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 JV. She answered my questions (in black italics below) as follows:
Please tell us a bit about yourself.
I am married, 25, and I work in sales in Pennsylvania. My husband is 25 and is a graduate student. We are college sweethearts and have been together for 6 years but only combined our finances about 2.5 years ago when I graduated from college, we got engaged, and we moved in together.
My husband will graduate with his Ph.D. soon so we both are in the process of finding new jobs for our next stage of life.
Describe your financial situation (who works in your family, how your income is (general), how your expenses are, etc.).
Both my husband and I work. My husband's parents paid for his college, and my college was covered through a significant scholarship, some parent money, and part time jobs. Because of this, we do not have any student loans. We are in the lucky position to be able to focus on wealth building as soon as we have started our careers.
When I first started making money, I did want to buy nice furniture, kitchen gadgets, and clothes -- all things that I had a little but not a lot of growing up. However, since then, I've started to value freedom more than stuff and we have reduced our expenses dramatically. In August, we moved to a crappy student apartment and reduced our rent by $400 a month. Our friends and family thought we were crazy for moving somewhere without a dishwasher, but being within walking distance of my husband's job has been fantastic so we are happier here than we were at the other place. We've also sold our second car in the last few months.
On to the numbers:
- My paycheck: $2,938 (after tax and health insurance, though we normally get a small refund)
- Husband's paycheck: $1597.70
- My company 401K deposit: $119.17
- Average extra income- TA work, bonus: $100
The housing expenses are for our new place. Everything else is averaged over 10 months, which is how long I've been tracking all of our expenses.
- Rent: $845 (gas heat is included)
- Renter's Insurance: $8
- Electricity: $30 (no AC)
- Internet: $47
- Phone: $70 ($50 per month family plan with the in-laws, plus amortized phone cost)
- Fuel/Parking: $203
- Car Maintenance/ Insurance: $212 (new tires this year)
- Medical: $46
- Groceries: $625
- Eating Out: $218
- Alcohol & Entertainment: $47
- Personal Care (Gym, Massages, Haircuts) : $100
- Personal Allowances: $220 (includes clothes, lunch money, fancy coffee money)
- Gifts: $30
- Educational Spending: $65
- Household Spending: $94
- Misc Spending: $200 (books, electronics, or couldn't figure out otherwise)
- Travel & Vacation: $330
Difference: $1,364.87 (29%)
Having affordable housing and no debt makes a huge difference in our ability to save while affording some pleasures. We have participated in multiple weddings and travel to see our family often but are glad to spend that money while cutting back elsewhere. We spend way too much money on food and it required constant attention for us. Also, I'd like to start giving to charity but I haven't figured out where I'd like to give yet.
- Car: $6,000
- Checking/Cash Savings: $7,893 (subtracting credit cards used and paid off monthly)
- Roth IRAs: $21,147.52 (allocated in Vanguard 2060 Retirement Fund, 90/10 split)
- 401K: $4,396.11 (split between large cap, medium cap, small cap, and international index funds)
Net Worth: $39,436.63
We don't keep much money in cash as my husband's job as a graduate student is very secure and it's just the two of us. However, we do anticipate needing to build up our cash reserves for moving expenses in the next year. I am also considering redistributing the investments to reduce the fees by choosing a cheap S&P 500 fund in my 401K and then distributing the rest of the money according to my ideal asset allocation of 90% stocks and 10% bonds.
Also, getting life insurance and wills has been on my to-do list since we've been married and I still haven't done it yet. It is worth it for ~$40 a month.
What are the current financial issues you're facing (saving, paying off debt, etc.)?
We are focusing more on keeping our expenses in check than on our investments. I've tried to keep our investments simple since our net worth is still small and the savings rate matters more at this point.
What are your plans for the future (retire early, build your career, etc.)?
We have a big life transition coming in the next year as we both switch jobs and hopefully increase our income (and savings rate) substantially. This is our top priority.
Also, I plan to grow my career by getting an MBA in the next few years as I hope to transition from technical sales to a more finance heavy role.
We hope to accumulate savings quickly over the next 5 years or so. Our goal is at least $400,000 by age 30. At that point, we hope to dial our careers back a bit to have a family. Even though that number isn't enough for retirement, it is enough to give us many, many options with our careers and our family over the years.
What's your best piece(s) of financial advice and/or your general philosophy on personal finances?
Focus on saving and avoid overwhelming amounts of debt. To reduce expenses, look at the big expenses like cars and housing, and the repeat expenses like phones, entertainment subscriptions, and internet. It takes once to address it, and you reap the benefits over time. Even though we personally do not have debt, we have many friends that have large amounts of student loans or car loans and it makes for a tight and stressful budget.
Also, focus on growing your income. The $4,000 in raises I've negotiated have been small but good practice for negotiating. I believe in increasing our income and that is why we plan on moving very soon.
But most of all, I'd like for people my age to know that having expenses much lower than their income makes life so much less stressful. The flexibility and increased financial security is worth so much more than what I've given up, even if it means I wash my dishes by hand.