Sunday, December 31, 2006

Age:35

Background: A single professional who works as an associate editor for a news Web site. The Pennsylvania native lives in the District and has no children, no car loan and owns her own home.

Financial situation: She's never had a budget. She earns about $44,000 a year. She has no savings. She eats out a lot but isn't extravagant. Her largest expense is her mortgage. Her co-op fees, garage parking and mortgage run about $900 month. She has $10,754 in student loans. Because Schleicher had a low-paying teaching position early in her career and volunteered for the Peace Corps, she deferred her student loans. Her loan payments are now $260 a month. When things are tight financially, she relies on credit to make ends meet.

New Year's resolutions: Pay off the $4,500 on her only credit card; build up a savings cushion of at least three months of living expenses. She also wants to make a dent in her student loans.

The plan: I gave a number of tasks to Schleicher. Here's what I asked her to do:

· Begin to put together a budget.

· Call her student loan lender. She was unsure whether she had consolidated her six federal student loans. Consolidation can reduce your interest rate and allow you to stretch payments out beyond the typical 10 years. With a longer payment period, she can reduce her monthly payment. She will pay more in interest over time, but it frees up some cash every month.

· Find out if she is eligible to join a credit union. I often recommend opening a credit union account for two reasons. First, credit unions offer some of the best loan rates should you need to borrow money. Second, because these financial institutions often have few branches and a limited network of ATMs, it can be a little more challenging to get at your money. After she opens an account, I suggest that she automatically deposit from 5 to 10 percent of her net pay into an account.

Schleicher made all the calls to begin setting her financial life straight.

Tough love: Schleicher had already planned to go to France with her boyfriend for Christmas. Had I gotten to her sooner, I would have nixed the trip. Her boyfriend paid for her airline ticket and they are staying with his parents. Schleicher hadn't budgeted spending money. She was going to rely on credit if she fell short of cash.

"Leave the card at home," I said.

"But I need it as a safety net," she protested.

"Cash is your safety net. Do not take that card even if you have to eat cheese and bread the whole time you are there," I said.

Schleicher followed my advice and sat down two days before her trip to figure out how much cash she had on hand.

"I've counted up the bills I need to pay while I'm gone, and with the $160 in traveler's checks I've had since I got back from the Peace Corps in 2001, $100 in cash from my dad, I think I can afford to spend $500 while in France without the credit card. It's not a lot but hopefully will be manageable."

Schleicher will be abroad for 18 days.

She e-mailed from France. She kept her promise. She didn't take her credit card.

I'm sure her mother would be proud. This was a big step toward achieving financial freedom.