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Prior to her divorce, Dr. Lakisha L. Simmons hadn't given much thought to her net worth.
At age 36, the mother of two was debt-free but, for the first time in her life, responsible for every household expense and financial decision.
"It was a lot on my shoulders," says Simmons, who was recently honored by Empower (formerly Personal Capital) as a financial hero for building her net worth to $750,000 in just four years after her divorce.
"Divorce is basically like starting over. And so that's what I did," Simmons tells Select. "It was a big weight to bear. Everything lay on my shoulders. I knew that I needed to figure out money and learn to truly understand it."
Simmons is not alone in her quest to get a handle on her money as a single mother. In a recent Empower study, two-thirds (62%) of single moms reported that they aren't confident in their ability to plan for retirement, compared to 40% of the general public.
During her financial journey, Simmons wrote a book “The Unlikely AchieveHer" and founded BRAVE Consulting, which offers workshops and financial coaching specifically for women of color. Ahead, the Nashville-based author and educator shares with Select how she amassed a net worth of $750,000.
Simmons' first step in starting over after the divorce was to calculate her net worth. She had no debt after paying off her student loans and had $5,000 cash in savings. There were also a few retirement accounts from previous jobs totaling about $125,000, and she made $35,000 from the sale of her home.
Simmons added up the total value of these assets. Everyone's assets vary, but they can include the following types of accounts and properties:
- Cash within bank accounts, such as checking, savings, money market accounts, etc.
- Prepaid debit cards
- CDs and savings bonds
- Government bonds
- Health savings accounts
- Investment accounts including 529 college savings plans and individual taxable investment accounts
- Retirement accounts, including IRAs, 401(k)s and 403(b)s
- Life insurance policies with cash value
- Annuities with equity
- Vehicles including cars, RVs, motorcycles, boats and helicopters
- Real estate, including rental homes and primary/residential homes
Next, Simmons subtracted her liabilities (aka debts) from the total value of her assets. Typical liabilities may include:
Before you can make a budget based around your goals, you have to know what goals actually matter to you. Simmons knew she wanted to grow her net worth by investing money in her retirement accounts, but she lacked interest in other methods of generating wealth such as real estate.
In fact, Simmons didn't want to be a homeowner at all.
"When I looked at my budget, the biggest, glaring, number was my mortgage," Simmons says. "It was $2,410 a month. I thought, why am I still paying $2,400 a month now?" Her five-bedroom, 3,000-square-foot house seemed logical during her marriage, but it was much too big (and costly) for her and her two small children.
Simmons decided to cut her housing expenses in half and eliminate the stress of ongoing costs associated with upkeep. She sold her house, put the $35,000 earnings in the bank and moved into an affordable apartment with a much lower monthly price tag (and, thankfully, no lawn maintenance or home repair costs required).
With the house gone, Simmons refined her budget even more.
"I got more granular with it," she says. "I wanted to know every single dollar that was coming in and coming out and tracking it."
Simmons avoided taking on any new debt, including car loans. She's been driving the same car, a 2007 Lexus RX 350, for over 12 years — and she has no plans to upgrade any time soon.
"It is still doing great," she says. And with the savings she gleans from avoiding a bigger car payment every two or three years, Simmons travels with her kids around neighboring cities and, most importantly, invests.
Motivated by the popular FIRE Movement, Simmons learned to live on just $36,000 per year, or just 40% of her take-home pay. Her spending averages about $2,000 during lean months, but more lavish months around holidays, birthdays and vacations sometimes cost her up to $3,000.
With her day-to-day costs totaling in at just 40% of her income, Simmons is free to invest the estimated 60% that remains in the stock market every month.
Simmons prefers to invest with tax-deferred investment accounts. As a tenured professor, her retirement account is a 403(b), as opposed to the traditional 401(k) offered by most employers.
The IRS limit for 403(b) contributions is currently $19,500 a year. Simmons contributes the maximum amount every year.
She also contributes to a 457(b) account up to the maximum limit of $19,500.
"That's almost $40,000 just off the top," says Simmons. "I've been maxing those out for four years."
With the remaining discretionary income left in her budget, Simmons invests in index funds. She has a brokerage account through Vanguard, which she started in 2017.
"My personal strategy is the S&P 500 Index Fund because that allows me to have diversification. I don't have to pick individual stocks. I want women to know is that the stock market doesn't have to be scary. Just stay diversified. Just set it and forget it — that was the easiest for me."
Simmons takes advantage of a strategy called dollar-cost-averaging by contributing the same amount of money to her brokerage account every month. However, she also maximizes her contributions by watching the stock market and buying on days when the market is low.
As a single mother, Simmons is a living example to her young sons. She is even preparing them early for their own financial success by talking to them about college, investing and entrepreneurship.
"The kids are expected to either be an entrepreneur or go to college," says Simmons. To help them prepare for the cost of tuition, she opened UTMA accounts for each child. On birthdays and Christmas, or anytime a grandparent gives them money, the kids put half away for the future.
"We do the total stock market index fund for the kids," says Simmons. "But every once in a while, I'll let them buy a share of Apple or a share of Disney."
The family's favorite way to spend quality time together is to take budget-friendly trips to nearby U.S. cities.
"I value time and experiences with my children," says Simmons. "We recently took a road trip to Louisville and rented a hotel downtown. We love Embassy Suites because the room includes a hot breakfast and in the evening they have a reception with snacks and drinks. The kids love it."
And for budget-friendly activities, the family frequents children's museums where they have a reciprocity membership that gives free or reduced entry to participating museums.
"That saves a lot of money because we can go to different museums for free," Simmons says. "We had a blast"
More important than deciding on a retirement age is choosing a dollar amount that will allow you to live comfortably for the rest of your life.
Simmons, who has learned to live on $36,000 per year, can now easily calculate how big her net worth must be in order to safely retire. The general rule of thumb is that retirees should withdraw no more than the equivalent to 4% of their investments annually.
With $750,000 in the bank, a 4% annual withdrawal would give Simmons an annual budget of $30,000 if she were to retire today. However, she plans to keep growing her net worth to above $800,000 or higher before making any decisions about leaving her career.
"If I have $900,000, it's what I need," says Simmons. "I know that I can take 4% out of it and have enough."
While a $36,000-per-year budget may sound limiting to some, it's given Simmons a sense of freedom.
"Make sure what you're spending on are things that you truly enjoy and are sustainable for the long-term," she advises. "It all comes down to values."
Whether your goal is to retire early or simply have enough cash to live out your golden years in style, it's never too early to start tracking your net worth.
Simmons uses the free Empower app. Its free investing and budgeting features make tracking net worth easy. Users can view all their financial data on the app's dashboard, including all linked assets and liabilities.
Empower also provides users free access to its retirement planner tool where they can decide how much they need to retire, what age they want to quit working and where they stand in comparison to their end goal.
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