Burrito bliss

Since January 2008, I’ve only bought lunch at work TWICE. I think I spent ~$15 in all.

Because I’ve been so good, I am going to get a giant Chipotle burrito (I am partial to the fajita burrito with extra corn salsa) tomorrow. And stuff my face.

I. Can’t. Wait.

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Car, oh, car

Well, I thought that because I don’t have a car payment the cost of owning and operating a vehicle would be… I don’t know… LOWER?

I’ve done a quick tally of all the costs associated with my car:

Gasoline/parking: $150 a month
Auto insurance: $125 a month
Oil change/maintenance/repairs: $85/month
Total: $150+$125+$85 = $360.

So every month, my car get $360 of my $2,000 budget, or 18%. I might be under budget, especially if I don’t have any major repairs this year, but still…

This result showed me that, NO! It’s not cheap owning a car (even if I own it free & clear) – it’s just a lot cheapER than driving a car that you still have to make payments towards. This means that if I get a new car, with a monthly payment of $350 or $450, the total cost of having a car can easily rival (or exceed) my rent.

*Does not compute*

People with a car – how much does your car cost you? People without a car – how much does public transportation cost you? People who would rather spend the $$$ on something else – does this talk of $4 gallon/gas make you cringe?

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Our budgets, ourselves

After being inspired by this early retirement extraordinaire, I decided to take a closer look at my budget to see if there is an area I can cut or trim.

I operate on a $2,000/month budget – it’s a pretty good plan for ME. (I’ve followed it fairly well since the beginning of this year). A $2,500 budget would be very comfortable, a $3,000 budget would feel (and is) positively decadent. A $1,500 budget would be very, very tight – tight enough to make me throw my hands up and chuck the budget to the side because I’d be setting myself up for failure.

Fixed	Per Month	Per Year	Comments
Rent/Internet	$735.00	$8,820.00	Yay for roommates!
College Loan	$160.00	$1,920.00	0% interest loan
Car Insurance	$125.00	$1,500.00	Monthly installments from $118-$123
Prescription	$25.00	$300.00	No generic available
Irregular	Per Month	Per Year	Comments
Medical co-pay	$25.00	$300.00	Doctor visits, medication co-pays
School Donation	$2.50	$30.00	Alumni Fund – will increase next year
Gifts	$15.00	$180.00	We don’t exchange gifts in family
Car Repairs/Fees	$85.00	$1,020.00	Reliable old car w/ 200K+ miles
Vacation	$160.00	$1,920.00	May have to visit family overseas
Massages	$40.00	$480.00	$80 a pop – but oh so worth it
Computer	$77.50	$930.00	May replace 5-year-old laptop
Education	$35.00	$420.00	Memberships/dues/classes
Variable	Per Month	Per Year	Comments
Utilities	$30.00	$360.00	Electricity only
Gas/Parking	$150.00	$1,800.00	$4/gallon gas coming? Bah humbag!
Groceries	$110.00	$1,320.00	One-stop-shop at Trader Joe’s
Eating Out	$100.00	$1,200.00	Restaurants, fast-food, & Starbucks
Shopping	$25.00	$300.00	Clothes, cosmetics, books, etc.
Entertainment	$50.00	$600.00	Movies, theme parks, museums, etc.
Household	$5.00	$60.00	Furnishings & cleaning supplies
Laundry	$5.00	$60.00	No units in apartment
Miscellaneous	$40.00	$480.00	Everything else
Total Budget	$2,000.00	$24,000.00

It looks very reasonable to me, but maybe I’m not seeing something. Let me know what you think – are there any areas that I should reconsider? (I’m inclined to leave it as is.. but that why I’m asking for your opinions!)

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Xtreme!! Retire at 30?

I just found this blog: http://earlyretirementextreme.com/. The title certainly is NO exaggeration! The author, Jacob, is a 30something PH.D. who lives in the Bay Area. According to his blog, he has consistently saved 70% of his net salary for several years, and have managed to have an extreme early retirement in his 30s.

Wow. Can I just say, WOW. I can’t fathom how he did it. I think somewhere on his blog he talks about fairly advanced investing techniques that has produced a nice return. Of course, he also sacrificed to save like crazy.

That path isn’t for everyone. Many people can’t imagine leaving the workforce forever in their 30s. Perhaps in my 50s – if I have accumulated a VERY significant nest egg – I’d consider doing non-profit or part-time work – of course then there’s health insurance to consider…

Even though I don’t plan on leaving the workforce anytime soon, Jacob’s blog inspired me. I am more and more drawn to the idea of living simply – of being content for what I have – of not consuming thoughtlessly (my 6-month clothing hiatus was a step in that direction).

Anyhow, back to Jacob – I really admire him for what he did, but that path isn’t for me. I find it challenging – but possible – to save a third of my gross salary at this point in my life, and so I make my choices accordingly. I am hopeful that with raises and bonuses in the coming years I will be able to save even more, percentage-wise and in absolute terms.

Those who really are gunning for an extreme early retirement, check out Jacob’s blog.

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I just peeked at my accounts…

…and it appears that I have ~$20,000 in my retirement portfolio. All those new Roth IRA contributions helped, and the recent market uptick didn’t hurt, either.

I’m done with anything $$$-related for the night. 🙂

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Money Story #3: Melbourne Girl in Melbourne, Australia

Here’s the first international 20something money story… about a 27-year-old living in the Down Under.

I don’t have a blog, but I’ve been thinking of starting one when I have the time. So for practice, I thought I’d write my money story. I know your focus is on demography rather than geography, however my location is my main point of difference – I’m a twenty-seven year old grad living in Melbourne, Australia.

I’ve had an interest in personal finance since I first started earning an income working part-time at university. I don’t know how it happened. One day it just dawned on me that, seeing as I didn’t know what I wanted to do with my life, getting the best marks I could in all my subjects, and saving as much money as possible, could only be a good thing. So, taking advice from my mum, (whose been a personal finance geek all her life without ever realising it), I set about making sure I didn’t pay bank fees I didn’t have to, making sure I had the cheapest mobile phone deal, earning the most interest possible on my savings etc.

Once I had all of this down pat, I ventured into purchasing shares. I bought some shares in a casino and a building products company, but not really knowing what I was doing, I sold them when they went down. A few years later I bought a book on buy-and-hold share investing called “Retire Rich and Early”. (I was so embarrassed by the title I kept it in a drawer rather than on my bookshelf!). From that book I learned how to pick quality stocks that pay dividends I can reinvest.

The sharemarket, however, is not something I have a lot of spare money for anymore as I bought my own three-bedroom unit in a decent suburb of Melbourne a couple of years ago. I achieved this by living with my parents until I was 26 (Australians tend not to go away to college unless it’s really necessary, and with housing so expensive, never leaving home until you’re in your late 20’s is becoming quite common), and by having a small inheritance from my aunt.

If it weren’t for the inheritance, I probably wouldn’t have bought such a large property. Conventional wisdom would suggest I’ve done the wrong thing by purchasing a property that’s too big for my needs with mortgage repayments that are a little restrictive. I’m happy with my decision though, because I’ve been able buy into a good area that has increased in value, and the unit is large enough for my fiance and I to live in even when we have children. My aim now is to pay as much off my mortgage as I can, as quickly as I can. My fiance has started his teaching this year, so with his income as well, this is much more achievable.

The area that I have really neglected is my career. I completed a Bachelor of Arts, majoring in languages. I didn’t know what I wanted to do after that, so for the past five years I’ve been floating around doing dead end admin and retail jobs and travelling overseas. This year, I’ve finally decided to go back to university full-time to complete an Accounting degree so I’ll have some career prospects, rather than feeling like I’m going nowhere fast.

I don’t intend to work in accounting for the rest of my life; I’m hoping that the steps I’m taking now will allow me to “retire rich and early”, so I can do something I really want to do, such as a Masters/Phd in historical linguistics, opening a homewares shop or renovating houses.

Wow – Melbourne Girl bought her own place at 26. That’s really admirable. And MG – tell me, is living in Australia really as awesome as it sounds? Do you go snorkeling? ‘Cause it sounds pretty awesome. 🙂

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Money Story #2: Elizabeth in SF
Money Story #1: Emily in Austin, TX

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Buying the shoemaker instead of the shoes

A reader emailed moi for advice on how to get started investing in a Roth IRA. I was pretty excited that she thought of me (disclaimer: I am NOT a financial adviser). I don’t particularly talk about my investments on this blog (except to say that I DO invest) because investing is different for everyone, based on risk tolerance, time horizon, goals, etc.

But based on my personal experience, what I will say about investing is this:

-Be informed, but don’t fall into the trap of analysis paralysis.
-Risk & return… if something sounds too good to be true, it usually is.
-Don’t be afraid to ask questions.
-Understand after-tax, after-expense returns.

If you have an interest in learning about how to construct a portfolio and investment theories, some of the books I’d recommend are: All About Asset Allocation by Rick Ferri, The Four Pillars of Investing by William Berstein, and The Coffeehouse Investor by Bill Schultheis.

If you just want to get started, I think Suze Orman’s Money Book for the Young, Broke and Fabulous is a GREAT beginner’s guide. I don’t always agree with Suze, and really didn’t care for her Women & Money book, but YBF is awesome. Another, even shorter guide is On My Own Two Feet, a personal finance book geared towards young woman. The book is a good resource and easy to read.

As to where to get the money to invest… I can’t invest (lend capital to others) if I don’t save (have excess capital to lend). This is a little mind trick I play… whenever I put money into my funds, I imagine I am buying a little piece of the shoemaker instead of the shoes, the automaker instead of the car, the restaurant company instead of a meal.

In 20 years, I would’ve long worn out the shoes, forgotten the meal, or ran down the car. But the shoe company, the automaker and the restaurant will work every day to generate a return to its shareholders (me!), and my pieces of those companies will grow in value.

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Okay, I admit it.

I live in an area with a very high cost of living. More specifically, I live in an area where I spend my commute sitting in traffic with BMW 7-series and Mercedes CLK’s.

I maintain a $50,000 property liability insurance (far above the state-mandated minimum) because one dent on one of those babies will probably set me back thousands, nevermind a serious collision.

I can live near the beach. On a tree-lined street. I can have crown molding and airy ceilings. I am surrounded by so, so many restaurants that I don’t really eat at, because one nice meal would halve my eating out budget.

So, yes, sometimes, I wish I can live it up a little more. I don’t feel as if I’m missing out by not paying $20 cover to get into clubs, because that’s not my scene. But I do miss trying out new restaurants or going to an amusement park on a spur of the moment. It would be really nice to take a trip down to New Zealand or the Mediteranean. I know I make a decent salary. I’m saving. I don’t HAVE to save 40% of my take-home income every month.

But in doing so, I feel that I am making a wise choice, and that in itself gives me satisfication – which, by the virtue of the choices I made, means that I necessarily derive more utility (i.e. happiness) from saving/investing than from buying shoes or cars or going on vacations. Econ 101 can finally explain life!

I’m also lucky in that one of the things I most enjoy, reading, doesn’t cost much. Thank goodness for libraries and used book sales. Besides, I’m a recent grad. It will do me good to retain my broke-college-student mentality for a bit longer. 😉

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Money Story #2: Elizabeth in San Francisco

This is the story of “Elizabeth,” a 27-year-old who works in the IT field in San Francisco.

I had to think long and hard before I decided to respond to the profile challenge for two reasons. The first being that I am not a very good writer and the second being that my story is very common. However, one of my resolutions for the year is to improve my writing and you can’t improve if you don’t take a chance. As for the second excuse, well, maybe my story can help someone else.

I am currently 27, living in San Francisco and in the IT field. The catch is that I have only been financially on my feet for the past six months. When I first graduated college I was very lucky, I only had a couple thousand dollars in debt from the last semester’s living expenses and my parents had given me a semi-reliable car. In addition, my new job was in the DC area and my parents lived there too so I could even live with them for a few months until I found an apartment. So how did I go from having every advantage to screwing up so badly? It was easy, pride. Looking back the signs were obvious but at the time I had no idea they were even signs or mistakes.

I found an apartment with a friend and it was great, even within my admittedly mostly theoretical budget. But I didn’t start saving for an emergency fund, instead I went shopping and signed up for a couple of new hobbies. I had been living on an extremely tight college budget for four years and I was ready to start living. I was lucky to be making a fairly decent salary so I wasn’t even racking up debt. But then my car had a problem. Nothing major but it did take up about $800 which needed to go on the credit card. And I couldn’t pay it off right away because I had already signed contracts for those expensive hobbies. Since I didn’t have a budget really, I couldn’t look at it and start cutting in various places like eating out and book buying. So I just shrugged my shoulders and figured it would be fine.

Then another car failure for another $600. And then I went on vacation. Yes, that’s right, having roughly $2000 on my credit cards at this time, I decided to go on a very expensive vacation to Honduras (which was extremely fun by the way). When I came back I now had about $5000 on my credit card. Without an emergency fund it was easy to rack up debt. I would just start to get a handle on the card when BAM! another problem or vacation would hit.

In the next two years, two more major car maintenance problems hit before I had to buy a new car, I took another vacation, this time to Africa, and I moved to a more expensive apartment, all while living the exact same lifestyle (buying clothes, enjoying my hobbies, eating out for lunch every day) as before all this debt piled up.

And then the best thing happened to me. I met two very wonderful European women who helped me get over my pride. Since in our society we don’t talk about money and problems, I have no idea how it came about but one day we started to talk and my immense stress of having roughly $18000 in credit card debt, a $15000 car loan and 2 personal loans (for hobby toys) of roughly $3000 each came out while living in apartment that I couldn’t afford. I didn’t go into specifics with them but we did talk about the fact that I had enormous debt and I couldn’t afford where I was living. I was reluctant to face facts and make drastic changes in my life but with their help and support I did.

Like most kids growing up, once I left home I passionately didn’t want to return. Partly because I liked the freedom of living on my own but also because in my mind, moving back home was admitting failure. But these two ladies brought up a very valuable point, that parents are there for help, that it is not failure to go back home and that the only failure would be to ignore my problems.

My pride still wouldn’t let me just move back home and frankly my lease wasn’t up but at this point I was opened to ideas that would let me ease my situation. At this point, a job opportunity popped up at my company that required weekly travel to the Denver area for the next six months and I took it. Two weeks later I had invoked the clause about moving states for a job, put all my stuff in a storage container that cost about a sixth of my current rent without the utilities and I took two suitcases of clothes to my parents house. I spent the next two years of my life on the road, which sucked, but I managed to pay off all my debt, build up an emergency fund, and learn some very valuable lessons about money, family and pride.

Having saved up some money, when the opportunity came to take a non-traveling job in the city of San Francisco, I jumped at it. I’ve been here for six months now and I have rebuilt my emergency fund, kept a very strict budget no matter how much I hate it and pay off my credit card every month.

This story might be pretty common but for me it was very hard and took a lot of courage to swallow my pride and ask for help from the two people who wanted to give it to me, my parents.

I want to thank Elizabeth for sharing this story. I think those two wise European ladies said it best, “parents are there for help, that it is not failure to go back home and that the only failure would be to ignore [your] problems.”

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Money Stories:
#1: Emily Starbuck Gerson in Austin, TX

***If you are a 20something who would like to share your money story, I’d love to have it! Please email me at wellheeled – at – gmail – dot com.

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Friday the payday

YAY!

The plan: $500 to Roth IRA and $550 to Money Market Fund. The rest will go to car insurance and credit card payment. Including the above contributions, I’ve put in $1,000 for the Roth IRA and $2,050 to the Money Market Fund. Granted, a grand of the MMF contribution were from pre-2008 earnings/savings, but still.

So the big secret (well, not secret) is that even though I started saving for retirement early, I still don’t see how the heck am I supposed to accumulate however much money that will last me in my dotage. I don’t even know how much I need to save. I just know that it is a Very Very Big Number (VVBN).

So, to up my odds of getting to VVBN, I’m shoving money in saving accounts. But that’s because I can. I’m sure that there will be times in the future when it’ll be difficult to save aggressively… new computer, major car repairs or purchase, maybe grad school tuition, recessions, illnesses, down payment, family obligations, etc.

I just hope that by starting a couple years earlier than the norm I’ll buy myself some breathing room down the road.

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