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 MK. She answered my questions (in red below) as follows:
Please tell us a bit about yourself.
I am a 28 yr old female. For the past five years I have been living in Washington, D.C. and am currently the office manager for a small law firm. I finally started getting my act together 2.5 years ago when I began using a budget. I started an emergency fund, got out of credit card debt, and started making extra payments to my student loans. I also started saving for retirement. I am single and living in a two bedroom apartment with a roommate.
Describe your financial situation (who works in your family, how your income is (general), how your expenses are, etc.)
Income: $3480 take home pay/mo (I just got a significant raise two months ago, so my take home is up about $300 which went a little to lifestyle inflation ($100), but mostly savings/retirement)
- Rent: $1295 (includes all utilities, cable/internet, and parking)
- Student loan: $480 (Minimum payment is $270. All loans are 2.75% and under)
- Cell phone: $75 (I have to have the data plan for my work email)
- Car & Renter's insurance: $80
- College: $50 (saving money to help cover my little sister's book expenses when she goes to college next year)
- Food (groceries, restaurants, alcohol): $420
- Gas: $100
- Personal care/entertainment/household: $130
- Slush/Vacation Savings: $250 (used for irregular expenses such as new clothes, car repairs, yearly vacations, gifts, etc.)
- Retirement (Roth): $450 (about 12% of my after tax income)
- General Savings: $100 (a chunk of this ends up going to the charity that I also volunteer for)
- Christmas: $50
Additional info: I have a car, but it's been paid off for three years and still runs pretty solidly, so I am hoping to get another 5 years out of it. My employer pays an amount equal to 5% of my salary into a profit sharing account each year. I do not have access to a 401K. Due to income limits I usually can only put a small amount into a regular IRA for a little tax break, so instead I put the rest into a Roth.
- Emergency Fund: $6,000
- General Savings: $2,000
- Slush/Vacation Fund: $1,400
- IRA: $3,500
- Roth: $9,000
- Profit Sharing Plan: $11,500
- Student Loans: $19,000 (started at $45,000)
I contemplated moving to a less expensive apartment this year, but after figuring in the moving fees, increased driving expenses, and how far out I would have to go to pay less (the DC metro area is expensive and the commuter traffic is horrific), I decided to stay put another year.
What are the current financial issues you're facing (saving, paying off debt, etc.)?
I feel like I have a pretty good balance, but I am struggling with whether to be more aggressive with my student loans even though they are at 2.75%. Part of me thinks instead of paying the extra amount I should be putting the money in an investment account since I can likely beat that in the market. But part of me also hates having that debt over my head and it could be paid off in 3 years if I continue at this rate.
I am also trying to deal with not getting sucked into too much lifestyle inflation. It's hard not to say yes to every dinner and night out, since a lot of my friends spend every penny they make or just have a higher income than me.
What are your plans for the future (retire early, build your career, etc.)?
To complicate my life, I am considering a career change. I am currently volunteering 16 hours a month with an organization that helps women and children dealing with domestic violence and homelessness. I love working with the clients and children, and it is definitely the highlight of my week. I am considering going to work for the organization full time, but it would involve a pay cut of nearly 40%. It would be a huge lifestyle adjustment and would basically be like starting over.
What's your best piece(s) of financial advice and/or your general philosophy on personal finances?
Use a budget! People think that it is a naughty word, but it really helped me get my life under control. I feel so much better now that I know where my money is going. It also allows me to splurge occasionally and I love paying all cash for any vacations (as opposed to college when I just charged them because I thought I "deserved" it). Also, save early. I wish I hadn't gotten into credit card debt in college and instead gotten on the PF train sooner.