Drab to Fab

Finance Makeover: Seeing Green

To say 2003 was a busy year for Sara Walder and Drew Golin is putting things mildly. The owners of InterSolutions Inc.-a temporary-staffing company in Washington, DC-wed in February, refinanced their Capitol Hill home two months later to buy office space for their company, depleted virtually all their savings to buy yet another house in November (converting the original home into a rental property), and expect their first child to arrive about the time this magazine hits newsstands. To top it off, they've just launched a new joint venture and pushed their existing business in several new directions.

"I guess you could say we have a lot of things going on at once," says Walder, who launched the business in 1997 while studying for a graduate degree in ecological anthropology at The Catholic University of America in Washington, DC. Golin, who joined InterSolutions after the marriage, said the company is growing nicely, but that the couple now needs a "personal business plan" to address family finances.

After interviewing the couple, money manager Dolores Kong agrees with Golin's assessment. "Sara and Drew have a lot going for them in their personal financial situation," says Kong, a certified financial planner at Financial Perspectives Planning Services Inc. in Boston and host of a daily radio show on the city's WBIX-AM. "But things can be improved."

The business Walder founded started slowly but has grown quickly in recent years as she moved into increasingly new and different areas of property management. Likewise, Walder's home in Capitol Hill had also doubled in value over the previous three years, so the newlyweds decided to refinance the place and use the equity as a down payment on a building for the company in the nearby Eastern Market neighborhood. Then, in November, the couple opted to use most of their remaining personal savings to make the down payment on another home in the same area, renting out Walder's original home. The bottom line: In less than a year, one mortgage had become three.

Walder and Golin say they want to make sure they're set up just as well in terms of their personal finances as they are in their business finances. Kong has some specific ideas about how to accomplish that. "They need to build up their cash reserves, or 'bulk up,' as Drew described it," Kong says. "And they need to do some tax and estate planning, beef up their insurance coverage, better diversify and streamline their investment portfolio, and start thinking about saving for the new baby's education."

One of the biggest weaknesses Kong identifies in Walder and Golin's personal finances is that their business and all three of their real estate properties are in a tight geographic area. If the city's economy takes a turn for the worse, their business revenues could drop at the same time they have trouble renting out Walder's previous home. With little savings to fall back on, Kong says, Walder and Golin could find themselves in trouble. She told Walder and Golin they should aggressively rebuild the savings they depleted to buy the real estate. The normal rule of thumb is that people should have three to six months worth of living expenses set aside for safe keeping, but Kong says Walder and Golin would be better off with six to 12 months' worth. That should be one of their first budget priorities.

"We also feel we need an emergency plan," Golin adds. "It's just something we have to get done." With parenting in the picture for the first time-and the obligations that come with it-Walder and Golin also need to seriously rethink their estate planning and life insurance decisions. With a dependent to think about, both agreed that boosting life insurance was a priority. Even before talking with Kong, they had looked into adding to Golin's $250,000 term policy and buying life insurance for Walder for the first time. Kong suggests that each get at least $1 million worth of insurance, possibly more.

Since neither has a will at this point, let alone other estate-planning documents, that's another relatively painless area the couple can fix. For a few hundred dollars, they can each have a will drawn up, along with a health-care proxy and a durable power of attorney. The most important issue, all agreed, was that they address who the baby's guardian would be if Walder and Golin were somehow incapacitated or killed.

Kong also suggested that the couple split their educational savings dollars. To pay for private elementary and secondary schools, she said they should start putting $2,000 per year-the federal limit-into a Coverdell Education Savings Account. Although the contribution does not qualify for a deduction, it can grow tax-deferred and later be withdrawn tax-free to cover the cost of prep schools or college.

But Walder and Golin know they will need to save more than $2,000 annually to pay for their child's future college bills. With that in mind, Kong says they should look at Washington, DC's 529 College Savings Plan, which offers much higher contribution limits, tax-free growth and withdrawals, and an age-based investment portfolio that becomes more conservative as Junior gets closer to high school graduation.

As for their own investment portfolios, Kong says the couple needs to organize its holdings first and foremost. Walder has the bulk of her SIMPLE IRA in relatively expensive Class C shares of the Strategic Partners Moderated Growth mutual fund, and Golin's is entirely in an ultraconservative money market fund. Walder's nonretirement account, a gift from her mother, is largely concentrated in technology stocks.

Kong suggests that Walder figure out the tax basis of her fund shares inside the SIMPLE IRA and sell some, especially if she can lock in a taxable loss to offset other gains. She should build the retirement account around more than one holding, anyway, Kong says. And since an IRA is a long-term investment, Golin's account should be in something with more upside potential than the paltry returns offered by a money market fund.

Walder says the couple appreciates the help in clearing up their muddled investments. "We both have IRAs; we both have stocks," she says. "But what do we do about college funds? What about the 529 account? Where do we put it all?" InterSolutions topped $1 million in sales for the first time in 2003 and, Golin says, will come close to $2 million this year. That's up from the $13,000 Walder says she made from the company during her first year out of graduate school. Including the owners, the company now has seven full-time employees and two part-timers. For the sake of their budding company and their budding family, Golin says, it's time he and Walder followed Kong's advice.

"It really is about quality of life," he says. "The money has to be there to do the things we want to do. That's what this is about."

Update: Banking on It?
Sara Walder and Drew Golin, owners of temporary-staffing company InterSolutions Inc. in Washington, DC, realize that the road to a hellish financial situation is paved with the best of intentions. Still, two months after talking with Entrepreneur about getting a financial makeover, the couple had yet to put Kong's advice into practice.

"It's the problem a lot of people have," says Golin. "With all that's been going on, it's been really difficult to deal with it." After putting 20 percent down on their new house last December and hiring several new employees for the business, "we're pretty much extended," as Walder puts it.

Once their baby is born this spring and things settle down, the couple expects to be back in position to start rebuilding their savings and putting together an education fund. The best of intentions, in other words, are still there.


Scott Bernard Nelson is Entrepreneur's "Personal Finance" columnist.

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This article was originally published in the April 2004 print edition of Entrepreneur with the headline: Drab to Fab.

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