This is the first in a new monthly series titled Two Cents, which reveals how individuals of different ages, cities, and professions feel about their current financial situation.
This month, we meet Ian. As it just so happens, Ian is my boyfriend. We live together, and as such we’ll be sharing many of the experiences and experiments written about on this blog. He’s agreed to be a willing guinea pig for the Two Cents Q&A and may occasionally contribute to Cash Fasting.
Two Cents
Hi! My name is Ian. I was born in West Virginia to a couple of very worldly parents who instilled in me strong and lifelong drive to learn, explore, and enjoy life to the fullest. That drive has been and will continue to be expressed in my biggest expenditures.
Growing up in WV I’ve seen the lower end of the socioeconomic spectrum, but my parents did well for themselves. I’ve been fortunate and privileged enough to attend two top-notch universities, one entirely on my own dime (student loans), the other with significant support from my parents. I also try to visit at least one foreign country every year. The experience of cultural immersion is worth the cost.
How would you describe your current financial situation?
I have a very interesting sense of financial responsibility. When feasible, I try to apply cost-benefit analysis to everything I do or consume with a preference toward long-term return over short-term benefits.
For example: Is it prudent to pack rather than purchase lunch tomorrow? Of course! But if it’s 11pm and I just got back from work to an empty fridge and cupboard, is it worth my time (and sleep) to go get groceries and prepare lunch tonight? Or should I get some sleep, buy lunch tomorrow, and get groceries at a more reasonable hour?
I’m actually likely to pick the latter option, as I value the extra hour of sleep it would take to gather ingredients and produce a meal more than the $7 I’ll spend for the store-bought meal. Health over wealth any day of the week. (I’m also financially well-off enough to be able to make that decision, and aware that many people can’t afford the choice.)
I’ll also invest in a really good pair of boots (on sale, but still twice as much as a bargain brand) because I know they’ll last five years instead of two. I make a point of researching my purchases so my decisions are always as informed as possible.
My choices tend toward what would benefit me most over the long run, even if the up-front cost is greater. An extra hour of sleep will make me more productive the next day, and I’ll have the opportunity to go out for lunch with a coworker. I’d rather have the sleep than the cheaper meal.
Though it’s expensive to follow this logic all the time, I’ll occasionally take that bet.
It’s important to note that I believe in the emotional and psychological value of goods and experiences. The value of a good or service is the sum of its tangible and intangible benefits. My master’s degree is in management and marketing, which means I can usually recognize when marketing is affecting, or at least attempting to affect, my judgement and perceptions. But that doesn’t stop me from buying into the hype. It simply means I can pick and choose when I want to buy into the hype and enjoy it willingly.
The value of a good or service is the sum of its tangible and intangible benefits.
For instance, I know the new iPhone isn’t going to be that much better than my current, two-year old model. But the advertising is beautiful and the experience of having the “hot new shit” is kind of fun, at least for a while. Am I not willing to shell out for a new phone just for the sake of newness and “wow factor”? If I had the disposable income then why not? The experience of being a part of the latest wave is an intangible benefit to me, and benefits of any size or shape have value. I’ll pay for a short-term benefit when it doesn’t detract from long-term benefits.
That said, I save heavily. By that I mean maxing out my 401(k) contributions and deducting over a third of my take-home pay automatically each month to invest and pay off debt. The gains I’ll achieve when I’m older far outweigh the modest restrictions I give myself today. So when you think “Damn, that guy is easy with his money,” you’ve got to remember I’m only leaving a little money with which to be easy.
I’ll pay for a short-term benefit when it doesn’t detract from long-term benefits.
Just because I prefer $200 boots over $50 boots doesn’t mean I’ve got a closet full of them. On the contrary, I’ve got the one pair that does the job and I won’t be looking for another till I’ve extracted as much value from my current pair as possible.
A deeper dive into my philosophy on money would have to address the value I place on family and social bonds (I’ll pay to see family on holidays or go out with friends who’ve come into town), education (increasing skills increases ability to earn), and maximizing experiences (I’ll pay extra to do something truly unique and unforgettable—usually related to travel). If I’m going to spend money, it’ll be for something that enriches my life more than it lessens my riches.
Do you consider yourself to be money-savvy?
Moderately! I’m putting away more cash and investing more than most people my age, but I’ve got pretty significant student debt. There’s also a lot I could do to save money (such as cut down on spending).
What financial advice would you have wished to hear when you started working?
Stop planning for the future and start acting to change it
Winning lotto numbers!
But really, I’d wish I’d learned earlier on to just pick a strategy and follow through. There is so much advice in the world and so little of it includes the inevitable truth that there’s always room for improvement, so stop planning for the future and start acting to change it.
More specific advice that I wish I’d have received is how to perform real financial analysis. I wish I knew more about how to conduct useful assessments of potential investments. I’d also still love to up my trading game.
What financial achievement are you most proud of?
I save and invest a large portion of my paycheck. It’s something I started by setting Robinhood to automatically withdraw just $10 every month from my bank account. With the barrier to entry so low, it was really to set aside a little money to start buying stocks. Even though I don’t make a ton of money from this habit on a regular basis, I’ve become much more disciplined and productive as an investor.
My monthly withdrawals are now $500 every month to Robinhood and $100 every month to a Wealthfront account set at maximum risk tolerance. This split helps me diversify my (still rather limited) portfolio.
What expense can you not live without?
There are many expenses I could go without, but only one is entirely off the chopping block for me. Travel is a luxury I just don’t want to give up. The value far outweighs the costs, and it’s one of the most fulfilling aspects of my lifestyle.
What expenses could you cut down on?
Dining out and social drinking. For sure. Living in New York City makes this especially difficult, but I know it’s a major unnecessary expense. It’s also not doing my health-related goals any good.
What are your long-term financial goals?
One of my long-term financial goals is to have a company of my own from which I have enough income (and freedom) to spend 6 months out of every year traveling, if I so choose. It’s not to say I would, but arriving at that point would feel pretty nice.
What are your short-term financial goals?
By the end of 2018 I’d like to either have a six-figure salary or be comfortably self-employed. These goals are modest enough to be achievable, yet high enough to push and motivate me.
Closing thoughts?
It doesn’t matter what you practice, be it a sport, instrument, religion, or hobby. Practice with focus and determination. Practice so much that it becomes a habit. Habits eventually become rituals, and performing rituals is a form of meditation where you’ve finally found your flow. That is mastery, and that begets success. Do the thing.
Enjoyed this post? You can read more of Two Cents here.