Money Matters

Plan Your Financial Fitness

In this first of a year-long series, NAILS, with the help of a certified financial planner, helps salon professionals over-haul their finances to meet their short-and long-term goals.

Are you budgeting your income wisely? Do you and your family have adequate health insurance? Are you able to save money? Will you be financially secure when retirement rolls around? Long-term financial success in any career comes not only from earning power, but also from good planning.  For nail technicians this means always setting aside enough money to pay for taxes, having the right kind of insurance and savings programs to cover unforeseeable disasters, and putting a small portion of every year’s earnings aside to finance their retirement. Also, because so few salons can afford to offer the benefits packages to their employees that large corporations can, nail technicians are usually responsible for providing their own benefits.

So the burden on nail technicians, who earn an average of $344.64 a week, is great. To show you how you can take charge of your financial future, NAILS asked Los Angeles-based financial planner Nancy Abrams to evaluate the financial situations of three typical nail care professionals and to provide a program to put each individual on the road to financial success.

NAILS’ asked a nail salon owner, an independent contractor, and a nail technician employee to work with NAILS financial planner and to commit to following Abrams’ program for a full year. Each individual provided Abrams with a list of short-and long-term goals, her income, all business and personal expenses, and her assets and liabilities. Abrams, a registered investment adviser and certified financial planner, reviewed each person’s financial situation with the goal of improving it and helping her reach her goals.

Over the course of the next year, we will follow each person’s progress as she learns to live within a budget and works to achieve her goals. In this installment, Abrams introduces each individual, provides a snapshot of her current financial situation, and outlines the necessary steps for reducing debts, increasing savings, and assuring a comfortable retirement.

While Abrams’ advice is personalized to fit each individual’s situation, all nail technicians and salon owners will benefit from the real-life examples and Abrams’ practical advice.

Only first names will be used in this series to protect the privacy of the individuals and their families.

Salon Owner Wants to Rebuild Credit

1992 was a difficult year for Kathy” a 36-year-old salon owner in Amarillo, Texas. Her salon was new, her husband was ill and unemployed, and she was still trying to recover from bankruptcy. 1993 promises to be a better year for Kathy and her family. Besides the income she earns from servicing clients, she rents space in her salon to four other technicians. After paying her business expenses, Kathy earns $933 per month. Their combined before-tax income is approximately $2,233.

Currently, nearly 26% of the family’s income goes toward car and furniture loans, and an additional 13% goes to pay medical bills. Although they have little money left over each month after they pay bills, the family looks forward to mid-1994, when the car and furniture loans will be paid off.

Kathy’s immediate goals are to obtain health insurance for her entire family and start a retirement savings program. She also wants to reestablish her credit and save to buy a home.

Kathy now ends up with approximately $585 per month left over after she pays her bills. Obtaining medical insurance to protect herself and her family should be her first priority. With two of her four children still living at home, an illness or hospitalization could be disastrous for the family.

Abrams recommends a health maintenance organization (HMO) for a family like Kathy’s. HMOs generally have the lowest premiums and require no deductible. Medical insurance for herself and her family will cost around $300 per month. However, because her husband has emphysema, he may be excluded from coverage for the first year. Kathy should check rates for health care coverage through industry organizations first, since they may offer lower rates than she could get by purchasing an individual policy.

Federal taxes take another large bite from the family’s monthly income. Because Kathy and her husband are self-employed, they are required to with hold their own federal taxes and make quarterly payments to the IRS (Texas has no state income tax). Kathy should consult a professional tax prepare to determine how much money she should save each month to pay her estimated quarterly taxes. Abrams recommends Kathy set aside $200 per month so that she has enough to pay her quarterly bill.

After obtaining medical insurance and saving for taxes, building an emergency fund that would pay her family’s expenses should she or her husband be unable to work ought to be Kathy’s next objective. All families should have the equivalent of three months income saved, but for the self-employed this is especially important. Should the salon hit a lull or Kathy’s husband become unemployed again, the family will need the savings to draw on.

Kathy’s monthly expenses total $1,648. If, after their car and furniture loans are paid off, they put the $598 that now pays those loans into a savings account, it will take only eight months to build an adequate nest egg.

Although her bankruptcy will remain on her credit history for 10 years, there are steps Kathy can take to reestablish herself as a responsible, pay-on-time debtor. First, she should open a savings account at a bank near her salon. When she first visits the bank, she should introduce herself to the bank manager, tell him she has an established business in the area, and even invite him to visit the salon. “I have learned from experienced with other self-employed clients that a long-term relationship with one bank often leads to special favors or considerations,” says Abrams. Kathy may need a business loan someday to expand her nail salon, and a friendly bank manager often will extend himself for a known customer.

To save for retirement and a down payment on a house, Kathy should establish a third savings plan (the first is for taxes; the second is an emergency fund).  Her savings goal for this account should be 10%-15% of her gross monthly income (about $225 now). When she turns 40 she needs to increase the savings to about 15%-20% of her gross income, and as she enters her 50s she should be putting aside 20%-25% of her gross income.

While it seems ambitious to ask Kathy to save 10%-15% of her gross monthly earnings at a time when money is already tight, she needs to get in the habit of saving money, even if it’s only $5-$10 per week. As her income increases and her debts decrease, Kathy can increase the amount she saves until she reaches the goal of 10%-15% a month.

Kathy should keep her nest egg and federal tax savings accounts in a passbook savings account or money market account (which will earn a higher rate of interest than a passbook savings account ), where the funds are easily accessible. Because passbook savings accounts don’t pay very much interest, she should invest the money ear-marked for her retirement and eventual home down payment, rather than just save it. She needs to consider that the higher return on an invested dollar usually makes it worth the risk over the long term.

There are many investment options, but Abrams recommends mutual funds for the person who doesn’t have sufficient knowledge of or the inclination to follow the stock market. A few growth mutual funds, such as 20th Investors, allow investors to invest small amounts. Don’t underestimate the growth potential of small amounts of money: 20th Century’s Ultra Funds has earned an average of 29% over three years, 23% over five years, and 15% over 10 years (which means that if Kathy had invested $50 a month 10 years ago, she would have $13,983 now). Mutual funds can be volatile over the short-term, so Kathy should stick to less risky ventures if she will need the money in less than three years.

Over the next three months, Abrams expects Kathy to open a savings account at a local bank for her emergency fund and federal taxes. Kathy should also get quotes for health insurance, research which policy best suits her family’s needs, and apply for coverage.

Financial Snapshot: Kathy, a Salon Owner


  • Plan for retirement
  • Secure personal insurance
  • Establish good Credit
  • Own her own home


Business Budget  Monthly  Annually
Salon Income    $2,800   $33,600
Rent     802      9,624
Utilities 42     504
Insurance     67    804
Advertising    42    504
Product, Supplies, other   515           6,180
Total Expenses     $ 1,468    $ 17,616
Family Income  $2,233  $26,796


Rent      350     4,200  
Household Bills  200   2,400
Auto Insurance 200     2,400 
1985 Ford Pickup 303 3,636
1985 Pontiac Grand Am 160 1,920
Household Furniture 135  1,620
Medical    Bill 100 1,200
Medication  200 2,400
TOTAL  $ 1,648 $ 19,776
Extra Income 585 7,020

Personal Assets and Liabilities

Household Furniture $ 2,000
1985 Ford Pickup 7,000
1985 Pontiac Grand Am 2,500
Construction Tools 1,000
Salon Equipment and Furniture 2,000


Household Furniture 1,620
1985 Ford Pickup 3,303
1985 Pontiac Gram Am 960
Medical Bill 1,000
Total  Assets 14,500
Total Liabilities 6,883
Net Worth $7,617

Revised Household Budget


Expenses    Monthly Annually
Rent $350   $4,200
Household Bills  200  2,400
Auto Insurance     200    2,400
1985 Ford Pickup  303 3,636
1985 Pontiac Grand Am 160  1,920
Household Furniture 135   1,620
Medical Insurance/Husband’s Medical Bills 500    6,000

 Revised Household Budget

Expenses Monthly Annually
Savings for Taxes 200 2,400
Children’s Needs 65 780
Miscellaneous  60 720
Savings 60 720
Total  $2,233 $26,796
Extra Income 0 0


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