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!
This article is about Ask the Readers, Psychology, Real-Life
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Annie looks like she is doing pretty well for herself, all things considered. The main problem seems to be a lack of income. $43k/year is never going to be enough to live lavishly. I can understand her lack of good opportunities in her current location and also the problems with moving to NYC.
Liking what you do can be important, yes. But doing a so-so job that makes enough money to do things that you like in your non-working hours can be just as good. All in all, I would say that I’m happier working at a so-so, well-paying job than I was working in a poorly-paying “dream job” and constantly stressing out about my finances.
Lastly, don’t let your college major or other training lock you into a career for life. Too many people fall into that trap. Simply put, your 20-year-old self might not have made the best decision for your 28-year-old self. But that doesn’t mean that you have to quit your job. I would look seriously into outside sources of income. Real estate? Teaching yoga classes? Sewing? Computer consulting? There are all kinds of side jobs out there that can supplement your income, and they may even turn out to be so lucrative that you decide to quit your day job.
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Well, Annie, I say take a trip to Mexico!
Go somewhere more real, less touristy. Skip Acapulco and Cancun. A plane ticket will cost just under $400. You can stay in hostels for $10-15 a night. A week in Latin America will do you good. You will look around and see many people who are truly happy. You can see it in their smiles. Do these people have 401k’s or kick ass FICO scores? I doubt it.
What you experiencing is the hole in the center of much American life. Some of us have to be more entrenched in the rat race than others, but make a choice, enjoy life. You make a good salary and you’re single! Be Happy Now, open your perspective and see some of the other world while you have a chance…
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She is not doing any thing wrong. She is doig everything right – except judging herself by comparison to other people.
She should take some time and make a list of her financial goals and prioritize them. If she wants to buy a home then living frugally, as she is doing, while she saves for a down payment is a good idea. Some of her friends who bought homes recently probably lost a lot of money since prices are down, and will have be struggling to make morgage payments as the adjustable rates are ratched up after the first few years. That’s why her friends are bragging about their vacations and not their real-estate acumen, and that’s why it’s bad to compare yourself to others. People don’t brag about their mistakes so you compare everything you know about your life to the good front they put on their life.
She shouldn’t base her decisions on what her friends are doing. If she want’s to compare herself to others she must include those who are less well off too. There are many many more less well off than she is.
If she gets laid off during a recession and has to wait months before she can get a job she will see that she is doing the right thing right now.
If she wants to live and work in new york then she should start looking for a job there. The jobs pay more there because living expenses are higher but she should expect to live in the suburbs and commute like many many other new yorkers.
If she feels like she can’t get ahead then it makes less sense to spend like her friends. She needs to keep track of her net worth. Then she will see that as she pays off he debt her net worth is increasing just as if she were putting that money in the bank.
If she can get a return on investments higher than the interest rate she pays on her student loans, then she would be better off investing rather than paying them off ahead of time. That assumes she knows how to get a higher return which probably means she has a long view, and that she will not spend her investments on a vacation.
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Annie, spend more money! Buy a fancier car! Use up more gas! Get a big home loan! Run up the credit cards! Spend! Spend! Spend! Now my advice is straight from my heart because overconsumption benefits me directly. Since I own index funds that cover the entire stock market, I will benefit on both ends from companies lending you money and the companies taking your money.
Ok, this was a bit tongue in cheek but this is my perception now. Somebody complains about high gas prices? I rub my hands because I own oil companies and a commodity index ETF. Somebody complains about credit card or bank fees? I rub my hands because I own a wide set of financial corporations. Somebody shows off a new car/TV/computer? I rub my hands because I own all sorts of manufacturing and consumer goods companies. Everytime I see somebody living beyond their means, it’s to my benefit and my goal is not to transfer my hard-earned cash to some other share holder.
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Student loan debt, along with a mortage, are the two kinds of debt I think are fine to pay off at the rate at which you financed them. The interest is low and in both cases the loan was made to make an investment. I say pay the minimum on your student loan and use that exra bit to treat yourself from time to time.
If you eventually find yourself with more cash than you now what to do with (except to waste it frivolously), that’s when you make extra payments to those loans. Even then it’s technically better to invest that cash in an index fund, or something similar, but I definitely get the desire to be debt free.
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listen up annie, i’m going to give it to ya quick.
if you’re not happy then what the hell are you doing? save the amount that makes you feel secure. blow the rest on drugs and booze and whatever else makes you happy.
one day you’re going to close your eyes and wake up and be 75 years old. spend it while ya got it. save what you need. enjoy it. why the hell else are you even working?
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Annie – from someone older and hopefully wiser,
When I was 28, I had nothing but a husband in graduate school and a job that paid…(well not very darn much) so you are doing great. But all dieters need a treat once in awhile. Don’t eat a whole gallon of ice cream, just buy a pint of your favorite Ben and Jerry’s and enjoy a nice luxurious bowl – metaphorically, of course.
Then sit down and figure out how much you think you will need to retire, buy a house, or move to New York and make a plan to get there.
Jane Bryant Quinn (in “Making the Most of Your Money”)says to start your financial plan with a wish list because “The whole reason to have a financial plan is to focus yourself on what matters most and work out a strategy for getting it.”
Saving just to save is no fun. Saving to get something you want – a house, a family, a different job, an early retirement, security, a trip to Barbados, whatever … is what it is all about.
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I’m in almost the exact same boat as Annie (except I have more debt)! I love the “listen up annie, i’m going to give it to ya quick” comment, and it’s a tempting route to take (“save the amount that makes you feel secure. blow the rest on drugs and booze”). And I’ve been there. And it’s great! But living in debt sucks perpetually, so I say keep it up, Annie. Get out of the hole, start building some capital, and by the time your 35, you’ll be living large. Remember, we’re living longer, and the 30′s are the new 20′s. Go into them strong.
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Annie, you need to make sure that you are in the right environment to earn a higher salary. In your email, you mentioned that you are 28 (still pretty young) and you know that there are potentially better jobs (I’m assuming this means higher salary and more openings in your field of work) in New York. You should try to apply for jobs there and be prepared to move there if you get a job. You are still young, and you need to grow your income on top of saving to be able to have a good life down the line. You could be saving 50% of your 42,000 a year salary, which is the same as 21% of a person that earns $100,000/yr.
Yes, you need to save, but sometimes you have to take calculated risk in life. You have to be confident that you are as good as the other person earning $60,000 in NY doing the same thing as you are right now.
Your saving rate is very good btw, but you have got to save what you can, and not let your health suffer because of this. Just remember that you need to healthy to enjoy your wealth down the road.
My Own Millions Blog
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I had this same question. Then I realized it has to do with family. It cost me $100k to put myself through my undergraduate and graduate degrees (including living expenses). I wasn’t able to live at home, as I was from a small town, and my parents weren’t in a position to help me with tuition or expenses. When I graduated, I still had to live on my own. I had to buy my own car and supply pretty much my own downpayment. The people I know who are out spending lots of money had their university paid for (putting them $50k ahead of me, just for tuition and books), often received their own cars (another $10k-$20k), got downpayments, and lived at home until they were in their late 20s (saving at least $120k in rent, expenses, food, etc). If they saved even half of that, they’d have $90k in the bank, plus whatever they got for a downpayment. And that’s before they even start to set aside money for retirement, emergency plans. That’s just 50% of the difference between what I had to spend and they got for free.
Now imagine they marry someone in a similar situation. And say that person also saved 50% of those costs. Now they have $180k, plus whatever downpayments their parents supplied.
Even if they saved 25%, not 50%, they’d have close to $100k between them AND they’d still be in a position to have emergency funds, retirement savings and the like.
Then consider that some of them have elderly grandparents who might send $10k or $50k inheritances their way. They can thus afford to live a little more on the edge. Plus, maybe their parents urge them to take out big mortgages, since Mom & Dad can always cover a few months of payments.
Oh, and the people I know in these circumstances? Their parents tend to provide FREE childcare during the day, freeing their children from another $12,000 to $25,000 a year in daycare costs (with two kids who are two years apart, this would save $125k over the 7 years till the youngest is in kindergarten). And many of them also provide dinner at night, saving time and money.
At least, that’s the way it is in Vancouver, Canada. Kind of a rip off if you’re from a poorer family outside the city!
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I, like many others commenting on this, am in a similar situation. I 23, paying down student loans, putting 6% in my 401k and increasing my savings. But, at the same time I feel the same pressures that everyone else has expressed in the comments. One comment did catch my eye though when Mindy said “Find some peers who are doing what you’re doing (they are out there) and use them for accountability and support.”
Does anyone know of a good resource to find and network with these types of individuals? If not, should we start something?
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First, Annie is doing pretty well, for being somewhat in debt. With $700 extra per month, I’d say pay off the car and student loan in a year and be debt free. Then save a good down payment and buy a house with a 15 year fixed rate mortgage.
Like JD, I would quote Dave Ramsey, since I’m a Ramsey fan myself. Most of the people you see buying brand new (ie, paying retail), buying big (cars and houses) are doing really stupid financial planning. Sure, there’s the people that get help from parents (which is often loans instead of gifts), inheritence, etc. But as JD said, that is in fact rare.
See, normal in USA is BROKE. Normal people driving new cars are leasing them. Normal people buying big expensive houses are doing 80/20 mortgage loans, where the 20% is a financed down payment. Normal people buy clothing, furniture and other consumer goods brand new at MSRP prices. Or they might get something on sale. But they put it all on credit cards (including the gas they put in the car to get to the mall). This isn’t every case, and it might not be Annie’s friends. However, this is the normal, average behaviour patterns for Americans.
What does this all amount to? People who are just flat out broke. They’re up to their eyeballs in debt. They have a behaviour pattern that only spells disaster. Most people finally wake up in their 40′s or even 50′s and say “what the hell happened?! I was having fun now I’m broke, I need to fix this.” Then they spend the rest of their working years before retirement trying to fix the mess they spent 10-20 years creating.
Annie, your financial plan is spot on, just keep at it with intensity. Pay off those last couple debts agressively, and if you want to buy a house, save up as I said above. Sure, some of your friends might look cooler in their cars and fancy houses, and they might make fun of your frugal lifestyle.
However, to quote Dave Ramsey, “If broke people are making fun of your financial plan, you’re on the right track.”
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Annie,
There’s not much more that I can add to the good advice here. You might consider looking around at other jobs of interest, but if you like the work you do, your peace of mind and intellectual/creative enjoyment will be worth the extra salary you give up for not being in another field.
You really are way ahead of the game in terms of saving and handling money in general. If you haven’t already done so, you may want to review more closely how you spend money. Do you have some expenses that seem frugal but really aren’t? For example, perhaps you spend a lot on cable per month; is it worth it?
But perhaps you really have surveyed all of your options and find yourself with very little money to spend on your wants. In this case, you could make some compromises, for example, with regard to travel. There are many travel/volunteer opportunities that will take you to Mexico, France, and other places. You could also teach English in some countries for a couple of weeks, thus enabling yourself to work and travel at the same time.
But in any case, it sounds like you’re on track. Your 20s may have been lean, but your 30s will afford you more opportunities, thanks to your frugality and foresight.
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@@Ross and others
I moved from Atlanta, GA to Washington, DC. Quite the difference in cost. Here’s a top10 list of things I did, when I came to a new city and only knew 1 person!
1) I joined a social group. There’s one that is free, they have stuff going on in every major city in the US. You can find them at http://www.meetin.org. It was a great way to meet new folks, many of the folks I met are now great friends (I even met my fiancee there), and the variety of events and activities is as unique as the people, so you can do expensive nights or cheap hikes.
2) Join a local sports league, or your work sports team. Its like 20 bucks for a quarter, and social interaction with folks, meet more contacts, etc…plus exercise.
3) In that vein, outdoor clubs are cheap. Hiking/Camping/Biking etc…cheap, cheap cheap. Nothing like going camping with friends and eating smores.
4) Other hobbies that are cheap include salsa or swing dancing.
5) Live small, but comfortable.
6) Pick your location appropriately. I paid a bit more in rent to live closer in, but living there allowed me to ditch my car, take the subway, and walk to things (or bike)
7) Host potluck nights, movie nights, board game nights, cause theyre cheap too
9) As a young person, dont go crazy dating…its expensive enough to date one person. keep the dates low cost, but classy
10) The Salvation Army DOES have good clothes for cheap.
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The only changes i would make is to put LESS in the 401-k. Put in just the amount a company matches, and nothing more until you get a few raises. Usually a company will match up to 6%. That would mean a difference of 3870 – 2580 = $1290 per year. Not all of this would be increased income, as 401k is pre-tax, but you’ll get most of it.
$2580 per year will still get you to $1mm by age 65, and you can increase as you get raises.
I would do this because a 401k money is difficult to use before retirement, whereas a Roth IRA or just a taxable investment account would be more useful when saving to buy a house or need money for fun or medical care.
Secondly, don’t change your student loan paydown. You don’t have enough debt for the interest to help you (std deduction is higher), which is good, so paying it off would help you most. You may be able to consolidate or refinance down to 5.5%. that would save you a bit.
Use the extra money not put in the 401k to pay down debt, or to start a fund for a housing purchase. It can be a Roth IRA or just a Vanguard Mutual Fund. The regular mutual fund might be best if you can get to $3000 for the start up… you can pull all the money (paying taxes on it of course) without the penalties of a Roth IRA, and it too will rise at 10% per year. With a Roth as your home purchasing fund, you can only pull the money you put in without a penalty. This would only be around $9k-12k in 3 to 4 years. In 4years at 10% gain per year, that would give you an extra $2k for a home purchase, or approximately $14k.
You are doing fine as it is though. No need to make any quick decisions. Good Luck.
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My situation is somewhat similar to Annie. I don’t have nearly as much saved and I make quite a bit less, but I also have no debt whatsoever. I’m 29 and I try to approach my personal finances in the smartest possible way for my situation, yet I often wonder if I should relax a bit and live a little more.
I think that a lot of people my age will get turned off by the long term approach that is espoused by so many when talking about personal finance. Almost every comment here argues that ‘it will pay off in the end’ in a ‘light at the end of the tunnel’ sort of way. Well, the problem is that now is most likely the prime of my life, not when I’m 60. I’d rather do more and experience more now than when I don’t have the energy or willingness left to do it. The idea of having being a having a ton of money in the bank and sitting on the beach at that age isn’t really that appealing to me. I’m more interested in a life full of rich experiences, enjoyment and also financial security throughout than one in which the rewards are waiting for me at the end of a long hard road.
I’m not advocating reckless spending, irresponsibility, or massive debt accrual. I’m just suggesting that it is easy to take personal finance to the extreme and deprive yourself of things that make you happy now in the interest of being happy 30 years from now. I don’t actually disagree with a lot of the comments here and I take most of the suggestions seriously in regards to my own situation. However, I want to remind people like Annie that happiness should come first. Make smart decisions about your money, but make sure they are decisions that help you live the way you want to live and get as much enjoyment out of that lifestyle as possible without being fiscally irresponsible.
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Penny pinching isn’t necessary if you aren’t happy. Life is too short to be unhappy. Do whatever is needed to be happy.
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I guess I’ll join the chorus here with everybody else. I’m 32 and make about what you do. I put 10% into my 401k to get my 7.5% match and have $5k in the emergency fund. I found the cheapest apartment close to work that I could and according to the budget on Quicken my free cash is about $1100 a month after rent, food, gas (no car payment), utilities and insurance. Of that I am throwing approx. $1000 toward my student loans per month. Last Jan. I owed almost $24k; if I pull out all the stops I will have it done with and debt free in Sept. this year.
I find that I have the same Jones issues that you do. The guy in the next office I eat with every day has 5 BMWs and a house with 3 acres; believe me I know about the Jones’. You know what he complains about? He complains about how much money he wastes on junk that fills his house so full that he can’t use 80% of his floor space. Now that is a spending addiction!
I have the same funk and cash flow fatigue that you do. I found a few things that will lift my spirits. 1) Find somebody that will encourage you on your quest to be debt free. 2) Get some personal finance software and generate a net worth chart (I like Quicken). I have the last year up on my wall in front of me at work. Currently for me it says that in the last 12 months I went from -10,000 to +18,000. Keep a visual motivator handy to see your progress. And, 3) when I can, I listen to personal finance audio books or radio show hosts like Dave Ramsey who advocate debt reduction to reinforce my discipline.
I do very little shopping, I buy most of my books on sale days as the thrift store or read them at the book store or library. I buy oatmeal 18 lbs at a time from the warehouse store and 90% of the time I only buy sale items at the grocery store. But, you know what, it will be worth it when we owe NOTHING to anyone! Live like no one else and pretty soon you’ll be living like no one else.
Best of luck on your journey,
~Jim
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I don’t believe in living purely for retirement any more than I believe in living for ‘the next life.” I do believe each individual should be 100% responsible for his own retirement, though. So that’s a ver important expenditure.
Definitely don’t deprive. Indulge sometimes.
Also the way I look at it ( or at least my goals and what I hopee to happen), I plan to keep increasing my income. At the same time I will maintain the major parts of my lifestyle. I wont save or invest 100% of any increases, and I also won’t move into a bigger house or get flashy cars,etc. So I will have more breathing room and entertainment/recreation money. I feel like “starting out” there is a base that I feel I really have to invest and save for retirement. On lower starting salaries or startup entrepreneurial endeavors, the bite is a little more painful. As I make more money the portion ( even if the same % is maintained)paid to retirement and savings feels lighter.
For example: You make $40,000 and save 10%. It isn’t easy, but you are able to “get by” on that. If you endup making $50,000 in a few years ( assuming soon enough that inflation doesnt wipe it out 100%) and keep a smiliar (probably modest but comfortable) lifestyle, saving 10% get’s easier. Plus you have more breathing room and fun money without going wild.
Of course things like major lifestyle changes, having a lot of kids, adding a spouse with no income,etc- can mess up those plans.
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I definitely agree with the advice given in the post. Don’t deprive yourself! I actually found that key to finally being able to stay on a budget. It took me forever, but I finally *got* the “pay yourself first” philosophy. Now, no matter what, I keep 10% of each paycheck to spend on whatever I want. It makes it a lot less tempting to dip into the rest and what you can afford to do for yourself seems like more of a treat.
Another thing that helps is being in cahoots with someone who’s trying to do the same thing you are (I have my boyfriend but it could be a like-minded friend or internet group or whatever) and you can get together and talk smack about everyone else who spends beyond their means and how nouveau-riche gauche it is. Snotty, I know, but it makes me feel better.
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You’ve gotten a lot of great advice.
On the job front, you should know that my cousin (who is interning at one of the publishing firms) just found a 3-bedroom converted apartment in Park Slope for $1800/$600 each, so it is possible to live in NYC on a publishing salary if you’re flexible.
In the meantime, you need to figure out something to do to keep you from feeling so pinched NOW. Rolling back the 401(k) or student loans a bit (say, $50 a month) won’t kill you if you bump them back up next year, and might help you breathe more easily. But I also think you should think about how to handle being free of your car payments.
The standard advice is to roll that “found” money over into other debt payment, savings, etc. But, if you’ll have three months at the end of this year without it, then why not be a bit frivolous until the new year and fund a “blow it on fun stuff” account instead? $700-$800 won’t get you to Hawaii or Iceland, but it could get you a trip to several US cities (given a carefully purchased plane ticket and a couple of nights at a modest hotel, you might even have some money left over for sightseeing). It could get you an electronic gadget or two that you’ve been wanting. It could cover a decent shopping spree.
Then, you could go back to being responsible with the money in January. But in the meantime, you’d have the rest of this year to plan how you’d use it, and then probably a few months next year of getting things in motion. And that might help you feel like you’re doing more than just having eggs for dinner.
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Oh, and one more thing:
beanspants1, the student loan interest deduction is “above the line,” so even people who take the standard deduction still qualify for the full deduction as long as their MAGI is under $50K, and for a partial for those with a MAGI under $65K. Annie should be able to take that deduction for quite awhile, given her base salary and 401(k) contributions.
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My advice would be to stop paying so much on the student loans and put more money into the emergency fund. Student loans usually have a low enough interest rate that it is worth it to stretch out their payment and take the loan interest reduction on a tax return.
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[...] digg, reddit Over at Get Rich Slowly, J.D. posted an interesting discussion on the question of when the payoff comes for all the work of being frugal, saving, and investing. To quote Annie: I look around and see people my age buying expensive condos, carrying expensive [...]
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I recently addressed the same sort of envy issues on my blog (Time or Money-envy) so I understand Annie’s perspective.
Truthfully the big pay-off comes mostly late in life, when you’re older or retired. That’s when you see the difference between those who saved and those who didn’t. It is not only a difference in lifestyle (traveling or staying home, taking interesting classes or watching TV at home, and so forth). There is also a difference in mental health. Those who have retirement savings generally enjoy a greater peace of mind and feeling of independence.
At the same time, for my older relatives, money is secondary to health and family/friends. There are many ways to enjoy life without overspending.
So my advice is to travel more! Sure you could save more but traveling abroad is truly a rewarding experience. When I was your age, I travelled to Europe and Asia even though I lived in a high cost of living area (and I definitely made less money than you do).
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Annie,
The sunblock is worth it. I’m on the other side of 40.
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>>I can’t afford to live in New York
Why live there?
There are *tons* of publishing jobs in places much more affordable then there. You can buy a 5 bedroom house in the swankyiest part of Atlanta or Austin for what a 1 bedroom condo costs in many places in Manhattan.
There are *tons* of non-publishing jobs in new york that pay much more yet require the same skillset you have. For example: Atlanta and Austin.
Pick one. Or start your own publishing house and take the profits that are obviously not being paid to the employees yourself.
New York, San Francisco, Boston, Chicago are all hideously expensive cites to live in, and in general, draw materialists to them in droves. Therefore, many *more* of the people you hang out with in those cities will make you feel deprived, where if you live somewhere more modest, you’d have to try to find that type of person.
You impress me even more you have done what you did while in NYC.
–Michael
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When are people going to stop comparing themselves to everyone else? it is simply stupid, useless, fruitless, and every other idiotic sentiment i cannot conjure at the moment. everyone is unique and everyone’s situation is unique–that is, unless people are living on some clone island that has missed the eyes of the Enquirer.
Annie, you shouldn’t be asking yourself when the payoff will come, because it is a useless question. unless you are roaming around aimlessly in life, which you may be, then you should already know what, how, when, why defines the payoff. if you do not know, then you seriously need to think about what you value in life and what you want out of it. the payoff isn’t a yardstick measured by how other people are living life, it is how you want to live your own life.
second, i get the sense that you are saving without direction with comments like “it had better payoff.” Do you have short, mid and long term goals for your budget? if so, then the payoff are those goals. If not, then you need to figure out what your goals are in life and adjust accordingly; otherwise, you are putting money away for the sake of putting it away.
third, a budget isn’t for the sole purpose of saving. a budget is so you can spend money, too. if within your goals, you can spend money on need and want items, then do so. if you need to adjust things, because want and need items have associated costs, then adjust accordingly. everyone seems to be living in a fixed world, when life isn’t as neat and delineated as such. flexibility is essential. just understand that there are associated costs: extending the time frame until retirement, extending debt payoff, etc.
When are people going to stop using meaningless numbers, too? if all things were equal, numbers make sense. life isn’t as static nor cut and dry as numbers make life out to be. it makes no sense numerically to delay repaying a loan, in lieu of taking a trip to zanzibar. if you want to take a trip to zanzibar, just account for it and know the costs associated with it.
what you are doing wrong is that you are comparing your situation and your values to those of others. STOP IT!!!
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one other thing, life simply isn’t fare when you compare yourself to others. people will make more than you, others will make less. someone will lose a leg, others will not. the point isn’t to take the life isn’t fare approach to living life, but to look at yourself and determine what you want to define your life.
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Annie,
Two things. First, don’t let today’s housing prices convince you that you will never be able to afford a house. Also, don’t be in a hurry to buy. There’s a lot of downside to the current housing market, and anyone who doesn’t think so should go out to YouTube and search for the home price roller coaster video. It’s an eye-opener.
Second, you should decide what it is you like about publishing as a field and what your ultimate goal is. Because you really may not have to give it up. Do you want to edit fiction or magazines or best-sellers? Then you may want to take Scarfish’s advice about NYC. It’s certainly doable. My sister lives in New York on a shoestring and is very happy because she’s doing what she likes.
But if it’s something else that draws you, look to Lindsey’s advise about other options. There are University presses, textbook publishers, and small presses galore out in inexpensive medium-sized cities where you can afford to live. Remember that many of theses options provide benefits that more than make up for the lower salaries, quite aside from the lower cost of living. My university, for example, puts 10% of my salary into a retirement fund, with no match required. They also pay tuition if I want to take classes, pay the lion’s share of very good health insurance, and provide five weeks of vacation a year, all in a city with a median home price of less than $200,000.
Whatever you decide, good luck, and do take to heart what many others on this thread have said. Be sure to take a little out to treat yourself every now and again.
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Take the dang cheap vacation to Mexico. Just about every city has competitive rates to fly down to Mexico. Especially Cancun for around $200. Once you get down there, everything is really cheap if you don’t stay at the 5 star US standard hotels. Go for the mom & pop shops. You will have a far better experience while everyone else who goes down there will feel like they never left US soil.
Want to really save money & have fun. Stay at a hostel while you are still young. Plenty of people like you. I’ve had a blast doing that.
Pick up some Lonely Planet Guide Books to plan a frugal vacation that is 10 times better anyone else will get:
Mexico
Belize & Guatamala (Beatiful, gotta ride the chick bus!!!)
Instead of spending most of her time in Cancun, I would suggest hitching a bus down to Playa Del Carmen. Much more relaxed.
Seriously, plan trips where the biggest expense is the plane ride to the country. Once you get there life is on the cheap.
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Annie should stop her 401K contributions all together and save for a condo. Then when she moves in she should get a friend to rent with her for a few years. She own a nice place and be building equity. And her friend will help. Later on when she moves she can rent this place out. And in retirement it will be income producing asset. Annie – Money should be a vehicle to get you where you want to go. It sounds right now money is driving you. Who needs the stress. Life is uncertain – eat dessert first.
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@Don: Well played w/ the Wii comment.
@Annie,
I’m in a similar situation. I just opened a Vanguard Roth IRA this week, I signed up for the 401(k) at work two months ago, and I dump lots of money into online savings accounts every month for emergencies like a new car or medical bills. I also see my friends buying many fun things, and buying expensive things, and it’s really tough not to compare my relatively frugal self to them. But, I realized recently that I don’t know about their financial situations. And even if I do, it really doesn’t matter, because what makes them tick is different from what makes me tick.
I can be happy w/ a single yearly expensive purchase (the Wii last Christmas) that will bring me years and years of fun (“Rayman Raving Rabbids” with a bunch of close friends was well worth the cost
). I have friends who buy new, expensive gadgets every month, but so what? I can be happy buying a new graphic novel or a CD every few months, since I only buy those fun things when I know I’ll get enjoyment out of them for years at a time. I have friends who buy books and CDs all the time, but again, so what?
You have to do what makes you happy and comfortable, not what others think you should do or what you think others want you to do. It’s not a race against anything or anyone but time. With your retirement savings, and your debt reduction plan, you’re setting yourself up for a bright future, and that’s all that matters. Re-read some of your favorite sensible personal finance books for inspiration, figure out what matters to you, and tune out all the noise.
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Many young people today (and in the past) have rich/wealthy families who support them in school/life. Sometimes it’s a bit outstanding how much money is thrown around. My nephew just got a 40k vw for free, free education, and expensive gifts…all from a rich grandmother. It’s a bit unfortunate that people who have to “make it on their own” are frustrated by this sort of imbalance in life.
Read freakonomics, it’s a real good book and exposes the propaganda that you are subjected to…
I can only advise (while they rub it in your face…) to ignore and avoid those “friends” and work on doing what you love to do. Save you money, pay your debts, and build your own life. You really don’t have a choice anyway
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I came late to the discussion, but everything said is true. I’m 36 right now, and I’ve done most of the right things. I was basically an Annie, except I went to school on scholarship and didn’t have that debt to deal with. I remember always ordering water when I went out to eat, to keep the bills down.
Now I’m helping my friends get their lives in order, so I think you’ve nothing to compare unfavorably against. I just helped a family member (just older than me) open an IRA. No retirement savings yet, none. And if that doesn’t cause them stress now, it will down the line.
I just encouraged a friend (also older than me) to set a plan to pay off her credit card. I even bought her a copy of Elizabeth Warren’s “All Your Worth,” just to get her inspired. No retirement savings and plenty of stress already.
Warren btw, might say you are saving too much and not spending enough on yourself. It’s worth thinking about and others suggested that too.
You will definitely feel more free to spend on yourself when that car is paid off, so don’t stress about it. That’s not very far away.
I love the suggestion to join a group or club. Having something cheap and fun to do regularly with other people is totally a life improver. I suggest bellydance. Body type is surprisingly unimportant, and it’s really fun. In my experience the people who do it are very encouraging and fun.
If it costs to join a group, you might find a university or college group. At your age, you’d still fit in well (although after a bit you won’t even care because you’ll just be one of the girls), and in my experience a lot of student clubs are free and just happy to have people come whether they are students or not.
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I have a different approach; rather than maximize my frugality and savings, I constantly strive to maximize my income. Of course this isn’t always possible but I think more people have more earning potential than they realize.
Anecdotal data point: my first job in my current field paid $32k (in 1998). Two years later I had negotiated a series of raises and was making $50k at the same job. I then left for a $75k job, and over the following 6+ years I have been promoted and negotiated raises so I’m making low 100s. By this time next year I plan for this to be mid-100s. I’m not a genius, and I’m not a master negotiator. But I have ambition, and do well enough at my work (I work very hard) to justify compensation increases. I keep tabs on what the market supports, and make sure I periodically (meaning at least yearly) discuss my compensation w/ my boss(es). Considering I’ve essentially quadrupled my salary in the last 8 years, I think my strategy is a successful one.
My point is not that everyone can follow this kind of trajectory (some fields are more lucrative than others), but that spending a few hours negotiating a raise will probably pay much better long-term dividends than any amount of efficiency or investment of your current funds. There’s the added bonus of starting your next job’s salary negotiations on a higher plane as well.
Saving and being frugal on one hand, and pushing to earn more on the other, are COMPLEMENTARY strategies, rather than being mutually exclusive — but if you’re working hard to make $43k sustain your lifestyle, investing some time to make that income $53k or $63k will ease things no amount of frugality could.
HTH someone out there!
/Chris
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The answer is: 5 years. Once Annie gets her debt out of the way she will notice a jump in her standard of living.
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Annie,
PLEASE do not walk around with a long face! Your friends are living on their credit while you are living on your assets. Wanna guess which will run out first?
Another point: there comes a point where the passive income from your savings investments will allow you to afford a decent lifestyle indefinitely … and it happens sooner than you might realize once you consider that you do not have to spend your money in the same place you earned it. They say that Belize is lovely this time of year.
Get your head out of the box.
Your friends went to Iceland. YOU go to Houston for the ballet or Detroit for the symphony or to the Hearst mansion for the art. Go =somewhere= to =do= something. There is even a wood-turning expo coming up in Indiana this fall with world-class exhibitors. $300 for all three days (inclusive of meals) plus $22 / night for dormitory lodging. You could save yourself several thousand dollars, meet some incredibly interesting people from all over the world, and still have something unique to talk about.
And that’s the point, isn’t it … they’ve seen things you haven’t. Counterpoint: go see things they haven’t. The cost is less relevant than the novelty. Since you’ll never catch up by chasing after them, strike off in new directions.
Write a freelance article about what you see and do, market it, and write off the cost of your ‘research’. Just take some notes and keep one eye cocked for ‘the story’.
For instance: what kind of people fly in from New Zealand to talk about wood-turning, anyways? And wait until you see John Jordan creating his work while you watch. He isn’t even a headliner at this event. DAGS for him, though, and be prepared to ooh and ahh for a full evening. What do you think of meeting the modern masters of an ancient craft? Possibly even sharing a beer with them and finding out that they think that YOU are the fascinating one?
Probably next year I will get to Ireland. It’s where my ancestors came from and -just once- I want to stand on the same ground they did. I think it will be good for the man within.
Then back to work.
Anybody want to buy a really nice pen?
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Annie,
You’re doing all the right things. Keep it up. Perhaps a small change in perspective is all that’s required? There’s been some great suggestions in the comments above.
We used to vacation in Europe and Asia. We found it to be a beautiful and culturally rewarding experience. But it cost $$$. Now we vacation locally in California. People come from all over the world to visit our state, and there’s still so much of it we haven’t explored. Vacationing locally and camping out is a great way to get out of your rut, know your world, and to save money in the bargain.
Maybe you could watch a documentary on poverty in Africa or some other sub-developed country. These are usually brutal, but they always serve to remind me how damn lucky we are, and how high on the hog we really live in the USA.
Another possibility is to spend a weekend serving soup to the homeless. Again, a brutal dose of reality that may help give perspective.
Get out and walk in nature away from the crowds, buildings, and all the detritus of civilization. Stop and ponder the views, creatures, and how it all just fits together. For me, these are just the tonic I need to completely forget my material woes.
Another secret: it doesn’t matter what you have achieved. You could always want more. I’m 45 and am tracking reasonably well with my savings and lack of consumer debt. Over time, I’ve learned to rein in my desires and non-essential spending (although I still indulge a little too much in books and restaurants). Do I wish I could retire sooner than I project? Of course. But I think if I had been as diligent when I was younger as it sounds like you are, I’m pretty sure I would be much further ahead of the game.
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[...] (In some ways, my current state reminds me of Annie, who last month wondered, “When does this all pay off?”) [...]
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One thing that helps me feel I am “making progress” is to periodically check my net worth and my total unsecured debt. This can be done easily with programs like Quicken, an Excel spreadsheet, or simply with a pencil and a calculator. Every three or four months, if I can see that the debt has decreased and the savings/investments have increased, I feel reassured that I’m on the right track.
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didn’t read all the comments, but Annie, stop throwing money at 100 different things. You need focused intensity. With your income, you could be debt free in less than a year. here you go DR fans -
purchase house, 15-20% down, 15 yr/fixed, 25% of take home pay, yada yada
1) temporarily stop investing for retirement
2) save $1000 in an emergency fund
3) pay down your debts, smallest to largest, as fast as you can. You can do it in less than a year, if you WANT to.
4) build up your emergency fund to 3-6months expenses
5) resume investing for retirement, just do it at 10-15% this time
6) start saving for your down payment on the house
7) start saving for replacement on the car
9) start paying the house off.
10)when the house is paid off, girl, you will have it MADE!
IMHO, I think you could do all of this before you are 40. Remember, you are going to probably live to be about 85. Just think, it is all going to start paying off around 40 years of age, as your income increases, and your bills (mortgage) go away. So from 40-85, you will have no or minimal house payment, which will free up about $1000/month if your income never goes up. Hmmm. I don’t know about you, but I could have some serious fun for the last 45 years of my life with an extra grand a year. It gives me goosebumps thinking about it.
Hang in there. Read the TMM by DR. You are going to be fine. When your 40 and suddenly wealthy you will be thanking yourself for all your hard work. good luck!
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i mean an extra grand per month, not year….Cha-Ching!
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Not to be a pessimist but I thought I should throw it out there- If you were to die tomorrow are you okay with the way you have lived so frugally so far? Although it’s important to be frugal if you deprive yourself you have to ask yourself if you’re alright if you lived like this your whole life (if you were to die really soon). Just a thought that I think about when I wonder why I should care so much about retirement…what if I don’t even make it to 59.5? Would I be happy that I lived in a sack all my life just so I could retire as a millionaire? Nope. Balance/moderation is good.
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Annie, I didn’t do any of the things advised in this forum. Instead, I listened to my Dad.
With a ton of money in my wallet, I didn’t invest in Microsoft when it first went public because, as my Dad said “That’s a rich man’s game.”
Well, he was right on that point, at least.
I never saved because I would always have a good job, since I was bright and a hard worker. See that blue light on the back of the freight trains? That’s my best paying job ever … or what’s left of it. As a railroad conductor I would “always have a great paying job”. That ended in 1976 … but not before I took a serious back injury that I was hoodwinked into signing off on. And not before I spent the better part of a year laid off without even unemployment income, way out in the country with a broken down car. It’s okay to cheat people of their unemployment income … they don’t have enough money to sue you.
Take it from the old guy … life is like a football — it takes funny bounces. If you have cash, you can ride out those bounces, perhaps even capitalize on them. If you don’t, you can’t. It’s that simple.
If your friends, earning roughly what you are earning, are ‘living the good life’ … they don’t have much cash. They can’t survive a bad bounce. You can.
Keep strokin’ girl … you are on the right path and in short order you will have both solvency AND the toys to go with it.
By the way, my Dad is living out his retirement years in subsidized housing. His great pension is spent on his medicines. I don’t think that his way worked very well.
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Annie, I’m also 28 years old and, like you, I’ve sometimes become envious of my peers who seem be getting what they want in life while (among other things) I still live at home. It’s disheartening sometimes…
I apologize in advance if the following has been said already:
The key words there are “seem,” “to” and “be” – because not everything is always as it seems. Truth be told, they might be carrying a lot of things that they’re not be telling you about – like humongous debt loads.
P.S. Congratulations on having only three years left on your student loan payments. I have a much longer way to go, but I also have a plan (other than passively making the monthly payments). That makes me happy.
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Yes, its worth it. My husband and I saved all through the years. Toward the end it was 30% of our income. You think we were making a lot but my husband never made over 35 grand and I made in the 40′s. I went on disability when I was 43 and was never able to work again. I spent two years in bed and got well enough to be out some. We sold the house and got an RV. We’ve traveled all over the country and had a great time. If we hadn’t saved from the beginning, we would have been in a lot of trouble. It was worth it!!!
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