The following is the latest post in my "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. The series seems to be very popular with readers and I need a steady stream of new ones to keep it going.
Also, please leave constructive comments, questions, and so forth. Simply telling someone what a mess they have, how they have made poor decisions, and so forth is not helpful. There is a way to say, "That was a mistake, but here's what you can do to correct it" that both acknowledges the problem and offers a solution. It's this sort of feedback that this series is intended to solicit.
Next in the series is FMF reader LN. She answered my questions (in red below) as follows:
Please tell us a bit about yourself.
I’m a 27 year old female, single and live in a large city. I work as a nurse, so my job is pretty secure as long as people continue to get sick. I went back to school for my nursing degree in my mid-twenties, so what little savings I had accumulated before that point were used for school/living expenses (we were not allowed to work during my program). I started my current (and first) nursing job a little less than two years ago, and it was 6 months ago that I really began to focus on budgeting and saving. I currently share an apartment with my sister, so we’re able to live pretty cheaply in a fun (and otherwise expensive) part of the city.
Describe your financial situation (who works in your family, how your income is (general), how your expenses are, etc.).
Average Take-Home Pay: Post-tax and insurance pay is about $4100. I’m an hourly employee so it varies based on if I work overtime or take vacation.
- $725 rent
- $175 utilities/phone/internet/TV
- $80 gas and auto expenses (I live very close to work)
- $20 renter’s and flood insurance
- $300 food (includes eating out)
- $95 gym membership
- $30 charity
- $270 misc. expenses
- $640 savings (this is what I budget for, but it’s usually closer to $800)
Discretionary: ~ $1,750
- 2003 Honda Civic - paid off
- Old 401K - $2,900 (in the process of rolling this over to an IRA)
- Cash Savings - $13,000 (divided up as below)
- Emergency fund - $7,000
- Travel fund - $600
- Xmas fund - $300
- General Savings - $5,100
- Cash - $3,000
What are the current financial issues you're facing (saving, paying off debt, etc.)?
I just finished paying off my students loans this last month. (yea!) I’d been paying about $800-$1100 per month because I wanted to get rid of them quickly for my own peace of mind. Now that I have that extra money freed up every month I’m not sure the best way to allocate it. I’ll also be getting a raise next month, which will give me a bit more money to work with as well.
My long-term savings is obviously lacking, so I’d like to tackle that first but I’m a little more afraid of putting money in the market as aggressively as I had been with paying my student loan. I’m also a bit naïve about where to put my money in terms of specific funds. I’m reaching the two-year mark at my work which will make me eligible for a 6% match on my contributions to our 401K, so I intend to use that as soon as it’s available. I’d also like to max out my IRA. Beyond that I’m not sure if I should put the excess in short-term savings, the market or some other financial option.
I’m also wondering what people think the best option is for saving for a house. I know that you are able to take money from a 401K penalty free if it goes toward your first home, but I’m not sure if this is the best place for me to put that savings or not. Just to clarify, I’d be putting money in this account specifically for this purpose in addition to retirement money, not taking money from my retirement allocation for a house.
What are your plans for the future?
I have many plans! In the next 1-3 years I’d like to replace my sturdy Civic for a newer vehicle. At this point I’m planning to let fate decide the exact time based on when something major breaks. I’d also eventually like to get a home, but probably not for another 5-7 years as I’d like to live in a few different places before settling down. I’d also like to go back to school for a master’s in nursing within the next 10 years (preferably closer to 5). They have a lot of options through hospitals that provide partial reimbursement for education expenses.
Also, the flexible schedule in nursing makes it fairly easy to go to school and work at the same time, so I don’t anticipate there being a huge change in my financial situation, but I’d like to have some extra money set aside for this anyway.
What is your best piece of financial advice?
I love using percentages. When I first started budgeting this year, I broke down what percent of my income was going where every month. Then I was able to see if this was in line with what was important to me in my life. For example, before I started tracking my finances I had been spending A LOT of money eating out and hardly any money on travel. But I enjoy travel so much more than I enjoy food! So I started allocating a certain percent of my income every month toward travel, and if I don’t use it that month it goes in my travel savings. Because of this (and again, the flexible work schedule) I’ve been able to go on three trips in the last two months.
I’m also a huge fan of getting rid of the feeling that I’m “checking account rich.” Anytime I see that my checking account has gone above the average amount I keep in there (and I know I don’t have a big expense coming up) I immediately get rid of it into savings or paying off my loan. This way I always end up saving more than I budget for without really feeling it, and the temptation to spend it on something frivolous is taken away.