Going after their goals: with little consumer debt and a solid household income, the Turners are ready to accelerate their financial plans

TREVIETTE SAULS AND REGINALD TURNER are on the roads to financial freedom. They have stayed the course by living well below their means in their savings accounts. "We try to pay ourselves first," says Sauls. "We take the money we said we were going to set aside each month and put it into savings. The money that is left over is what we Use to pay our bills."

The young couple--he's 29 and she's 32--has a combined income of $69,200. Total investments in mutual funds, IRAs, 401(k) plans, and cash savings equal $66,304. While they have a $93,000 mortgage on their home in Raleigh, North Carolina, they hardly I have any consumer debt--a little more than $1,000 in credit card balances. Both their cars, a 1995 Toyota Corolla and a 1997 Saturn, are paid off. "I don't like to carry a lot of debt," explains Turner. "We use our credit card mainly to book vacations."

The couple has been married two years, and their biggest challenge is staying on track while anticipating major life changes. They plan to have their first child in the next year and would like to retire early. "We recognize that we are able to save and (to well because it is just him and me," Sauls says. "Once a baby becomes involved, there will be a lot of expenses--expected and unexpected. So it would be great to find out some important [money management] things we should be doing ahead of time." The couple would also like to purchase a new home within the next 18 months. They live in the home Turner purchased in 1999 for $98,500. "At some point, we'll need a bigger house to accommodate [a new addition] to the family," says Sauls.

A possible obstacle is Sauls' employment. She quit her corporate job last year to manage a laundromat she co-owns with her mother, and now earns $19,200 a year. Sauls invested $10,000 of her personal savings to help acquire Alberta's Laundry, which is named after her great-grandmother. The long-term goal is to buy out her mother and become sole owner of the business. The mother-daughter duo currently has a loan out with the previous owner that they anticipate paying off in three years.

Turner, a computer programmer with EDS Corp. for eight years, contributes about 6% of his salary to his 401(k) plan (his employer matches 25%), which is valued at $12,000. Sauls has $20,000 in a 401(k) plan with her former employer. Turner admits he hasn't done much in the way of retirement planning, but that's next on his agenda.

THE ADVICE

Danny Freeman, a financial adviser with Darda Wealth Management in Winston-Salem, North Carolina, says significant events are likely to reduce bow much Sauls and Turner will be able to save. Even though they will get a tax break for having a dependent, a child will negatively affect their cash flow for years to come. Also, both of their cars are more than seven years old. One or both may have to be replaced if maintenance and repair costs begin to exceed their values. Finally, the couple may need to draw on personal savings to help buy the laundromat outright.

FREEMAN'S RECOMMENDATIONS

Draw Up a Buy-Sell Agreement. Sauls and her mother need to draft a buy sell agreement. "The big issue there is with her mother being the partner. If she were to die, the portion of the business she owns would go into her estate," Freeman says, noting that Sauls has a brother. Freeman recommends funding part of the buy-sell agreement with a life insurance policy on the mother so the business owns the contract and pays the premiums. Should mom pass away, there would be enough funds available for the business to buy out her ownership interest.

Move Savings Into Higher-Interest-Bearing Accounts. Sauls and Turner have $23,500 in savings accounts that are paying 0.75% or less in interest. They should reduce these balances to $10,000 and divert the remaining funds to other investments with higher rates of return. Invest $5,000 in dividend-paying, large cap stocks. "This will give them the opportunity for capital appreciation, as well as pay cash dividends," Freeman says. Invest $8,500 in the Fidelity Floating Rate High Income Fund (FFRHX), which, at press time, was yielding about 3.25%. Freeman says, "The best thing about this fund is that as interest rates rise, the yield on the fund should rise, too." This is a good short term investment for the couple to use to finance a new home. Freeman suggests putting the $2,000 in contest winnings into the IRA accounts for tax benefits.

Liquidate Mutual Funds and Invest in New Ones. Sauls and Turner invest in Class B shares of two funds, which have higher expense ratios. "The higher the expense ratio, the harder it will be for the fund to generate competitive returns," says Freeman. He recommends replacing their Putnam Fund for Growth & Income B (PGIBX) with American Funds Washington Mutual (AWSHX), which has an expense ratio that is less than half that of tie Putnam fund. Plus, its dividend yield is more than twice as high. Freeman also recommends replacing the American Express Equity Select B (IDQBX) with the Calamos Growth A (CVGRX), which has a lower expense ratio and invests in large-cap and mid cap growth stocks.