Why I’m not saving for my child’s diapers

A couple days ago, Ramit blogged about 10-year saving strategy to “leave your friends in the dust” after you’ve already handled the basics of saving and investing. In his post, Ramit talked about saving for the things that’re likely to happen 10 years down the road – weddings, babies, vacations, etc.

Here is what will happen to you as you get older:

1. Yes, you WILL have a nice and very expensive wedding (even if you’re a hypocrite and think you’ll have a “small, beautiful” wedding)
2. Yes, you WILL have kids and want to buy them nice stuff
3. Yes, you will need things like family health insurance and life insurance and homeowners’ insurance and family vacations and other things that you can’t predict right now because you’re not in that life situation
4. Yes, these expenses WILL come up. People like to believe they’re the exception. BUT YOU’RE NOT. YOU WILL HAVE KIDS. YOUR KIDS WILL BE WHINY AND REQUIRE LOTS OF DIAPERS. THEY WILL POOP ALL OVER THE PLACE AND REQUIRE 10X MORE PAPER TOWELS AND CLOTHES AND CRIBS. PLEASE BELIEVE THIS.

Sounds great, right? What personal finance blogger doesn’t like to plan ahead?

BUT – I don’t think Ramit’s 10-year Saving Strategy is for me. Not because the idea doesn’t sound great in theory, or because it wouldn’t work well for some people – it’s just not my cup of tea.

I might be a planner, but I have to draw the line somewhere. I refuse to save for a wedding when I’m not engaged. And what happens if I don’t get married? I can take that money and do something else, sure, but why not just name it a Future Fund as Little Miss Moneybags have done?

As for babies, well, I’m not sure I’ll have a child, but assuming I do, how do I know what to save for? Hey, my baby might be a genius who gets a full-ride to college (a PF-er can dream, can’t she? 😉 )

Another issue is Ramit’s litany of things we need to save for (for our Future Self) can be overwhelming. On his little napkin sketch, Ramit’s 10-year strategy calls for $6,000 in savings per month to pay for my $30,000 wedding, $33,060 down payment, and various other items 10 years down the road. That’s just, er, a bit outside my budget right now.

I’m going to enjoy being young and carefree for a while longer. That means I’m saving for retirement, and when I’m thinking seriously about buying a home I’ll start saving for a down payment. But there’s no way that I’m going to start saving for my unborn child’s DIAPERS or family vacations after my child is successfully toilet-trained (after, I presume, using a mountain of diapers that I failed to save for).

I understand Ramit’s point – that there will be things that come up in my 30s and 40s that I might not have thought about in my 20s. I’m not discounting the importance of saving for the fuzzy future – after all, what’s fuzzier than retirement 40 years in the horizon? So I suppose I’m doing something similar to what Ramit suggests, just in a different manner.

I’m saving as much as I can for retirement and mid-term cash needs now (i.e. MY vacation and graduate school costs), so that I have the flexiblity to save for other priorities as they come up later.

In the end, though I agree with many of the concepts Ramit touched upon, his method isn’t motivating for me. Fortunately, there are many paths to get to the same end goal (financial preparedness), so to each his or her own. 🙂 

What do you think? Do you follow Ramit’s 10-year Saving Strategy?

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Moving into the automatic finance camp

I didn’t used to automate savings, but slowly, I am taking the steps toward a simpler financial system.

My system is set up thusly: net pay (minus 401K, taxes, insurance premiums, etc.) is deposited into my savings account. I then manually move X amount into my checking account, usually twice a month.

Irregular income (blog revenue, bonuses, gift money, etc.) aren’t designated for anything, per se. I usually save 75% of the money, with the rest going to fun things.

Right now, the 3 biggies that I automate are:

1. 401K. The easiest of them all. I don’t even see the money, it just goes away to the magical happy place that is Retirement Land.
2. Car insurance. I’ve had an automatic debit from my checking account for a couple of years now. It works great.
3. Student loan. Again with the automatic debit. I used to manually pay this bill online, but have overpaid by a couple of months because I forgot that I had made a previous payment that month. Because my loan is interest-free, there’s no point for me to pay ahead of schedule.

I don’t get any other recurring bills (utilities and internet are included in rent). I manually pay my credit card bill online because it fluctuates month-to-month, and I want to have the opportunity to take a look before I pay.

To what extent do you automate your finances?

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So excited I can’t sleep

*sung to tone of Britney Spears’ “(You Drive Me) Crazy”*

401(K), I’m so into you
You got that tax deferral, what can I do
401(K), for you I waited a year
Now I know that my tax vehicle is here

You drive me to savings
I just can’t sleep
I’m so excited, I’m in too deep

Ohh…crazy, but it feels alright
Asset allocation keeps me up all night

Tell me, you’re so into me
That my account is safe from Uncle Sam’s reach
Tell me stock appreciation is true
That I’m not wasting my money on you

401(K) you mean so much more
More than any tax deferral I’ve had before!

T-14 days until 401(K) kicks in!

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The good, the bad, and the ugly

My finances have fallen by the wayside.

The Good: *cricket chirps* I am not living above my means (just, er, very close to it). I also finally set up automatic payments to my student loan.

The Bad: Between all the costs for the apartment and the copious amounts of shopping and dining I’ve been doing, my emergency cash fund has been growing… rather slowly. For most of April and all of May I haven’t been able to save much at all.

The Ugly: Too ugly for words. Only numbers can tell the story.

Double rent for June: ~$1,700 (later I expect ~$300 back, but still!)
GMAT registration: $250
Hotel reservation for parents: $200+
Memorial weekend massage & shopping: $350
Dining out: I don’t want to look!

Conclusion: I’ve been a rather bad PF blogger, haven’t I?

The exciting news is that I will have access to a 401(k) come July. I am debating if I should aim to contribute the full $15,500 the 401(k) for 2009 – that’d be $2,583 a month, a very significant chunk of my paycheck. I probably won’t be able to save for anything else for the rest of the year.

However, given that I expect to return to school in the next few years, it behooves me to save as much as I can in an employer-sponsored retirement vehicle while I can. One year of maxed out 401(k) is $15,000+ in contributions… that can make a ton of difference later on in my life.

Maxing out the 401(k) in 6 months = a lot of money! But maybe this enforced savings is just what I’ll need to whip my finances back into shape.

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Consciously deciding to spend… MORE

For several months there, I’ve been able to save $2,000 per month (over 50% of my net income).

Those days are over for a while. I’ve made a conscious decision to spend more money on the things that are important to me (of course, a less charitable characterization would be that I’m inflating my lifestyle!). Namely, they are:

1. My own place. Living alone will definitely be a luxury – I pay $750 to share a 2 bedroom apartment, but a studio or a 1 bedroom will cost me $1,000+. But I’m really excited in the apartment search, and it’ll be so nice to finally experience living on my own.

2. Dance classes. For the longest time I’ve put off taking salsa and tango because I thought the money is better served going into my emergency fund. But dance is just about the only form of exercise I can enjoy doing for long periods of time (unlike, say, the treadmill, when every. single. minute. crawls at a snail’s pace.), so I view this as an investment in my health.

3. Fun + travel. I’m going to try to squeeze in more weekend trips. Despite having lived in California for years, I really haven’t seem much of the area at all. I’ve been to more COUNTRIES than I have to the different locales in the Golden State. This oversight must be remedied.

4. Applications. I am gearing up to retake my test and apply to graduate school. School visits, interviews, application fees, etc. etc. all add up. But that’s okay. I’m not going to worry about that expenditure too much. Money that must be spent, must be spent.

For now, I shall put out of my head the $100K tuition bill. I hope, if I get a good enough GMAT score, I can ‘score’ some scholarship money. Too bad there’s no Foundation for the Advancement of Bad Puns! Har har har.

At the end of the day, like Mom said, money’s meant to be spent on the things that matter.

Speaking of Mom, I’d like to give my parents a trip to Santa Barbara or Solvang (perhaps this summer for Dad’s birthday?). My uncle said that my mom has been telling all her relatives about my Vegas present to her. That makes me happy, because that’s how I know she really appreciated the gift (or more importantly, the sentiment).

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Coupon neophyte

I read through a little of Jane’s couponing techniques on her blog. The amount of stuff she gets with her coupons is really amazing. Even before I read her blog, I knew I wouldn’t be able to duplicate her strategies. I’m not much of a couponer for food.

I do 90% of my grocery shopping at two places: Trader Joe’s and Fresh & Easy. I don’t particularly enjoy food shopping, so the fact that these two stores seem a lot “happier” wins points with me. The prices are reasonable, and Trader Joe’s premade foods are just so delicious. Seriously!

If Trader Joe’s had coupons, I’d be ON IT in a minute. But I can’t complain though, their normal prices are already really good!

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Friday is in sight!

Which means the Freedom Fund will get another cash injection (or an additional buffer between job loss and the streets Mom & Dad’s).

Recently, the recession has hit home when one of my relatives lost her job at a tech company. She is poised to weather the layoff well (she received a good severance, her husband has a well-paid job, and they own a couple of different properties), but the news is still disconcerting.

Many newspapers are touting the need to bulk up one’s emergency fund, but how much can you really save with only a few months’ notice? It has taken me more than a year and a half to save my emergency cash.

What I’ve learned from everything that’s going on around me is that in good times, I need to prepare for the not-so-good times. In this economy, it seems that nothing is guaranteed. I’ve read account after account of laid off bankers, consultants, marketing managers, engineers, IT workers (not to mention the scores of auto worker) who made good salaries but are now having trouble finding work after several months of searching.

I’ve been a saver mostly because of Mom’s influence – she has taught me through words and actions that saving for a rainy day is important. Living through my first recession as a working adult (a recession that may be the stormiest of a generation) has made the lesson just that much sharper.

So come Friday, I’m going to take my paycheck, pay my rent, and put everything else into the Freedom Fund. $30,000, here I come.

***Okay, having said all that above – as long as I still have a job, I’m going to keep eating out. Not every night at a $50 a plate restaurant – but, to give up dining out entirely? No can do.

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Person vs. people

Pay day was Friday, which that made Freedom Fund reach $28,500. I also went out to eat a couple of times because a friend was in town, but overall, I’m spending way less in the dining out department compared to a few months ago (which, granted, was the holiday season).

If I felt more secure about the job situation or the economic news wasn’t so doom and gloom all the time, I’d TOTALLY spend more. Totally. But like so many others, I am now watching every dollar.

Isn’t it funny how something that’s great for the individual (saving money) can be so bad for the economy if everyone starts doing it? Lack of consumer spending = lack of business spending = economic activity kaput.

In the long-run, all this saving will be great because it’ll turn into investments in the economy, but in the short-run?

It’s a painful adjustment.

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Goal #7 for 2009

In December I listed my six (mostly financial) goals for 2009, but then I realized, I forgot about Freedom Fund! So here’s one more goal:

7. Increase my Freedom Fund by $5,000, from the 2008 year-end balance of $27,000 to $32,000

So, overall, I am aiming to save $15,000 this year – $5,000 each to Roth IRA, 401(k), and Freedom Fund. If I remain gainfully emloyed through all of 2009, I will have the opportunity to save more. We shall see…

The $5K Freedom Fund goal will be iffy if I go on a vacation AND if I lose my job. Maybe I will try extra hard to cut back on eating out costs to compensate…

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Emergencyopoly, one month later

According to the results of my little game, I would NOT survive on my emergency budget.

Here’s the breakdown, with all major categories:

1. Fixed Costs (rent, student loan, car insurance): $1,001.22
2. Food (mostly dining out): $172.91
3. Gas & Parking: $136.81
4. Car Repair: $359.52
5. Health & Personal Care (prescription, haircut, etc.): $106.01
6. Misc. (library fine, holiday cards): $14.19
7. Donation: $25.00

Total: $1,856.16

Keeping track of all my spending was surprisingly easy (I have a confession: while I was an avid PearBudget-er in the beginning of the year, I have fallen off the wagon sometime in May, and have gone on blissfully unaware of the details of my purchases since then).

Now I’m making it one of my 2009 goals to keep a better record of my spending.

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