other option in this area. Her net worth is a negative $4,727, meaning her liabilities exceed her assets by that amount.

"She's upside down," Mr. Yngerto said.

Ms. Givens can't tap her home for extra money. Her house is worth $152,000, but she still owes $137,000 on the mortgage.

"For the time being, I would focus and concentrate any available dollars to paying off all of your credit card debt," Mr. Yngerto told Ms. Givens. "Once this is done, then you should shift into savings mode."

A change in strategy

• Change the way she's saving for college education.

"I believe, based on your income today, your income will qualify you for student grants," Mr. Yngerto said.

"However, having two Coverdell Education Savings accounts will reduce the total amount of grant money that you will be able to qualify for," he said.

That's because when determining how much financial aid to award a family, financial aid officials consider the student's income and assets, and the parent's income and assets.

"I recommend that you discontinue contributing any dollars into those accounts and shift this into your 401(k) savings plan and also your Roth IRA in the future," Mr. Yngerto said.

"Moving this money into an IRA and 401(k) will increase your chances of qualifying for grants and be under the radar for the FAFSA," he added.

FAFSA stands for the Free Application for Federal Student Aid form. It's the starting point for applying to almost all student financial assistance programs and determines eligibility for federal financial aid.

• Begin saving aggressively after paying off her debts.

"We need to get time on our side to take advantage of compound interest," Mr. Yngerto said.

• Exchange her variable universal life insurance for term life insurance, which covers you for a specific term, typically 10 to 30 years.

"This should reduce the cost of insurance and free up additional dollars to pay off your credit cards," Mr. Yngerto said.

With term insurance, you determine how much insurance coverage you need and pay a premium guaranteeing your beneficiary will receive the face value of the policy if you die during the term.

Mr. Yngerto also recommended that Ms. Givens increase her life insurance coverage.

"Having only $220,000 total of insurance will not go a long way these days," he said. "Considering the fact that you are the primary caregiver for your kids — as well as your mother — if anything should happen to you, they would be without $60,000 a year of income.

When you consider college costs and the costs of raising two young children, as well as caring for an elderly person, that will go really fast."

Mr. Yngerto said Ms. Givens should follow the rule of thumb of getting life insurance equal to five to 10 times her annual income.

"This would put you at anywhere from $300,000 to $600,000," he said. "I would suggest at least another $200,000 of term life insurance — more reason to consider shifting dollars from your existing plan to another that provides more coverage at a minimal cost."

• Last, and most important, develop and stick to a budget.

"Nikki, I cannot stress [enough] the importance of sticking to your monthly budget plan," Mr. Yngerto said.

"Budgets don't constrain you; they liberate you from what I call creditor bondage.

"Eventually, once you are free from them, you will have increased cash flow to save for other goals, i.e., educational planning for your daughters, retirement planning, and many other things. You will then, and only then, fulfill your goals and dreams."

E-mail pyip@dallasnews.com