Welcome back to Two Cents, a Q&A series that reveals how individuals of different ages, cities, and professions feel about their current financial situation.
This month we meet Alice, a close friend of mine and an all-around good egg. Like me, she’s found that financial health is correlated with physical health (although she’s doing a much better job with that than I am).
My name is Alice. I’m 23, an avid rock climber, a software developer for a big defense company in the Northern Virginia area, and the child of two immigrants. I used to have a generous habit of spending money going out but I’ve recently curbed that back significantly due to my financial goals becoming less nebulous and more fleshed out.
How would you describe your current financial situation?
Compared to the rest of my peers, I would say I’m significantly ahead of the curve. I graduated college with no debt (due to my parents saving through the years). I have no credit card debt, currently allocate 25% of my pre-tax income to my 401k, and recently opened and maxed out a Vanguard Roth IRA at $5,500. I plan on maxing it again for $5,500 on the first day of 2017. Part of the reason I’m able to max out my retirement funds is because I am living at home and paying no rent, but I also have a budget and stick to it.
I use YNAB (You Need A Budget) and that means that I’ve picked up a few habits. The big one being that any expense I make in the current month is from income I made last month. Any paycheck that comes in for the current month I budget for next month’s expenses. Not only does this allow me a lot of flexibility and a sense of financial security, but it keeps me on track budget-wise.
Currently, I bring home over $2,000 a month. The breakdown is as follows:
- $600: allocated for everyday expenditures, such as groceries, transportation, going out, and “me” money. This is money I fully expect to burn through in a month’s time. But if I have leftover, it rolls to next month. Likewise, if I go over in one section, I’ll move money from another to make sure the overall spending doesn’t go over $600.
- $150: allocated for hobbies, such as rock climbing, electronics, games, TV shows, and other such things. The only amount that gets consistently spent monthly is the $100 I spend on my gym memberships. The remaining money is then divvied up, but I don’t expect to spend it. For example, the past few months I’ve added $10 to my gaming section. It’s only now that I actually use the money I’ve accumulated up on a $44 purchase. I don’t currently have any game in mind that I want to buy, but I’m going to stick $5 in there every month anyway, so when I do want to buy something I have the funds available.
- $300: allocated for my rainy day expenditures, which include my emergency fund (the emergency fund being “if I got fired tomorrow, could I cover 6 months’ worth of expenses?”), future medical payments, future car expenses, and clothing.
- The remaining I stick into my long term saving funds, such as vacation, future grad school, IRA, and future property. If I were paying rent, I know for a fact that my numbers would change since I’d have to put about $1000+ away to rent and utilities and I’d be unable to save aggressively as I am currently.
One thing I am considering doing before the close of 2016 is to open an account with Betterment to invest some of my money since it’s mostly sitting passively in my checking account.
Do you consider yourself to be money-savvy?
Yes. Aside from retirement and future investing, I have a budget and I stick to it. I’m also finding that now that I have a series of long-term financial goals (grad school and a future home property of sorts) that it’s easy for me to curb my excessive spending and everyday expenses.
Recently I’ve gravitated towards a trend of not being pressured into buying items when I don’t need to. For example, I recently went on vacation to someplace that I knew was going to be cold, windy, and rainy. Because in my everyday life I don’t worry about the weather outside of how long it takes for me to get to and from my car, I knew I was unprepared. The only jackets I had were a fleece that was warm but not weather proof and my winter jacket that was meant for much colder environments. Unhappily, I went looking for jackets that were to be lightweight, warm, windproof, and water resistant and to my luck I was able to find a jacket that fit the criteria and that I liked a lot.
However, it was $150.
When I looked at my clothing budget, I had over $200. I could buy the jacket and still be in my budget. But I was loath to do so for a few reasons. Mainly, I’m losing weight. I have about 40 to 30 more pounds before I hit my goal weight and the only jacket that would fit me was the large. (I tried the medium and you know those cans of biscuit dough you have to pop open to cook? That’s basically what I looked like). I didn’t want to spend money on something I potentially had to re-buy in the future. Also, I just didn’t want to buy something when in my everyday life I had no need for it. So, I left the jacket alone and instead found my dad’s old (and huge) wind breaker shell. I went on vacation with that and my fleece.
It isn’t even a big price tag that made me not buy it. Before I found the shell, I contemplated maybe just buying a layer to wear under my fleece that would do the trick. I found something at Target for only $18. But when I tried it on, I literally couldn’t think of any other reason where I’d actually go and wear it, post trip.
$18 is way less than $150, but $18 is also a lot more than $0.
It’s weird. I’ve never been this disciplined before. There were a few external factors (such as my long term financial goals), but I’ve never been good at seeing the big picture. But for some reason, a switch just flipped inside me, and now I carry the discipline everywhere I go. Telling myself “no” and avoiding situations where it’s easy to say “yes” has helped me so much.
What financial advice would you have wished to hear when you started working?
If you haven’t learned how to handle money retirement-wise, you better get on it. There are plenty of resources online. The one that I used to start myself off with is the personal finance subreddit. There are a lot of financial resources that’s gathered into one place and it’s well informed and a good place to start. I was also able to move onto the “focus on retirement” part of my life because I already had the budget part of my life down. The next step for me is the investing part of my life.
What financial achievement are you most proud of?
Getting into the YNAB was the start of all my financial awareness. It has me feeling incredibly confident and secure in my financial future. Not only that, but budgeting my finances also made me realize how easy it would be to budget my caloric intake. So as a double bonus, not only was I able to be healthy financially, I was also able to become healthy in body. Both are a slow process, but it’s vastly better than where it was 3 years ago.
What expense can you not live without?
My gym memberships, especially the rock climbing one. I used to have a BMI of 33, which was the obese level. Although with calorie counting it’s gotten down to 28. In the process of losing weight I’ve become more active, and now I find that if I’m not working out a few times a week my mood plummets pretty bad. I’d rather give up video games before I give up physical exercise, and as a former hardcore gamer, that’s saying a lot.
What expense could you potentially cut down on?
Going out. Restaurant food costs are higher in Northern Virginia than a lot of other places, so every time I went out was just another high bill I had to pay off eventually. I’ve gotten much better at not going out and reducing that a lot, thankfully.
What are your long-term financial goals?
To be able to afford a down payment on a house without needing a loan from the bank. That’s sort of a “short” long-term financial goal. The real goal would be to own multiple rental properties and use those as additional income in the future.
What are your short-term financial goals?
I plan on moving to Boston in the next 6 months at some point, so I’d love to find an apartment in Boston that fits my budget ($1000 for my share of the rent) or even cheaper. Also, to open an account with Betterment and get my money working for me.
Half the challenge of becoming financially secure is just a lack of knowledge. Take a weekend to really learn about all aspects of personal finance and find out how much further you could be financially. Then go do something about it.
Want more Two Cents? You can read the very first one here.