Reader Profile: MP

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 MP. She answered my questions (in red below) as follows:

Please tell us a bit about yourself.

I'm a single, 26 year old living in Washington DC. I've lived here for 4 years though I'm originally from a southern state. I worked in politics right out of college and soon realized that career path was not for me. I quickly regrouped and have been in a good, yet not very challenging, admin/sales position for the past 3 years. I've received one promotion, merit-based bonuses and on average an 11% raise every year. I've stayed longer than originally planned due to the fact that I feel valued by my colleagues and managers. However I cannot shake the feeling that I'm not challenging myself to take the next step in my career. Franly I am fairly over-qualified for my position and need a real change. There is no real room for growth at my firm due to its size, so I'm at a bit of a cross-roads.

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

I live within my means though I could cut my spending more. My parents set a very good example for my siblings and me by being open about the fact that they never took on non-mortgage debt. With their encouragement, I finished college without any student loans through scholarships and I carry no personal debt. However, right after I moved to DC I did overspend and had no savings to speak of. I kicked that behavior and started my 401K and Emergency Fund approximately two years ago.

Income:

• $57,000/year
• Bonuses around $5000/year

Assets:

• 401K: $22,000
• Emergency Fund: $7255
• Other savings (marked for purchases, gifts or travel): $1100

Expenses:

• 401K Contribution: 15% (including employer match)
• Savings Contributions: $600/month
• Rent: $1022/month with 1 roommate. This is super low for my location.
• Utilities: $20 - 70/month depending on the season
• Health insurance: $30/month
• Renter's Insurance: $13/month
• Cable/Internet: $70/month (I would LOVE to get rid of cable but my roommate does not agree
• Groceries: $300/month
• Gym: $79/month
• Entertainment:  $600/month (This mostly includes going out to eat and to bars.)
• Travel Budget:  $100/month  
• Gifts: $50/month
• Miscellanous (toiletries, home maintenance items, clothing, irregular expenses): $200/month

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

I consider myself fairly frugal. I don't have a car, I walk to work and bring my lunch everyday. However I struggle with finding the balance between saving for the future and enjoying an active social life in my twenties. I would like to cut some of my entertainment spending and use that money toward a more productive purpose (read: not toward alcohol!).  Unfortunately I feel social and personal pressure to spend more than I'd like. I have an introverted nature but I am social and have a large group of friends. I tend to never initiate social gatherings but almost always say yes when invited. Would appreciate some suggestions on how to socialize on the cheap without feeling like a loner.

I am also struggling with a general lack of direction. I'm comfortable with my emergency fund so it's time to move on to saving for specific goals. The problem is I do not know what my goals are right now. I would eventually like to purchase a home, but I don't want to buy in DC since I don't want to live here long-term. I am also torn between going back to school and looking for a new job. I am studying for the GMAT and considering business school. I think an MBA program would allow me to learn a lot about myself and my career options while opening doors to new opportunities. However I am petririfed of going into debt and the opportunity cost of a full-time program. My employer does not offer tuition reimbursement.  Finding a new job would cost less up-front but I'm not sure if it would set me up for as much long-term earning potential (and long-term job satisfaction) as a graduate degree would. Also I don't even know where to start looking for a new job considering I'm not sure what exactly I would rather be doing.
 
Reading over this I am realizing how paralyzed I've been. I tend to think through decisions very carefully but sometimes that means life marches on while I'm deciding. I'm ready for a change and would appreciate any and all advice!

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

My long-term plans are to build my career and set myself up for financial independence. I'm still up in the air about how exactly to achieve these plans, obviously. Eventually I would like to settle closer to my family though I'm not sure I'm ready to make that move yet. I love living in a large city but the hustle and the cost can get to me. Conveniently, cost of living is much cheaper in my home-region, so I would be setting myself up for financial stability (provided I can get a well-paying job in that area).

My short-term plan (which is not set in stone) is to apply (and hopefully be accepted) to a good, but not totally out of my league so I can hopefully get a scholarship, MBA program in the South. I am hopeful that this would open doors for a good job in my home-region and set me up to be closer to family.

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

Live within your means. Also avoid lifestyle inflation. As soon as I get a raise or bonus I adjust my automatic transfers to keep my monthly budget roughly the same.

Comments

[Grant]

My 20-something past self identifies heavily with your socializing / trying to save money. While I don't have any advice for your career (great job on your savings though), here is what I did to tackle the eating and drinking out issues:

In case you are spending money eating while at a bar, just eat before you go. This is something I did a lot (I still do this now that I think about it), especially in non-happy hour situations where there was no discount on food.
Speaking of, I don't remember how DC is in terms of happy hour, but if it exists (some cities don't allow discounted alcohol) I'd try to get your friends interested in that.
Drink good, strong beer (assuming you like beer). Have 2-3, you'll have a good time and it won't empty your wallet. I'm not opposed to cocktails, but they can run $10-$15 / pop in my experience. Alcohol content aside, there is that pressure to "keep up" or have another round with friends... you can also go the other way and just have cheap, low-alcohol domestic beer but I find that is a bit too much to sacrifice in terms of taste for the $1 off.
More extreme: Leave your credit card at home and bring only a small amount of cash. When you are out, you are out.
If feasible, get your friends to do more home socializing. This may be less desired if it is difficult to get around to each other's places, but I think it is the best way to save money when socializing. We do this a lot and also involve board games for fun. Of course when you get older, you do it b/c your friends have kids and they can't leave the house :P

[Mariana]

Hi,
I think you are doing a great effort to control your finances, much more than the average twenty-something does. You should be proud about it :)
I am forty now and I got my "top" MBA degree ten years ago. I met all the goals I have set myself when I pursued the degree... but I am persuaded that the MBA was not the cause. I believe it was a ruinous investment and a decision that limited my career options. I invite your to read the posts Josh Kaufman wrote in this blog:
http://www.freemoneyfinance.com/2010/12/skipping-the-mba-and-questioning-the-benefits-of-college-why-is-it-uncomfortable.html
http://www.freemoneyfinance.com/2010/12/why-and-how-some-people-succeed-in-business-without-getting-an-mba.html
I don't mean it is going to be a wrong decision for you, but I think you should really think twice before going further.
Good luck!

[JNEW]

Hi:

I think the best deal in town is to get a new job that does have tuition reimbursement.

You get the grad degree that you want without a boatload of debt and at that point, when you have a bit more direction, you can decide where you want to settle down and look for a job in that location.

Regarding spending- I think you are doing fine. These 20-something years are a lot of fun. Don't deny yourself. The fact that you are thinking about all of this at your age shows great maturity.

Keep what you are doing. As your income grows and you get windfalls, save more.

It will all be fine.

Best of luck.

[#7]

First, I think you're doing great. Kudos on recognizing that you wanted to change direction out of politics, and then doing it. And clearly you're successful in your new role.

You seem to have discipline and resolve, which are great attributes that will help no matter what your career.

You're also doing a good job balancing savings and enjoyment. I always cringe a little when I see gym memberships, but that's my own personal bias. If you're comfortable with your emergency savings, then consider boosting your 401k contribution a bit. But keep saving. Saving is its own 'productive purpose'.

You're smart to not be thinking about a house. Too many people rush into that, and there is nothing that ties you down to a job or location you may not love like a mortgage payment.

I agree with JNEW; if you can find a job that provides tuition reimbursement (or reduced tuition) that is a fantastic deal, as long as you're not giving up too much to get it. But personally, if you're still 'drifting', unsure what you want to do, I'd take a few online classes and see if you find anything that really interests you before diving in.

[Old Limey]

You didn't say anything about your future plans that might involve being in a permanent relationship. At the age of 26 I would think that this would be an important issue that you would be trying to resolve.

Of course I'm speaking as a 79 year old man that has been in the same relationship since I was 16 and now very happily married for 57 years. As you get older it becomes more and more important - even essential, to have a life partner - believe me! My youngest daughter divorced her husband after an unhappy 18 year old marriage and the premature death of her 8 year old daughter and found the kind of man she should have married in the beginning on her second date through on-line dating.

[Mark]

MP, I think you're doing a decent job, overall. But wow! $600 a month on socializing IS a lot. It seems like you could shave $100 off of that without too much trouble.

The other thing I heard you say is that you were satisfied with your emergency fund. Honestly, you really shouldn't be. 7K isn't going to last you long in DC (or anywhere, really) if you lose your job. So, if you need more motivation for saving, make it a goal to save 6 months worth of living expenses. That would be about 18K for you. Believe me, you'll feel better having that much put away (or at least getting closer to it).

[Young Limey]

I agree with some of Grant's comments on socializing. Draft Craft Beer is a good option that is usually much less expensive than mixed drinks/wine while out. Also order a water with each drink, which may help you pace yourself. Ask for a separate check for your meal, as it's easier to spend more if everyone else is, and it's going to be split evenly.

I would also suggest inviting people instead of waiting to be asked. That way you could stay in at your place, or pick spots that are more affodable, that way you have more control.

You should be able to cut the $600 entertainment budget down to at least $400, and could bank that savings.

[Lance at Money Life and More]

I moved from the DC area to the south and kept the same salary in my new job and cost of living made a huge difference. Keep in mind that depending on where you want to end up location wise might mean that higher education isn't valued as highly as it is in DC.

[Sarah]

I'm guessing one of the reasons his social group don't tend to entertain at home is that they all live in the same cheap crappy apartments with multiple roommates. It does put a damper on things! I agree with the initiating--that way you have more control over the venue. Also, pre-gaming happens for a reason...

[Mr. Sunshine]

Wow... I am in a similar situation as you (in age and direction, but with a little more assets and a student loan that I am hesitant on paying, since my investments earn more than the avg loan interest rate). I worked in corporate for a good few years and decided to take a break earlier this year. I became a truck driver for a good part of this year. Found out it was not for me. Then decided to move to a city that I wanted to experience and found low stress assignments (i.e. jobs that I am way over qualified for) to keep my investments growing. It is the best decision I have made. With all the time freed from a corporate job, I am focusing more on myself, such as health and what I want out of life. Call it a quarter life crisis hahaha, but I am having a blast, meeting new people, doing things on my own terms. Whereas in corporate, I was always working (at least my mind was) even when I was off of work and no time to think and do things I want for myself. There are so many things that I have learned, that I could not have when I was working in corporate (i.e. driving a semi with a 53' trailer, cooking better food, volunteer, reading, philosophy, taught myself bookkeeping and basic accounting rules like IFRS and GAAP, working out and etc). Next I want to experience life in a different country and I will be leaving my USA comfort zone later this month. Anyway, I had done everything by the book, go to school, get good grades, get a good white collar job, but I was not satisfied. Next, was marriage (at least by my Asian parents), and I am not ready for that commitment, especially when I have not fully figured out what I want out of my life yet. Anyway, I am on the same path as you and I would like to tell you, know what you want! Life is very generous towards your desires/wants and you can have anything you want. Just know what they are.

[Mr. Sunshine]

And...! I wish you the best to find what you are looking for!

[JNEW]

@ Mr. Sunshine:

Great comment.

I respect your situation and find myself rooting for you as you experience the whims & wonders of the world at your young age. I honestly think that at your age-- trying new things, new places, and new experiences is worthwhile and priceless too. I did it, and I still draw strength from those days.

All too soon we all get tied down with commitments galore (marriage, kids, mortgages, college costs etc). And the possibility of whimsical living pretty much disappears. So I say do it while you can. Have fun and get it out of your system. You will draw on these experiences for the rest of your life.

And there are joys to be found in the boring too----building wealth, a solid life foundation, experiencing a good job with great prospects and marrying and having a family. There is no greater joy IMO than kids. I don't think you really know true love until you look your child in the eyes...

Anyway, there is a time to build wealth and a time to be carefree.... when you are in your 20's....I support building lifelong experiences if you are lucky enough to have that opportunity.

[MP]

Thanks very much to everyone who commented (and to FMF for posting my reader profile!). Some really great suggestions and comments here.

@Grant and Young Limey - thanks for the encouragement and the suggestion re: socializing on the cheap! I will take all of these to heart. My introverted nature often leads me to wait to be asked before socializing. Initializing is a great way to control the frequency, activity and cost. Something to work on for sure!

@Mariana – thanks very much for your comment. It’s helpful to hear from people with real-life experience. I read the articles you linked and your comment has made me really think hard about going the MBA route. I am going forward with the GMAT, so I have the option, but I have decided to possibly postpone applying to school until I can get my scores and application strong enough to get a scholarship OR finding a way to fund it without loans. (See my comment to JNEW and #7 below).

@JNEW and #7 - since I wrote this profile there has been a change in my job situation and I now work the same job for a much larger corporation with additional offices across the country. It's early stages of this transition but I'm optimistic that there will be opportunities for tuition coverage or for a part-time program in another city, if I decide to go the MBA route. I am reconsidering doing a full-time program on loans after thinking through the loss of income paired with debt and no guarantee of a job when I graduate. Additionally, I’m somewhat concerned about the education bubble. I’m not sure if this fear is well-founded - most of the articles I’ve read are about bachelor’s degrees. However, I would hate to borrow $100,000 for a graduate degree only to have the value of my degree plummet.

@Old Limey - thanks for your advice on finding a relationship. I am in a relatively new relationship now and it's going very well. We aren't quite at the point where we need to be making life/money decisions together so I left him out of the profile. I would like to get married someday but I hate to box myself into a time-frame (ie married by 30, kids by 35) as the timing of such milestones isn't really within my control. So I'm trying to set myself up for that life as much as I can now with my resources at hand. I do hope to one day have a happy marriage like you. It's very inspiring!

@Mark – thanks for pointing that out. Cost of living in DC is very high and you’re right, my EF wouldn’t last too long. I understand there are different schools of thought on how many months of expenses you should have saved up. Shooting for 6 months would give me more motivation so I’ll continue saving there while I’m figuring out my next move.

@Lance - good to know that you made a similar move. And after thinking about it, I totally agree about the value of a graduate degree outside of DC. It's easy to get wrapped up in the need for credentials in a city where it feels like everyone is over-educated. I know way too many interns with law degrees…

@Sarah - yes, that's definitely one reason I don't entertain often. My tiny, shared apartment only has seating for about 4 people and a two person dining table :)

@Mr. Sunshine - it's always nice to hear from someone in a similar situation. I agree that now is the time to be carefree! Thanks for the encouragement and best of luck on your next adventure.

[MikeM]

Okay, so you make approx $62,000 per year. Your 401(K) contribution is approx $9300/yr if you also contribute 15% of your ~$5K bonus, but only if you include your employer match (!). Your savings contribution is about 11.5% of your income. Comments:

- Can 401(k) contribution be higher? Can you do closer to the $17,500 limit for 2013, before employer match?
- Savings is coming along nicely. Don't worry too much about that for now.
- Rent isn't too bad, but it's not "super low" for DC. You can do $600-800 for a room in DC if you really look hard. I do $400/mo in a different city (found an elderly lady who offered me agreat price), albeit with lower COL.
- Utilities are good. :-)
- Health insurance is great. You're really fortunate there.
- Renter's insurance is fine.
- Can you make roommate pay for higher % of cable if he insists on keeping it when you don't want it?
- Groceries are fine, but a bit high given all of your going-out.
- Gym is not too bad for DC, but can you look into the nationwide BCBS Prime program ($25/mo for unlimited access to virtually every gym), if you use BCBS health insurance?
- Entertainment is WAY TOO HIGH. Sorry to have to tell you.

I'm about your age, so your profile was interesting to read for comparison sake. You're doing well for your age, likely in the 90th-95th percentile in terms of savings.