Reader Profile: SS

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 need more people to sign up! If you're enjoying this series, you need to contribute to keep it going. Ok, enough begging from me. :-)

Next in the series is FMF reader SS. She answered my questions (in red below) as follows:

Please tell us a bit about yourself.

I'm female, 24, and almost done with a Master's degree in environmental science. My parents are both teachers (though my mom was stay-at-home until about 7 years ago), and although we never had a great deal of money growing up, my mom taught me a LOT about being financially responsible. I feel really blessed that I had parents who taught me sound financial principles, because I know a lot of people my age who never really learned how to manage money or set up even a simple budget.

Describe your financial situation (who works in your family, how your income is (general), how your expenses are, etc.).

Because I'm a grad student in the physical sciences, my tuition is covered and I earn a living stipend of ~$1500/month through working either as a teaching assistant or research assistant.

I live in an area of California with an extremely high cost of living, but I've got a tiny studio for $550/month (reduced from $600/month after being a good tenant for a year). It's smaller than my college dorm room, and all I've got to cook with are a microwave and toaster oven, but I don't mind because I pay $200-$300 less per month in rent than most of the other graduate students I know.

The rest of my budget, including groceries, household supplies, phone, and a bit of spending money generally runs to $200/month. About half of that is for groceries, because although I cook all my food from scratch, eating healthily is important to me. Mostly I buy a lot of whatever fruits and veggies are on sale, and then supplement that with eggs, chicken, and other cheap protein sources. I also make my own bread, which helps a lot :)

This leaves me with about $750/month, which is broken up like so:

• Tithing: $150
• Roth IRA: $100
• Student loans: $500

I live extremely frugally because it's important to me to save for the future, and to quickly pay off my small remaining student loans, which are unsubsidized.

What are the current financial issues you're facing (saving, paying off debt, etc.)?

Hard work in high school earned me a full-tuition scholarship for my undergraduate studies at a private university, but I still had to cover room and board, which was $11,000/year. I worked in the summers and during the school year, but still had to take out some student loans because my parents couldn't afford to help me financially. I graduated with ~$15,000 in loans, but in the two years I've been in grad school, I've reduced that to ~$3000, and I'll have the loans completely paid off by the time I graduate this fall. I've chosen to aggressively pay off loans rather than contributing more to a retirement account because:

a) my loans have an interest rate of 8%, so interest builds up faster than it would accrue if I put my loans payments in an index fund instead.

b) I really want to graduate loan free so that I can make future plans based on what I actually want to do, rather than what is necessary to make my student loan payments. I'm toying with the idea of traveling for a year, and I couldn't do that if I had loans hanging over my head.

I do understand the value of saving for retirement early, so I started a Roth IRA during my senior year of college, and though I haven't been able to contribute as much as I'd like, it's up to about $3000.

I also have an emergency fund of $5000, because I think it's important to be prepared for unexpected expenses.

What are your plans for the future. (retire early, build your career, etc.)?

I've got a couple job prospects for after I graduate, but things are still quite uncertain at this point. If I can't find a job relatively soon after finishing, I'll probably take off to travel for a while, working as I go (I've got a dual citizenship that will allow me to get a work visa pretty easily in most European countries, which is very useful...)

Once I do settle down with a job, I plan to continue to live like a starving graduate student for as long as possible, so that I can continue to save most of my paycheck. Most of that will probably go to retirement savings, since I know that starting to save early makes a huge difference in the amount of interest that builds up over the years. I'd also like to increase my cash savings, because eventually I'll probably want to buy a house. 

My plans will obviously have to be adjusted depending on what the future ends up holding, but I'd love to retire early. Alternately, I'd be equally happy with a flexible job that may not pay a lot, but provides spare time enough to travel and pursue my hobbies.

What's your best piece(s) of financial advice and/or your general philosophy on personal finances?

I think my general philosophy for personal finances is based on contentment. A lot of the grad students I know complain a lot about how we don't make enough to live on, but I honestly feel like our stipends are generous. I know that by living frugally now, I'm setting myself up for a good financial future, so I don't mind that I don't have all the newest electronics or a pretty car (or a kitchen... that's actually what I wish for the most). Being content with what I have (and reminding myself that I'm quite well off compared to 99% of  the world) makes it so much easier to stick to my budget. I owe a tremendous amount to my parents for modeling this attitude for me growing up.

Comments

[Rick Franics]

SS,

Your attitude will make your life a lot better. If you can get used to living as a poor grad student even once you are making real money then you will do very well financially. I know because I was a poor grad student too once. One caution- you will need to strive for some balance in your life too. Spending can improve the quality of your life, so plan to save a good % then spend the rest with no reservations. You need to be able to enjoy the here and now as well as the future.

-Rick Francis

[Carol]

Way to go girl! I love your attitude. When you do start to work, make sure that you have an emergency stash of at least 3 months of living expenses, fund your retirement accounts to the max if you can. If you start at 15 percent, you're off to a good start. I agree with Rick, you have to have fun and it sounds like you want to travel, so give yourself that pleasure. I also strongly endorse buying a place to live. Just as I was finishing paying off my college loans, I bought a three-room apt. It will be paid off before I retire. Please buy only enough space you will need; don't get anything too large. The carrying costs will scuttle your savings plans. Good luck and keep it up!

[Susan]

Dear Child,
You are a hero and I'm passing your story on to my 2 daughters, ages 33 & 27. Whatever obstacles life may present to you will be easily overcome with your belief system. (I mean you're a grad student who is tithing.) TRULY IMPRESSIVE! I don't have anymore advice because I know that with your ability to do this at such a young age, you will know what your next moves should be. Congratulations to you, your parents and God bless you.

[billyjobob]

Sounds like you have a good head on your shoulders and your doing everything right. You said you wanted to save more cash to eventually buy a home. You should be aware that you are allowed to pull up to $10,000 out of a Roth without penalty for a first time home purchase. I copied this from another site.

"The IRS allows a first-time home buyer to draw up to $10,000 from his Roth IRA to buy a house. This is a one-time allowance that can be applied to one Roth IRA account only. After the $10,000 has been withdrawn for this purpose, there is not a second chance."

Something to keep in mind for when that time comes.
Again...great job!

[SS]

Thanks everyone for the encouragement! I do think most of the praise should go to my parents though, since they instilled and modeled the financial principles that I try to follow, particularly things like tithing even when dirt poor (I don't classify myself as poor, but my parents definitely were back when my dad was in school full-time while also supporting a wife and two small children).

Thanks also for the advice. Keeping balance is definitely important, and I have $50 earmarked in my monthly budget that's for whatever I feel like. I've contemplated reducing/removing it, but I always end up deciding that I need some amount of money to spend on myself just to keep my sanity :) Being able to budget for personal spending is of those small luxuries that reminds me I'm not truly poor... some people my age are struggling to put food on the table for their children! I also didn't know about the Roth IRA-first-time home buying allowance, and that's definitely useful information to have.

[Mark]

SS, you are definitely on a very good path. You're setting yourself up for flexibility and freedom in terms of careers or possibly retiring early. I did a version of the starving student lifestyle until I was 35. I had roommates up until that point. When I had a 100K net worth, I upgraded to a studio apartment. Most people don't want to wait for things until they can truly afford them, which is why they're always broke and stressed out. Don't be like those people! I also live in high cost California, so I know where you're coming from.

[Amy]

I am just confused about making bread with a microwave or toaster oven! (I have neither but do have a full kitchen with oven and use that for my bread.)

[Easychange]

I'll bet she has a plug in bread machine.

[SS]

I bake my bread in the toaster oven :) It also works for muffins, cookies, pie, lasagna, baked chicken, pizza, etc. When I bought it I made sure it was big enough for that sort of thing (though it still isn't that big- I can bake one loaf of bread, six muffins, or ~8-10 cookies at a time...) It also has a rounded back so that I can fit in a small round casserole dish. Things don't cook quite as evenly as in a full size oven, and my muffins don't rise as nicely as I would like them to, but it's functional for my needs!

[kp]

SS,
Very good job! Your story reminds me of myself when I was your age (I'm 32 now). Thanks to a frugal lifestyle right out of college (no buying fancy gadgets, driving a "beat-up" car that my spendthrift friends and coworkers ridicule me about sometimes), renting, contributing to my 401k and roth each year to the max, making smart investments, I've now stashed up ~350K liquid in bank accounts/investment accounts, ~100K in my 401K, and ~50K in my Roth. Zero debt. My goal is to quit my job in 2-3 years and do what I am truly passionate about - run my own business (without ever worrying about money).
I think I need to sway a bit (though not by a lot) in the other direction though - and spend more. I have no regrets about the way I've lived my life so far.

[KH]

Great job! Sounds a bit like myself 25 years ago when I was a grad student living on a $10,000/yr stipend. Don't make the mistake that I did though--I married a guy who, although dirt poor like me, had expectations that we should spend and live like rich yuppies.

And I totally agree with what you're doing in paying off your loans before worrying too much about retirement.

[JTC]

The comment about the ROTH should be modified to say that you can take $10,000 of gains tax free for a first time home purchase. Your after tax contributions to a ROTH IRA can be withdrawn at any time for any reason; you just lose the ability to keep them growing tax free.

[Mark]

I have to second what KH said. Do NOT get involved with someone who is a spendthrift and/or bad at saving money. Such a relationship ultimately ends up being stressful and less likely to succeed in the long run. I (and it sounds like KH also) have had personal experience with this.

[RW]

This sounds inspiring, and that was a great bargain for rental in California! WOW!