Phoenix Woman #062

November/December 2006

MONEY MAKEOVER. PW HELPS A NEW ENTREPRENEUR STOP HER CYCLE OF SPENDING.

Author: Sonya Goodwin Hemmings, Phoenix Woman

Charlotte Risch has taken a good, hard look at her current financial situation, and the picture isn't pretty. She's racked up $30,000 in credit card debt; she owes $46,700 in margin loans against a stock account; her car loan has a $13,000 balance; and her credit score is a paltry 580 (out of a possible 850).

"It's kind of embarrassing how badly I've gotten myself in debt," says 35-year-old Risch, who previously worked as a television promotion producer in both Michigan and Arizona and then served stints in various corporate public relations job before starting her own Phoenix-based PR company, The Media Push, a year ago. "I started my own business to be free from company constraints and to help out the small business owner, but, in turn, I am not helping myself," she says, describing her longtime habit of using credit to alternately splurge on big-ticket items and bail herself out when things are tight. "I really hoped that being on my own would give me more time to do what I wanted - to travel, relax, etc. - but I just didn't realize how much saving and budgeting had to be a part of that," she says. "By ignoring my finances, I've dug a deep hole that I'm wondering how to get out of. And the thing is, I have a feeling other women experience these issues, too."

PW magazine paired Risch with Michelle Evard, 30, of Phoenix-based Michelle Evard Advisory Services to perform a money makeover. The goal? To lay out a plan for Risch to pay off her debts, create a budget and establish a healthier financial perspective. "Nobody has ever accused me of beating around the bush. I've always been straight and direct," says Evard of her approach with clients. "I also like to spend a lot of time on the emotional side of money," she says, adding that part of her focus with Risch has been to help change behaviors and spending habits that are at the root of her financial problems.

First step: Reducing, and eventually eliminating, debt.   Risch and Evard have explored several options to accomplish this task, including selling off part of Risch's stock account to reduce the amount of the margin loan against it. Risch is reluctant to go that route. "The stocks were given to me by grandfather, whose intention was that I would learn how to invest in the stock market," she says, explaining her attachment to the account. But Evard still thinks it's a prudent thing to do. Risch began borrowing money 10 years ago against the stocks every time she found herself in financial trouble. Although the stocks are currently worth $84,900 - almost twice what she's borrowed against them - if their value dropped to $70,000 or below, she'd face a margin call that would require her to immediately pay back a portion of the loan or risk further loss in the account's value. Risch and Evard have agreed that Risch will refinance her condominium (worth $175,000, with a current loan balance of $93,925) and borrow against the equity. That should free up enough to pay off Risch's credit cards (which are completely maxed out) and provide $10,000 to $12,000 to set up a budget out of which Risch can pay both living and business expenses. Initially, Risch had planned to pay off her car loan, as well, but because the interest rate (8.6 percent) is lower than the one on her margin loan (9.5 percent), Evard has advised chipping away at the higher-rate debt first.

Second step: Creating a budget.   Risch admits this is a totally foreign concept to her. "I've never had a budget in my life," she says. "I would just charge when I didn't have cash." That habit, initiated by her love for shopping and eating out, became more prevalent when she started her business and, without any savings, turned to credit to convert one of the bedrooms in her condo into an office, and to purchase everything from office supplies and business cards to a computer and Web site. By May of this year, Risch says, The Media Push was "making great money" and counted among its clients a mortgage broker, a clinical hypnotherapist who specializes in helping golfers improve their game, and a company that markets kitchen tools to men who want to impress women with their cooking. To celebrate her success, Risch used more credit to outfit her living room with new furniture, a television and digital video recorder - and to purchase Arizona Cardinals season tickets, which she planned to use in part as incentives to attract more business. "Then summer came, and I wasn't prepared for the loss of four clients who wanted to slow down," she says. "As they say, I had counted my chickens before they hatched, and I had no safety net. I got further and further in debt and behind on payments."

Establishing a budget is absolutely essential, says Evard, who knows firsthand how financially straining it can be to start and run a business. "I have been broker than broke can be, and at times I have not known where my next dollar is coming from," she says, adding that she empathizes with Risch. "Everything has a cycle. Because of choices you make, or even things you can't help, money goes up and down." A budget helps smooth out those ups and downs, she explains. She has advised Risch to focus on getting some new clients and establishing regular ones, as well as on assigning tasks for her money - for example, to meet specific business objectives such as creating a new brochure or updating her Web site. "She really needs to work on this, or she's going to end up back where she is," Evard says of Risch. "She is at her limit of spending."

Third step: Changing behavior.   Both women say this element of the plan is the key to turning Risch's situation around and keeping her on the right path. Risch's psychological relationship with money is deeply ingrained: She grew up watching her parents run a business together, and she says she takes after her father, who would quickly spend cash if a client paid him instead of her bookkeeper mother. Risch knows, too, that shopping has for too long served as therapy for her. "When I'm depressed, I spend money," she says. "And often I'm depressed because I'm broke."

Evard says such scenarios are far too common, and she respects clients who come to her for help. She often starts off acknowledging that "the fact that they're even facing it is a huge step because it's such a scary topic." She adds that it can take a long time for someone to open up completely. "You have to go pretty slow with some people - a lot of people cry," Evard says. She says she realizes that it's tough to do everything when you're running a business and to be on top of your finances at the same time. And she faults a culture in which "we are bombarded with messages to 'buy this, buy this' - we think that's going to make us happier."

For Risch, those messages no longer ring true. "I don't want to get into this kind of situation again," she says. "I want to be on my way to a completely new chapter in my life." And she knows it's up to her to get there. "It's too easy for me to say, 'I'm a creative - I don't care about numbers,'" she says. "If I want my business to succeed, I need to get smarter about numbers. If I'm smarter about it, it will take less time away from what I could be spending on my clients and my work."

Evard is encouraged about the future and says the situation should look a lot different in six months to a year from now, as long as Risch can build her clientele to bring in more money and can stick to her budget. As Risch pays off her credit cards (without closing them), the payment history should help boost her credit score, Evard says. And when Risch's margin loan is down to about $10,000, she'll be in the home stretch. The final piece will be put into place when Risch completely pays off that loan. Says Evard, "Just time and effort are going to help her immensely.

Dollars & Sense

If Charlotte Risch's financial predicament sounds a little too familiar - and we know she's not alone - her adviser, Michelle Evard, might be able to help put you on the right track, too. In the interest of creating a relaxed atmosphere in which people can talk about money issues and ask questions, Evard has initiated a free, every-other-month gathering she's dubbed a "Financial SpeakEasy." The idea behind the open forum is to share a wealth of information on everything from current trends and spending plans to money tips and ideas for inspiration and motivation. "This topic is touchy for quite a few people, and if I can just get them talking about it, maybe they will think about their finances - about how they spend and why they spend," Evard says. The first hour of each meeting is devoted to introductions and a specific topic (guest speakers are planned for discussions on estate planning, tax preparation and other issues), and the last halfhour is focused on learning. Evard started the SpeakEasy concept in September. The next get-together is scheduled for Jan. 17, from 6:30pm to 8pm. at Bravo Bistro, 4327 N Scottsdale Road, Scottsdale. "The bottom line," Evard says, "is that I want people to start paying attention to one of the most important things in their lives. It will improve their outlook on life, their happiness and selfesteem - just like working out and eating right."

To attend the next Financial SpeakEasy, RSVP with Evard at 480.203.3880

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