Ask the Readers: When Does This All Pay Off?
Published on - April 4th, 2007 (Modified on - July 10th, 2009) (by J.D. Roth) Annie is a young woman who seems to be making all of the right moves. She has an emergency fund, she’s saving for retirement, she’s living frugally, and she’s paying off her debt. But she’s beginning to find the lifestyle overwhelming. She wants to know when the payoff comes. (And what should she do in the meantime?)
I’m 28, I make $43k per year, and I’ve been putting 9% away in a 401(k) since age 22. Right now there’s roughly $30k in the retirement fund (yay), and (oof) $900 in my checking account. I have $350 in a newly-opened HSBC direct account, and I plan to add $300 to it each month after I rebuild my emergency fund. I have a $300 balance on my credit card, which I’m paying next week, and about $9000 left on my student loans (originally $21k). My car, a 10-year-old Honda Civic, is $1200 and five months away from being paid off.
The thing is, I can’t seem to get ahead. At 22, I decided to start paying down my student loans, and they’ll be paid off within three years. My 401(k), as I mentioned, has 30k. I usually have a $3000 emergency fund. FICO: 763. I live pretty frugally; after paying rent, car/insurance, utilities and student loans, I have roughly $700 each month to live on/save.
I look around and see people my age buying expensive condos, carrying expensive handbags, taking trips to Iceland and Mexico and Spain. I know that some of them have accounts at the Bank of Mom and Dad, and others are paying for everything on credit, but sometimes I wonder what I’m doing wrong. I went to college, I make… not a ton, but not peanuts, I try to live within my means, and yet I feel poorer the older I get. Yeah, I’ve got a great FICO score, but what good is that when I can’t afford to buy a home — or even merely move to New York, where there are more jobs in my field?
In short, I’ve been questioning my financial decisions lately. I have become quite depressed because I feel I am falling behind my peers. Should I be putting less in my retirement fund so I have more cash now? Adjust my student-loan payments (right now I pay $270 a month, but I could trim it to $150 a month [but, of course, pay more in interest in the long run])? Am I being naive — do most people have help from their parents? I guess I feel frustrated, disheartened and snookered because I made all the “right” financial decisions and although I’ll be totally debt-free in three years, I am getting tired of this eggs-for-dinner crap. It’s like wearing sunblock (which I also do religiously): All of this effort had better pay off, or I am going to seriously be one angry (and pale) woman.
Annie should remember not to confuse frugality with depriving herself. She should indulge herself from time-to-time. Other than that, she just seems to be experiencing low cash flow. She’s bringing in enough to meet her needs (and then some — she’s doing great at setting money aside), but not enough to meet her wants. She could improve her situation by finding additional sources of income. It also wouldn’t hurt to reduce her loan payments for a few months until her car is paid off. Even just $50 or $100 of extra cash each month could make a huge difference in her perspective.
I know that she’s struggling now, but as Dave Ramsey says: “If you will live like no one else, later you can live like no one else.” If you are willing to make sacrifices today, you will reap the rewards in the future. (The Living Like No One Else forums are an excellent resource for people subscribing to this philosophy.)
One final point: I’ve found that it’s dangerous to compare my situation with that of my friends. Yes, some of them do have access to the Bank of Mom and Dad. It’s easy to get jealous when I see a friend buying a house with money from her parents, or another who doesn’t have to work because of money from a rich aunt. But these things don’t matter. They’re rarities. What’s important is your financial situation and how you handle it.
I’m impressed that Annie’s making all of these smart financial choices. She and I are in nearly identical financial situations, but she’s ten years younger than I am!
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I wonder if all of Annie’s friends are doing all those things? Or are some people travelling and other’s buying nice handbags and so on. I find its very easy to compare myself to the best bits of a whole bunch of people, but when I look at actual individuals, not so much.
What helps me, is having a wish list of things that I would like to buy, and then gradually buying them (I have a similar list of places I want to go to). Its like once its on the list, it feels more real.
I set an allowance for splashing out and I make sure that it gets used, this helps me to feel rich, as does giving more money away.
I’ve also tried to focus in on the things that I value. Amongst other things, I’ve started blogging, wich I love, and I’m reading more books. These things make me feel happy, and I don’t care about the money as much.
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I’m in a very similar position – I’m younger, and I’m saving less than Annie, but I make a hair more than her and I have to wonder what I’m doing wrong because I’m not driving a brand-new sporty car, wearing $80 shirts every day, etc.
There’s not one answer, of course. Some of it is Mom & Dad – I know more than one person my age who’s making less than me but spending much more freely because their parents pay for a car, or clothes, or rent. I’ve also seen a lot of people have parents paying for the big-ticket luxury items like those overseas trips.
And don’t get me started on debt – while Annie’s ‘wasting’ her money clawing away at her loans to minimize the interest she pays, a lot of her peers are accumulating credit-card debt. Those of us who never carry a balance accept a lower standard of living in order to keep things sustainable. I don’t know what Annie’s interest rates are on those loans, but if they’re low, my advice would be to stop trying to pay them off fast. In my case, my student loans are 4.75%. But a high-interest online savings account can net 5%! So just dropping money in there is actually a smarter idea, and it doubles as an emergency fund while I pay the minimum on that student loan.
Even if you pay a little more interest in the long run, remember that money is not the end – it’s only a means. The end is happiness. If a little more interest in the long run means you’re happier, I say it’s worth it.
Income is definitely a big part of it, though. I’m making a little more than Annie, and I’m just out of school working in IT; I know other people not much older than me making well over $50k. I even know some Annie’s age and younger making well over $80k. They’re not even necessarily being irresponsible, they’re just making more, and the only way I know of for Annie to fix that is to find a new field, or find a higher-paying job in her current one. Granted, I don’t know what that is, and there’s a wide disparity – there are plenty of fields where a $43k salary at 28 is doing very well, simply because it’s not a lucrative industry. Ask anyone who works for a nonprofit.
Annie’s also saving at an astoundingly high rate compared to most people our age; most of the people I know save nothing at all, never mind double-digit percentages of their income. That’s a huge part of it – she’s not doing anything ‘wrong,’ it’s just that she’s aiming longer-term than a lot of her peers. And I suspect that she won’t really see the payoff until she starts a family; kids are a huge financial drain and college is massively expensive. Plus, that’s around when retirement starts being a comprehensible problem instead of the abstract theoretical issue it is in your single years.
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Forgive me if this is too personal, Annie, but your problem isn’t financial, it’s comparing yourself to your peers. You already recognize that you’re saving way more than they are, but you feel like you don’t have enough. Have you asked yourself how much is enough? If you took trips to Iceland and Spain, wouldn’t you then want to go to Costa Rica and Hungary next? Where does it end?
I don’t think you’re doing anything wrong, other than not being happy with what you have (and believe me, I know how hard that is).
If you want something SPECIFIC, make a plan and do it. If you just want “more” you’re never going to get it.
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I also wonder how many of her friends are actually saving their money diligently, paying off debts and exercising financial responsibility. With the average American saving less and less each year, I think it is dangerous to follow the crowd.
Many of my friends live well beyond their means, leasing fancy cars, buying a condo or house with an ARM and simply spending like there is no tomorrow. When I ask them about what they are investing in for retirement I get blank stares and the most common response is, dude I’ll worry about that later.
My strong advice is to set and follow your own financial goals and make sure they suit you. Secondly please make sure that your savings are being put to work adequately. Of the few people I know my age saving responsibly few of them know the difference between saving and investing. Make sure you understand what type of investments you’re making and why. Analyse the mutual fund and the individual stocks in that fund. Learn about fundamental analysis (since that is what most 401(k) investors are doing). I often give this advice to a few of my “saver” friends. They tell me they can’t be bothered and that it’s too much work. I laugh and tell them – so saving all this money isn’t hard? Make sure your hard earned savings are being put to work effectively. Don’t be a sheep, don’t follow the herd – learn the markets and understand your investments.
Also don’t worry about what everyone is doing. Heck I wouldn’t have starting my own business if I listened to everyone else.
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According to Dave Ramsey, the problem with us 20 and 30-Somethings is that we are trying to achieve the standard of living right now that we see our parents having, only it took them 30-40 years to achieve. The wide availability of credit makes it easy to appear that we are achieving this, but it’s all just a facade. This makes it especially hard when you are trying to make wise financial decisions – you see your peers and it looks like they are “making it” but you have to remember that they are most likely up to their eyeballs in debt, strapped for cash, and will be seriously struggling in their retirement years.
Find some peers who are doing what you’re doing (they are out there) and use them for accountability and support. They will reaffirm your decisions, encourage you, and keep you motivated. I think Annie is absolutely on the right track!
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If Annie is going to compare herself to people, let her compare herself to me: I’m about to turn 34, I only just started contributing to a retirement fund, have about $1500 in savings (that is already earmarked for specific use, so it doesn’t really count as emergency savings), and between credit cards and student loans I’m about $17,000 in debt. I’m the sole earner while my husband attends school full time to finish his degree, and we both manage to live on about $700/month after bills. When I was Annie’s age, I had made so many bad choices and screwed up my finances so badly that I was forced to give up my apartment and move home with my mother. My finances have been growing increasingly stable ever since, but I’m nowhere near where I’d like to be, and when I look around at my peer group, it can get pretty depressing. From my perspective, Annie *is* ahead. Way ahead.
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My advice is read some books, specifically some of the favorites of mine and J.D.’s as well. Start with Your Money or Your Life and ponder the purpose and meaning of your spending and how to align your spending with your morals. Then read The Millionaire Next Door and think about the monetary arms race you are concerned about engaging in with the Joneses. I also suggest reading Ramit’s blog iwillteachyouotoberich.com for great ideas on how to save money yet spend on things that make you happy, something it seems is missing from your life.
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I am at a very similar stage as Anne, with the exception that I bought a house when I was younger (about 6 years ago). I agree with the fellow commentators regarding being careful to whom one compares oneself. It’s easier for me, as most of my friends are older, and have a wide range of income and class status. However, it does seem that many of those who don’t handle money appropriately wind up in trouble. The “big payoff” is not being able to live a lavish lifestyle sometime later, it’s having a buffer so that the following things (and their like) do not occur:
1) Not enough money to pay for car insurance + accident results in the inability to be mobile, which results in a loss of job, which results in loss of apartment, which results in moving back in with parents.
2) Death in the family results in loss of house, as the only way to pay the (high interest rate) mortgage was to combine incomes. Family is currently renting from a compassionate friend.
3) No money to do maintenance on the house, which results in it being condemned. Family has to rent.
4) Numerous financial stupidities result in family having to move out of the city into a very small town, so they can afford an apartment. Commute for the primary bread winner goes from 10 minutes to 1.5 hours each way.
In contrast, one set of friends wound up having a house willed to them (complicated situation), they had good credit, so they took a line of credit on their own house to fix up this other house. After sale, they wound up with a positive gain of $40k. If they had managed their money the way the folks in the above examples did, they would have had to go through foreclosure on the house and taken the associated credit hit.
See, there is seldom anything glamorous in managing money well. It’s a choice. You can take a lot of little pleasures now, and take the likely huge financial hits later… or you can live moderately and avoid the hits.
The other key is to determine what is important in your life. For me, it’s books. Simply put, I do not skimp on books. I buy healthy food and cook at home, I have a modest DVD budget, etc etc. By defining what was important to me, I enjoy my life by reading and cooking, not shopping and clubbing. Therefore, the comparisons against others don’t take effect, because I no longer see their lives as particularly enjoyable.
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I’ve thought about this some more, and I have to agree with the previous commenters.
Young people have an expectation that they can immediately live the same lifestyle that their parents live, but their parents have been working at this for 20 or 30 years. It takes time. Maybe it’s always been like this — I don’t know. I remember when Kris and I were shopping for our first house. As we were touring one home, we told the owner that it was our first purchase, that we were looking for a “starter house”. She was taken aback. “I would never dreamed that this was a starter house,” she said.
Echoing previous commenters, I’d like to say that I, too, chose to live beyond my means as a young adult, and I paid the price for it. The fact is: you’ll probably have to struggle with money at some point. The question is: when would you rather do it? I know that I wish I’d chosen to struggle when I was younger. It would have taken less time, and it would have cost less. Instead, I spent money I did not have, and have spent the last decade digging myself out from under that mess.
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I have just turned 22 and I’m aiming to set myself up on a similar path to Annie’s.
I think it’s risky to say, “don’t compare yourself to others right NOW, compare yourself to them in 30-40 years!” The important thing is not to compare yourself but remind yourself of your goals.
I believe in working hard and saving what you earn because that’s what my parents practiced. Because they were so diligent, they were able to afford to raise 3 kids, send them all to college and give them a financial head start when they move out whilst all the time never letting them forget the importance of saving.
It’s important to have goals tied directly to your long-term wants whether it’s a great wedding, taking a year off to travel, a house in a nice neighborhood or the piece of mind to be able to afford to take time away from work to raise children. You just need these sorts of goals to put into perspective how much expensive clothing or a sports car is really worth.
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I just wanted to say that I can understand Annie’s concerns – I’m 23, and about to sit my final exams. I’ve lived frugally through 6 years of university and as a result I have zero student debt, only owe £100 or so on credit and have stashed away £4500 in savings.
I don’t know of anyone else in my age group and situation who can say this – however I do sometimes feel let down. I worry that in the next few years my peers and I will start out in similar careers, and while they have all this student debt and no savings they won’t actually be any worse off than I am.
I know I won’t be able to go out and get a better car/house/whatever than them on day 1, and that any benefits will come later in life, but some days I do wonder it’s even worth it, and that new HDTV in the store window starts to look very tempting.
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Unlike some of the others, I find it perfectly acceptable to compare herself to her peers. Who are we to compare ourselves to if not our peers? I think the problem is not that she’s comparing, it’s that she’s not putting enough weight for the success she has. Saving 9% a year? Paying off 20k in student loans? Those are big accomplishments, and deserve much more weight than a trip to Iceland, Fiji, or wherever. She is doing quite well, and even comparing herself to peers, I think she can be able to recognize this but she is giving herself no credit. I think it’s too common for us to compare spending with our peers, but we really need to compare entire financial situations.
I can actually sympathize with her, because I too have felt that I just don’t feel like I am getting ahead. I live in a major city (living expenses are high), great job, maxing out 401k and IRA, paying off student loans, and when all is said and done, my monthly cash flow is very small even though I’m making more than her, and probably paying less in debt. It’s actually been more difficult than I thought with such a low monthly cash flow, but if that’s what it takes to hit my goal of 125k in investment/retirement/savings by the time 28, then I can recognize how much easier that makes things later on.
My advice to Annie would be to continue comparing yourself to your peers, but extract out to when your 40. Friends wont have parents paying for everything, they’ll be in debt, and trying to figure out how to start planning for retirement. You’ll be so far along already that you can not only secure the loans (high credit matters) but be able to transition into a house, and have the comfort of knowing that you are not in debt and simply on autopilot to retirement. At that point the vacations, the cars, whatever else you want won’t even be a dent in your financial situation, and your peers will be the ones baffled at how you put it all together.
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Hi, this is Annie. Thanks for your suggestions and observations, and thanks to J.D. for posting this.
I agree, I need to stop comparing myself to other people. Easier said than done, of course. I’ve recently started volunteering, working with smart low-income children [I was once in their shoes!] and this also reminds me to be grateful for what I have.
Some financial info: I put my savings in a 5.05% HSBC online account. When I get $4,000 in there, I plan to put it in index funds. My student loans are locked in at 6% and now, my payments are mostly on principal.
I do know what would be enough for me: I want to be able to pay my bills, save $300 or more each month while still being able to eat out once a week, and to be able to buy a home within the next four or five years.
I’m also worried about my financial future because my parents have no retirement savings and no health insurance (“We’ll sell the house!” is their brilliant solution for everything) and, as an only child, guess who is going to be stuck taking care of their irresponsible choices.
Ben is right: I need to switch fields. I work in publishing, which is not known for being a lucrative field. I like the work and am good at it, but I just can’t afford to do it. It’s depressing because I do what I’ve always dreamed of doing, but I can’t afford to live in New York. I’ve been applying for better-paying jobs for a couple of months. So far, no nibbles, but I’m persistent!
One last thing: I agree that there’s a large sense of entitlement among 20-somethings, but not among all of us. I do, however, fear that the goals–buying a modest home, sending the rugrats to college–that my parents’ generation could work toward are increasingly out of my generation’s reach. When I see the 1-BR condos on my gang-graffitied street starting at $189k, this is why I keep thinking, “Gosh, what am I doing wrong?”
Thank you all for your insights and commentary!
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Ben is right: I need to switch fields. I work in publishing, which is not known for being a lucrative field. I like the work and am good at it, but I just can’t afford to do it. It’s depressing because I do what I’ve always dreamed of doing.
Use caution here. If you love the work, that’s a Very Important Thing. I’ve worked jobs I loved and jobs I hated. I’d much rather work for less at a job I loved than get rich at a job I hated.
Another possibility is to think if there are creative ways to use your experience in the publishing field to earn more money. As an example (possibly a poor one), I have a friend who has been an editor for a number of years. She’s begun to explore ways to turn this experience into, well, something a little different. She and I have even batted around the possibility of starting a small press together. (We’ve only discussed this as an idea, though, and never been serious about it.) I think she does some freelance work to bring in extra money on the side…
Yes, it’s good to have a lucrative career, but it’s better to have job satisfaction.
Just keep this in mind as you explore your options…
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Annie,
You are making all the right decisions. In 5 months, you’ll have that extra money.
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It’s a major challenge to balance the competing desires of where you want to live, how you want to live, and what you want to do for a living. For most of my life I worked in low-paying jobs by choice. My degree is in environmental science, and I spent my 20s and early 30s working for nonprofits and universities, then went into environmental journalism. No wonder I’m 48 years old and have yet to buy my first house! But I would do it all over again in a heartbeat.
Annie, if living in New York is more important to you than working in publishing, then switching careers might be a good choice. But if you love what you do, you could consider moving elsewhere so you can keep doing it; you can always move back later when you have more experience and can thus command a higher salary. Boston’s more affordable than New York and has plenty of publishers. Having lived near both places myself much of my life (grew up north of NYC, spent my 20s around Boston) I personally find Boston a far more interesting, stimulating, and liveable city.
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I know where Annie is at. I used to ask myself the same question till I found out that everyone was living a facade of prosperity.
I choose to wear blinders and stop looking at my peers, or else broaden my peer group to realize there are people the same age who are struggling worse than I am. Sure, I love a pretty new pair of shoes and glamour, etc. But I think a shift in aesthetic sensibilities will make a person realize that fabulousness is a lot of attitude more than money. I knew a lot of amazing hipsters with no money, and they were/are the epitome of stylish and cool. Having worked with professional costume designers, I’ve learned that looking good is just that, a look. It’s a sham. Pay attention to that man behind the curtain and you’ll see people loaded up with debt.
If it really does pain her to have so little cash left over from her paycheck, then maybe she should ease off the 401k contribution till she gets a higher paying job? 9% a year with a $30K retirement balance is great. I’m in my early thirties and I don’t have that much saved at all. I think she’s doing great and very ahead of other people.
I don’t think she’s doing anything wrong. As far as owning vs renting, take a really good look at what it means to own. It’s a big pain in the neck and sometimes it’s better to rent for the reduced headache of maintenance, insurance, taxes vs the freedom to pick up and leave. Just remind yourself that a mortgage is an albatross around the neck which is not easily removed. But a lease will expire! If money is freedom, then which life choice makes us free? The house or being debt-free?
I think she’s doing an amazing job, but she needs to cut herself some slack and gain new perspective on where she is compared to the giant pool of 28 year olds vs the people she sees readily around her. There are 50 year olds who make less than she does. Perspective is the key.
Good luck Annie! Man I wish I could be her! 28 with 30K saved for retirement!
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I’m going to agree with JD – job satisfaction is a huge deal, mostly because it’s raw happiness, which is (in my eyes) the whole point of the game. That’s not to say you shouldn’t consider a career change – maybe there’s something else you’d do that you’d enjoy only a little bit less but would make you much more satisfied with your financial situation. But if you get into something that pays really well and you don’t enjoy it, you may find yourself eager to trade that extra money back in for doing something you actually want to do.
As for living in NYC, don’t forget that salaries are also higher in expensive towns. You can’t afford to live there on your current salary, sure, but the same job there probably pays quite a bit more.
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Agreed. Annie don’t change a thing (especially if you like what you do). When those loans are paid off, you’ll have that extra cash. And you won’t be paying any insane interest to credit card lenders like your peers will forever and ever and ever.
I just started putting $100 into HSBC Direct each month for my savings/emergency and feel much better doing it. I did, however, cut my 401k contribution to the minimum needed for full employer matching. This gave me a couple hundred extra a month to pay down car and student loans. After that I’ll up the 401k or maybe shift it to savings/emergency fund (at least until emergency fund has 3 months worth on hand).
I feel much better doing things this way. No I don’t have a lot of toys. I have extended family that motorcycles and big TVs and Cadillac Escalades and have now declared bankruptcy (over $35K in credit card debt). No sense of personal responsibility and every sense of entitlement. They and people living like them will feel the pain when they realize they’ll never be able to retire and that they are never actually gaining wealth.
I still use the 25″ TV that my dad gave me 9 years ago as a college graduation present as my family’s primary television. I might need to involuntarily upgrade the 99 Hyundai Accent though …
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Annie,
You’re doing great, and I commend you for it.
Two things to consider:
(1) reduce your student-loan payment to free up cash. The fixed 6% is actually lower, since payments on interest are tax deductible. Student-loan debt not not [necessarily] bad debt (especially at 6% fixed). Use the $120/month to both bolster your emergency fund and help you from feeling deprived. As others have mentioned, allocate some of that extra cash into a “savings for [something, i.e., a well deserved vacation]“.
(2) Don’t be too quick to move the money in your HSBC savings into an index fund. Emergency funds need to be liquid for emergencies.
Good luck.
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Here, let me be specific Annie.
I’m 28. I make 80K, after getting a graduate degree, and have a very stable job as an economist in the government.
Along with JD and PFOddessey, I’ve been working on a budget sheet for GRS. I’ve got mine open now, so I can sneak in and let you know what I’m doing. Most of the folks on GRS that are young are doing the same thing.
Firstly, I have a goal. I want to be “effectively” retired at age 50. That means that money is no longer a concern no matter how long I live (about 40 years after that, I guess).
I save about 20% of my income in a given year. I have no debt, except for a mortgage I will take on shortly with my fiancee for the home addition. And I’ve been saving sine 23.
I estimate I will be, in real terms of today’s dollars, a millionaire, by the time i am 48 years old. That was my retirement goal.
Now let me put that into perspective with my friends. One is 37 years old, and is just about finished paying off debt, and is now just now starting to think about investing for retirement. He’ll have to work till he is 60 to get to comfortable point. However, he lives well within his means, and does a decent job budgeting, most of the time. He did not realize how bad “Christmas Debt” was until i walked him through it. He’s 10 years old than me but didn’t understand compound interest. But, he has his own place, is happy with his life, and does things that he enjoys that happen to not cost money. And I’d say most of his close friends live very frugally. I don’t live that differently from him, yet I make double what he does.
I have another friend, who is 36. His life is a mess. He can barely pay the rent on time, and he’s subletting a room in my apartment. He has debt issues, motivation issues, and job that just doesn’t pay enough. I have tried to help him, but I think he will be working until he gets close to life’s end. No planning at all.
Finally, I have a friend who is 30, and is a big-player for a local bank. He makes more than I, but you couldn’t tell that from how he lives, which means that you couldn’t tell the difference between him and my first friend.
I’m going to guess that doing the same thing s that a bigshot at a bank is doing is a very good comparison. There are alot of folks that I know who spend money foolishly, and in private, they live lives of quiet dispair. I know a financial planner who cashed in her 401k to go to Europe.
The rewards from good saving occur when you most need them. When you’re young, you dont need the money, so you spend it. When you’re older, its much more important.
Keep saving.
For the newly revamped spreadsheet I am making for GRS, email me:
stephenpopick AT gmail DOT com
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A couple of observations regarding Annie’s situation. It appears that Annie is single. As a purely financial decision, getting married is usually one of the best decisions you can make. I believe this is especially true for women. Annie mentions being able to afford things that her parents could. Again, I point out that they likely did these things as a married couple. Of course, this opens the whole can of non-financial issues…
Regarding travel: it appears many twenty-somethings (I am still one of them, barely) consider travel something they should be able to afford regularly. Plenty of my peers regularly hop on planes to Hawaii, the Caribbean, and Australia. I am reminded that my parents took their first plane trip when they were in their forties; to emigrate to a different country and continent. They didn’t step on another plane for another twenty years. This seems to be a matter of setting reasonable expectations. I still do not think it is reasonable for most people to expect to be able to hop on a plane once a year for a vacation and still purchase their idyllic half-acre.
“I have become quite depressed because I feel I am falling behind my peers.” It seems that Annie’s values are different than those of her peers. Would it be fair to say that there is naturally tension and conflict when we socialize with people who don’t believe in the same principles as we do? Obvious solutions include changing one’s friends or changing one’s values. Unfortunately, no easier answers come to mind.
If only everybody wore a big sign on their back that announced their total net worth, it would help our perspectives when we choose to compare ourselves with our peers.
squished out
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Annie,
I agree with J.D. You should stay in the job that you love, because would it be worth it to sit through a job you hate every day to make some extra money?
I don’t know what your living situation is, but maybe you should look into a publishing job in a different city. My dream was to work in publishing also, and now I am in an educational textbook publishing company in FL, where the cost of living is way less. I’m still having a rough time because of my credit card debt, but if that weren’t a factor, I’d be fine. I babysit and try to find freelance jobs. I’m 23, but I just tell myself that at least I appreciate hard work, and my life won’t always be like this.
Good luck!
Lindsay
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Excellent comments by all…I hope Annie is getting a bit of a charge out of the support people are showing…I am.
Annie: Stay the Course! This is a long journey and achieving your financial goals takes time and patience. You will find that even as you make more money, you also tend to have more obligations (family, house, etc) to go along with it.
I can not tell you how often my wife and I have asked ourselves “why does it seem we are so much poorer than our friends even though we are making good money?”. We don’t know their individual financial situations, but as you’ve no doubt read, it IS often a facade and their balance sheet does not jive with their spending habits.
For myself, it’s only been the past couple of years (I’m now 34) where I actually felt we were starting to make headway as we got into a mortgage where we pay more principal than interest each month and had finally saved enough money to feel like we were making some real gains.
I will tell you, however, that the struggle does not end there. Although I think we are doing many of the “right” things, we still want the bigger house, bigger yard, etc (just like everyone else). We tell ourselves we “need” it for our growing family…but I think a more honest assessment would be that we “want” it. I think the difference lies in finding the right balance between “wants” and “needs” to ensure that you meet your financial goals…but also “live a life”. Only you can determine what that balance is…but I definitely think you are on the right path.
Good luck!
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I have to agree with the general theme that Annie is doing GREAT overall.
I’m in a similar position, but I’m turning 29 next month. I’ve paid off the student loan, car, line of credit and got into a house with a smaller mortgage than most people I know. I’ve been saving for retirement and have a nice $20 K nest egg.
Yet I don’t feel the same was when I look at my peers. I see the nice cars, clothes and everything else as large chains holding them back. Meanwhile I’m living my low key life very happy partly because I know that I’m going to retire at least a decade or two before them.
Happiness is key until retirement time. Find what you love and make meaning in your life beyond your job. Then the rest of the bull just melts away.
CD
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I should mention that the new sheet not only has a mortgage calucator that includes, prepay, rollover, renting space, etc, but a retirement calculator as well
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Annie, in short, things will begin to pay off for you BIGTIME once you get COMPLETELY out of debt, including mortgage (house) debt. I mean, do you realize how much money you’ll have to invest and have fun w/ once you have NO PAYMENTS OF ANY KIND? So you can make things pay off for yourself as quickly as you can get out of debt. Buy a cheap house, and pay that sucker off. Point is, once you have no debt, you have made it — you will find everything you are looking for, everything you desire, everything you want, once you free yourself from ALL DEBT. Right now you feel “damned if you do save everything,” and “damned if you don’t save everything.” But there is a third, hidden, way to feel that will come in time … by choosing to work hard now and pay off debt, you can eventually have that third feeling of FREEDOM, pure FREEDOM.
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I am finishing up “The 31 days to fix you Finances” over at thesimpledollar.com, and it woke me up! I now have a plan that allows me to “work for my dreams, not money”. That was the single biggest piece of advice on work and money that I wish I knew 7 years ago. Now I am fighting (my attitude, thoughts, desires, and concepts) to work for my dreams instead of the latest woozit.
If your dreams involve something nicer than you “need”, plan for that and make it happen. Work for your dreams … beware of what others have said: If you get what you want and it is not enough, than you did not want it with the right motives.
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When does it pay off? For me, it will pay off when I am happy with what I’ve got or when I retire early. Which ever comes first.
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From the “eggs for dinner crap” statement, I’d say Annie’s depriving herself a little more than she’s comfortable with. Maybe it’s time to free up a bit of cash flow. For example, drop the student loan payments down closer to the minimum. Student loan interest is tax deductible and if she consolidated, the interest rate should be less than 5%. Even if you’re determined not to spend that money on frivilous things, you can earn better returns elsewhere. Also, 9% contribution to the 401(k) seems a bit high if she’s struggling to live a comfortable life. Does her employer match her contributions? If so, how much do they match? It might be worth reducing the contributions for a while and figuring out how much she’s willing to sacrifice.
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You can find Trent’s 31 Days to Fix Your Finances here. It’s a great series, and is available as a downloadable eBook for just two bucks. I recommend it.
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Just one exception that it is OK to go into credit card debt if it means you can get your hands on a Wii.
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Annie -
I’m going to reiterate just about all the advice here. You are doing great! Keep going with the way you are approaching it because once you get that car loan paid off and then that student loan paid off, things WILL accelerate for you.
You are light years ahead of where I was at your age (see http://www.debtblitzkrieg.com: My synopsis: When I was 28 I had a $28K salary in a job I loved, $0 in savings, a fraction of what you have in a 401(k), was going to graduate school and accumulating student loans like there was no tomorrow, and had at that time probably around $10-15K in credit card debt (I don’t really recall but that sounds about right). I was living in a dark, ugly basement studio apartment and driving a paid-for but really clunky Subaru Justy and was trying to do maintenance and major repairs on it by myself (big disaster) because I couldn’t afford a mechanic. I’m not out of the woods yet but I’ve come a long way from that.
Anne — my big concern is that you do need to strike a little balance here. For example, rather than continue to pay your student loan at $270, if you can take it down to $150 DON’T — but DO take it down to $200 and use that $70 to ease up your lifestyle just a little. Build into your budget a plan for small periodic rewards — you don’t have to take expensive trips to have a little “getaway” — make a list of daytrips for the weekend or sights in your city, and plan outings for yourself (including a great meal!)
Try doing something like this once a month with your $70 and don’t feel guilty that you are doing it.
Here’s an example: For my upcoming birthday I’m taking 2 days off work. On the first day I’m going to a ritzy hotel for high tea (I’m a romantic geek, I love doing this). On the second day I’m going to my favorite spa in town for a facial and massage. I could EASILY go to a spa every 2-3 weeks like they pitch at you but it’s a budget buster — instead I go twice a year, around Christmas and my birthday, which are 6 months apart.
Small luxuries will help you keep on track.
Good luck and keep up the good work Anne!
db
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Annie, doing this reductio ad absurdum thing, consider Casey over at IAmFacingForeclosure.com. Perhaps a year or so ago, he was spending six months in Tahoe, going to Hawaii, showing off flashy electronics and so on. You could perhaps envy him, if all you could see were his vacations and the gadgets he carried around in his murse.
That was all illusory, as his spending habits were entirely financed by massive amounts of debt. Now, he’s reduced to being a dancing monkey on the Internet. Annie, DON’T BE A CASEY!!!
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Annie, don’t give up! I’m two years younger than you, make about $17,000 LESS than you, and work in publishing in New York. It is totally doable.
I put 9% into retirement (with a 6%) match, have a $6,000 emergency fund, share an apartment in Manhattan, and live frugally. I eat out more than I should, but I manage to save each month to visit home and I carry no debt (I may take out student loans this year for a master’s program, but I’ll get reimbursement to cover the loans as I go).
I don’t get to go on cruises or get a mani/pedi every week, but I love my life here. You’re right, this is the place to be to work in publishing, despite the low salaries. If you can be smart and careful with your money, however, you can absolutely live on what you make (and less) and live pretty well.
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Hi Annie,
as others have said, you’re doing everything right – though that may not seem like as much fun as living the good life while racking up debt, as most people do these days.
However, thanks to the magic of compound interest, by starting saving so early you will be far ahead of your peers by the time you get to retirement. It’s a long time off, but it will come, so remember that in your comparisons with others. Remember the story of the ant and the grasshopper!
Also, your financial situation will improve in time. You’ll make more money later, at the same time that your debts will be paid off. You can do the math.
I (and others) expect there will be a significant correction downward in housing prices, so rest assured that you’ll be able to afford to own one day (not good news for your parents, however).
That said, you have to live a little now, or you will feel frustrated. Your mention of constant use of sunblock suggests you might be living overly carefully. Delaying present gratification for future rewards is wise, but it can be taken too far.
My advice: lower your student loan payment by $100 and live a little every month. Go out for dinner once in a while, and/or buy yourself a ‘frugal gourmet’ cookbook and cook some great food at home. Some rice and stir-fried veggies make for a quick, delicious dinner. Even living cheaply, no one needs to eat eggs all the time.
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Individual priorities play a huge role in life. Perhaps Annie’s friends have different priorities then she does, or maybe they haven’t even thought about it and are just living in the moment. Either way, this is why I don’t think it make sense to compare your situation to others. Who knows, they might not be happy with themselves and envy Annie.
Priorities can lead to sensible and meaningful trade-offs. Maybe you’d rather work longer than harder, especially if you like what you do. It might be worth saving a little less over a longer period of time so you can go out to dinner once a week or take a trip every couple of years if that’s more important to you than retiring on X date. Everyone has different ideas about what their priorities are, and there is no right or wrong.
Just know how your decisions now could effect your future; look at both sides of the equation. To do this, identify your goals and figure out what you need to do to get there. Then you can see what your sacrifices are actually getting you, and decide what is worth doing and what isn’t.
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Hi Annie,
I’m about 10 years older, and started off on that same path as you. The one thing I would do differently is actually *increase* your 401(k) contributions (max it out!!!). This might have the effect (check with an accountant) of slightly increasing your take home pay since your taxable income decreases. You should also check your withholdings. If you’re getting a return from the gov’t this year, increasing your deductions will increase your take-home pay as well.
Also, keep in mind that if your car is going to be paid off in a few months, there’s some extra cash that you’ll then have (though, IMO, you’re best off to continue banking most if not all of that possibly into a Roth IRA
Now I’m in my late 30s, have a house, a family, etc. with a huge chunk of cash in retirement accounts (I’ve been maxing out my 401(k) contributions for almost 14 years now!).
I’m still living paycheck-to-paycheck, but it’s by choice. The only debt I have is 1 car payment (at 0%
and my mortgage. The car payment will be go ne less than a year, the mortgage, sadly, not for another 28 
Of course, now all my “spare cash” goes into college savings accounts. We’re living frugally, on a single income, but we’re doing okay. Hang in there, and remember, everytime you see a friend buying that expensive, unnecessary item, handbag, whatever, think of them in 40 or so years in a 1-room apt. while you’re on a cruise enjoying life!
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Annie,
I’m going to have to agree with Nathan. But I think everyone is saying essentially the same thing, just not worded as well.
Don’t just compare what you see them doing or spending on vs. what you do/spend your money on…That isn’t the full picture! Just know that you are setting yourself up amazingly for retirement (even early retirement!) and that compound interest will do wonders, allowing you to invest smaller percentages later, if you so choose, and have extra money to spend.
Finally, remember one key point. Your car is paid off in 5 months! That’s an extra $240/month that you’ll have floating around! Now I’m not suggesting you start spending all of that since eventually you’ll need a down payment for a new car…But take ~1/2 of it and make sure you do some things that you really enjoy.
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I think Andy’s (#30′s) advice is good. In my mind, there is absolutely no point being miserable now for something that you think will make you happy 40 years from now. You can still be responsible but free up some cash. You only get one shot at this life, at your twenties. If travel, or baseball tickets, or cooking classes will bring you some joy and sanity then try to make it happen.
A couple of other things … in a few years chances are you’ll be married or coupled up, and those savings/spending choices will be shared and the pressure reduced. In fact, this could be a factor in your friends’ ability to go away, own a condo, eat out a lot, etc.
Secondly, I made significantly less than that when I first moved to NYC. Remember, moving to New York means the car costs (all of ‘em!) come out of the equation. Free/cheap entertainment is really plentiful in the city. And if that’s where the money & connections are in your profession, it may be worth cutting back on the savings for a year or two and really make a priority of your chosen career.
Best of luck.
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Annie,
Your view will change when you get out of debt and the money you save goes in the bank account. I recently made that transition and it feels phenomenal to have that money accumulating in the bank rather than going to my creditors.
Relief will come. Trust in that.
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Annie is my hero!!! I wish I had, had enough sense to remain focused on a goal at her age. Here finances will dramatically change in 5 months with the removal of the car payment. Hold on Annie!!! Don’t decrease your payments. In 5,6 months will you be feeling the ease.
In a couple years your friends will still be financing vacations and you will be paying with cash! You will have less health issues, due to less stress. You will buy a home and most like pay it off early. Don’t lose site or be disheartened.
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Hi Annie, you say you’re depressed and that seems to be a trigger point to signify something may be wrong. I’ve reviewed your letter and nowhere did I find a list of your own personal goals.
Where are your passions?
Is your passion to travel around the world? I say, save up and go for it! Is your passion to switch careers and live in NYC? If so, go for it!
Annie, none of us will leave this world with our money intact. We will only have our memories and experiences to take with us. You need to find a delicate balance between doing what is right for your money and doing what is right for yourself.
If I were in your position, I would make a concrete list of all my goals and passions. Then I would strive to accomplish them.
For example, is your goal to own a beautiful condo? Open up a new account and start saving toward it.
Your peers will always be in a different place than you because we are all individuals with different circumstances.
Focus more on what makes your life vibrant and personally fulfilling.
This life isn’t a dress rehearsal, we each only have one shot. Make the best of it!
=^..^=
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annie is doing fine.. most people her age have a zero net worth.. and hers is a little over 20k after her student loan and car balance.. i think her problem is finding a BALANCE in life.. which is the issue for most of us that age
perseverance is key.. hard work pays off in the long run.. that’s my motto.. sometimes i wonder why i work so hard too (just like her).. i get frustrated, confused, etc.. the results are SLOW.. but i realize that it will pay off greatly in the long run if i stick to the script.. and the best satisfaction is knowing i succeeded doing it MY WAY without anyones help
that car payment will be knocked out in no time.. she just needs to concentrate on getting rid of that student debt
i feel her pain.. i’m a year older and i find myself comparing my status to my friends sometimes too.. but you can’t do that.. it’s your life.. do what you NEED to do
it’s all about attitude.. if she wants to take a trip to mexico or spain.. have a separate savings account and save for it! if she wants the vuitton bag.. do the same.. yeah she doesn’t have the expensive condo.. but you don’t have that pricey mortgage and hoa fee to pay either! worry about that later.. you’re only young once.. live it up!
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Annie’s situation is exactly the situations analyzed by Tamara Draut in her book “Strapped: Why 20- And 30- Somethings Can’t Get Ahead”. She mostly cites the government’s inattention to this issue since the 1960′s. I just finished reading it last week, and instantly recognized Annie’s situation. As a soon-to-be college graduate, I am already dreading living a lifestyle of lower means, but have taken up reading lots of personal finance materials to prep myself and am taking a Financial Literacy course this quarter–it makes me feel much more empowered with all the information I now have, including this blog!
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I’m also in a very similar situation. At 22, I’m spending about $500/month on loans(that’s school and car), 10% of my $42k salary into 401k, $400/month split between investment accounts, $100/month into emergency savings account.
I feel the strain too Annie. I’m not poor; I can spend reasonably, but the biggest thing for me right now is owning a home. I’m in a rather low-rent situation right now, but I still hate throwing the money away. I’d love to own a home, but I’m afraid I won’t be able to afford it without starving myself.
Luckily, I’m not surrounded by big spenders like you. Most of my friends are as-or more-strapped than myself (though none are saving nearly as much as I am; they may just make less than me, or have more debt to pay off). It’s probably more difficult for you if you’re spending time with people that can (or choose to) afford that lifestyle. Keep your chin up. Your payday will come someday, whether it’s early retirement, the plunge into self-employment, or simply comfortable living without the burden of huge debt.
You may not be able to drop $200 on a whim for new shoes, but take pride in what you’re doing. You’re outsmarting probably 90% (if not more) of people in our age range. Like J.D. said, hold on to a bit more and treat yourself once in a while so you don’t get so down about it. For me, a new band shirt, or an occasional videogame can make me feel like I’m living it up.
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Annie, let me say that you are doing a great job with your money. You have a successful habit that most people our age (i’m 27) lack, living below your means!
With that said, seems to me to that you have your expenses/budget in order. How about looking for ways to INCREASE your income?
FT
http://www.milliondollarjourney.com
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Annie, you’re definitely on the right track!
My little brother just graduated from college last month, and I’ve been telling him to do all the things you’ve been doing.
In thirty years, you’ll both be WAY ahead of your peers.
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I felt the same way Annie did until recently. I even considered picking up a bad habit like smoking so I could feel good about quitting and saving that extra money I had spent on smoking. Eventually it hit me that I really hate working. So what would make me happy? Not working!
So now that I have a goal of retiring early and not working for good, I don’t feel so bad anymore.
Another goal I made was to force 10% of my net pay on myself. This has helped me immensely because I don’t feel deprived at all. Its quite a bit of money for me and I feel very rich every two weeks because of it.
Friends…I have chosen to spend my time around friends similar to myself. I used to have some friends that either appeared really wealthy or came from a lot of money. It pained me to spend time with them because I was being subjected to their way of living. I slowly withdrew the time I spent with them and now spend time with people whose lifestyle is more in alignment with my own. It helps alot because I don’t feel bad anymore.
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Money in the bank is an invisible benefit. It’s not as showy as the latest “it” bag, but boy are you glad it’s there when you need it! And good for you for being so disciplined. When I was your age I had a couple thousand in credit card debt and didn’t think anything of it. Then I met my husband who hates debt. Now, all we have is our mortgage for debt.
Budgets are all about choices. My husband often complains that he sees people eating out all the time and how do they do that when we make good money and only get to eat out once a month. Each time I remind him what we’re saving for. And then I ask him if he’d like to change anything to allow us to eat out more often. The answer is always no.
A few ideas:
1. give yourself a monthly “mad money” allowance in cash. This usually works best with entertainment money. Right now, my personal mad money is equal to 1 dinner out, 1 lunch out and 3 coffees plus a little extra. Once it’s gone, it’s gone, but I can spend it as I choose.
2. Make a “30 Day List.” Anytime you see something big that you want but isn’t in the budget, put it on the list and add the date. After 30 days, review the item and see if you still want it. If so, save-up and buy it. You’ll find the shine will wear off most of the things on your list before the 30 days is up.
3. Use your imagination when you go shopping. If you see something you like but don’t need, put it on hold or in your cart and imagine yourself using the item and really enjoying it. Then ask yourself if it’s worth breaking your promise to yourself to pay off your debts. Most likely it isn’t. Most likely your imagining has given you all the joy you would have gotten out of that thing, so put it back and walk away. It’s ok to want pretty and fun things and it’s ok to enjoy them when you have them. Just be aware of the tradeoffs.
Diet experts recommend really tasting your food so you enjoy it more and eat less. Well maybe try really enjoying what you have so not spending seems less painful. When you put on your favorite article of clothing, tell yourself it’s your favorite and why. When you give yourself a treat, savor it. When you mail a payment for your student loans give yourself a pat on the back and think about being one step closer to your goal. Make a point of looking at the 401k line on each paystub. Note how much you’ve saved all year. Look at your 401k statements and marvel at how much is in there.
4. Are you eating eggs because they’re cheap or because they’re fast and easy to cook? There are entire cookbooks devoted to egg cookery and other sources of cheap protein, like beans. Check out a cookbook from the library and start playing with your food. You can eat frugally and still eat well. And if you set-aside a day to cook for the week, you can just reheat the rest of the week. Maybe talk your friends into substituting a night out with an occasional night in and have a pot luck.
Try not to worry about what kind of financial mess you’ll get from your parents. There’s no way to predict the future so tell yourself you’ll figure it out when you get there. You’ve obviously learned from them and are working to make sure you’re set for your own retirement.
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