The following is the latest post on my new "Reader Profiles" series. Each post in this series details the financial situation and challenges of an FMF reader. The purpose of this series is to help us all identify with people like us (in similar situations -- not all will be, of course, but eventually I'm sure you will find someone like you here), get to know the frequent commenters on the site, and hear some financial wisdom/challenges from people other than me.
If you're interested in contributing to this series, then drop me an email. I'd love to have you tell your story here.
Next in the series is FMF reader Rose. She answered my questions (in red below) as follows:
Please tell us a bit about yourself.
I am a 33 year old single female. I live in the Midwest and work as an attorney for a company. I started out working for a law firm earning $125k and then moved around a bit and have been in my current job for over 4 years. However, now almost 10 years out of law school I am still earning not much more than I started out with in my career due to my job hopping, which totally defeats the purpose of job hoping but my first job was in NYC so anything after that was definitely going to be a decrease. My move from a law firm to a corporate job was the wake up call that made me look at my finances as I had been living paycheck to paycheck and I realized I earn way too much to be living paycheck to paycheck plus I needed to determine if could I afford to live on a little less. Turns out I could once I actually focused on expenses. I took a close look at my finances and started living on a budget and I have now reached the point where I can save a lot and spend on luxuries if I want to but I tend to be frugal so my idea of spending on luxuries is mainly limited to traveling.
Describe your financial situation (who works in your family, how your income is (general), how your expenses are, etc.).
I take care of myself and generally do ok. My committed expenses are approximately 25% or my income. I like to think that number is low as I have worked to cut down as many unnecessary expenses as possible and every year, I focus on my budget to see what else I can decrease. I have a mortgage-an 80/20 loan with the 20% balloon coming due in about 10 years and at 7%, and the 80 being an ARM which has adjusted annually over the last three years to a much lower rate than I could ever hope for. I am paying about 3% and every year I look at refinancing but I live in a condo so am a bit underwater plus I have been intending to move for the last two years so I don’t think the costs of refinancing would be worth it. I am comfortable I would be able to deal with any rate increases (they are capped at increasing to no more than 2% each year) for at least 2 years once rates start to rise. My other big expense was a car. I saved and had enough to pay for my new car last fall. I ended up financing at 0.9% but then paid it all off earlier this summer. I preferred the cash flow and my savings were not earning much at ING. I also have student loans of about $50k at 1% so I am paying those off very slowly.
Monthly, I invest and save about 45% of my income, investing mainly in index funds. I travel a lot for work and for personal since my family and friends live all over the world so that’s probably my biggest expense. As I moved to my current job 4 years ago, I took a really close look at my finances and for almost 2 years, tracked every penny. I have since managed to save up a 1 year emergency fund plus extra and even though I no longer track each penny, I still have a budget so the majority of my dollars are accounted for.
For retirement, I save 6% in my company 401K and I get the max 6% match. I also have a rollover IRA from previous jobs and I funded a regular IRA for the last two years.
That leaves me with about 30% of my paycheck which I further save or spend as necessary.
What are the current financial issues you're facing (saving, paying off debt, etc.)?
The fact that my mortgage has a huge ARM component weighs on me since I like security but I check the rates every few months and since the Fed has announced that they do not plan to raise rates for another 2 years, I am hoping I will be out of this mortgage by then. I am underpaid in my current job and this has been confirmed by peers or subordinates who have taken similar jobs at other companies and has also been confirmed by headhunters. I really enjoy what I do but I am sure I can do similar work at a different company with less stress and feel more valuable. I am hoping to move to Texas once the economy picks up. I have been underpaid for about 2 years and it’s frustrating but I also know with the uncertainty in the economy, now is not the time to jump ship without knowing what’s next. Being able to get rid of my mortgage and my current job and my current city would be wonderful once I have something even better to fall into.
I always feel I can be doing more to save for retirement but my investment vehicles are pretty limited to the IRA and 401K, the latter of which is limited to 6% under the highly compensated employee rules since my company is bottom heavy—lots of plants and employees who don’t participate in the 401K so everyone else is limited as to contributions. And this has been going on for years so well before the recession started. All other retirement savings is in taxable accounts.
What are your plans for the future. (retire early, build your career, etc.)?
I plan to get married and have kids within the next 2 years. I plan on continuing to work until retirement although I do not have a set date yet. I would love to retire in a lower cost of living country but I have at least 25 more years before seriously contemplating those options. I absolutely believe in taking a year off to raise kids instead of the standard 6 week maternity policy in the US which I think is atrocious and sucks for women, but that’s for another post. I don’t know how that will work out with a job but I will do what I have to.
My motivation to keep saving, even though I have reached my major goals of an emergency fund and travel funds are that I can use the money if I need to move or for a wedding. Writing this profile actually helps me think about why I keep saving but I have most everything I need that money can buy so I am quite happy to save the rest for the future and continue charitable donations as often as possible. I actually have an account named ‘charitable contributions’ in my online savings account so whenever it gets to a certain amount, every few months I can donate to my favorite charities instead of waiting till December like I usually would.
What's your best piece(s) of financial advice and/or your general philosophy on personal finances?
I started reading personal finance blogs with the last job change and they have really made all the difference so thank you FMF!
There are a few key phrases I have picked up and everyone knows the basics:
Know where every dollar goesSpend less than you earn
Balanced budget plan- determine what percentage of your income falls in the following brackets for [needs- (committed expenses e.g mortgage)] [wants- not committed expenses but other expenses] and [save/spend]
My committed expenses (needs) are about 25% of my take homes so I get to save 45% and spend the rest. This relieves me from feeling guilty when spending my hard earned money and lets me sleep at night knowing a rainy day won’t ruin me.
My main philosophy is determine what your “Enough” point is. It’s so easy to keep buying stuff, but once you decide you don’t need anymore stuff, your money can really go far. This is also helped by not really caring about the Joneses and not trying to impress everyone around you. It has made such a difference in my outlook.
I plan to teach my kids as much as possible about personal finance. I can’t say my parents deliberately taught me but my mom and dad are polar opposites. My mom would go shopping and hide the results in the trunk till my dad was asleep or out. My dad preferred to save save save although spending on the kids was fine. I come out somewhere between though more on my dads side as my mom’s propensity to shop without purpose helped me to now as an adult, avoid shopping malls or other temptations unless I have a purpose.
No comments:
Post a Comment