“Money can’t buy happiness, but …

  • … it allows you to rent.” – Anon.
  • … neither can poverty.” – Leo Rosten
  • … it can make you awfully comfortable while you’re being miserable.” – Clare Boothe Luce

Introduction

Regardless of your opinion about money (whether they resemble those sentiments above, or more aligned with Biggie’s “Mo Money, Mo Problems” claim), we all know there is a minimum amount of “the green” necessary just to meet the “bear” necessities (thanks Baloo). That minimum is different for all of us (based on cost of living, what we consider to be the bare necessities, and who all is dependent on us).

This past week, I tried to gauge my current circumstances, accounting for my location, salary, typical expenses, and existing debt. Here’s what I learned.

Young Fabulous and Broke

As part of my financial reflection, I realized that I needed some suggestions to get started. Based on a recommendation from a friend, I picked up Suze Orman’s “The Money Book for the Young Fabulous & Broke.” The book focuses on advice for those recently out of college that are trying to handle new careers, student loans, credit card debt, and future retirement demands.

While the book was a solid, quick read, there wasn’t a whole lot that I learned that I hadn’t already read on “I Will Teach You to Be Rich” or “Get Rich Slowly.” Having said that, if you are completely new to finances, YF&B is a great starting point. From the nearly 400-page book, I picked up the following:

  • For all things financial: Your FICO score is incredibly important. It’s the “credit score” that almost all banks and loan companies use to determine your interest rate. While many things affect your score, I didn’t realize that your debt/credit limit ratio accounts for 30% of the number you receive.
  • For retirement: If your company offers a 401k match, focus on contributing whatever amount required to get the maximum contribution from your company (it is “free money” after all). If they don’t offer matching, or if you’ve already contributed the max, the next place to go is a Roth IRA.
  • For saving money: All cost-savings help. Some of the more interesting suggestions included:
    • Avoid ATM fees at all costs (which happens to be $1.50 to $4.00 per). Luckily this is easy for me because Charles Schwab will reimburse any ATM fees I incur.
    • Stop getting a tax refund. It’s a free loan to the government that you could be using for investing. The key is to find the right number of exemptions that limit your refund but doesn’t leave you owing the government.
    • If you don’t have anyone dependent on you financially (no kids, spouse, etc), drop your Life Insurance.
  • For investing: Index funds can be a good starting point for getting into investing. They don’t require hours of research and historically have returned moderate returns.
  • For loaning money: Everyone wants to help their friends and family when they can. However when it comes to loaning money, failing to set clear, written expectations around repayment of loans can lead to strained relationships. So before loaning someone money, write down the terms of the loan (how it will be repaid, how often, will there be interest, etc).

My Current Currency Situation

After reading through the book, I assessed my current situation. I feel very fortunate to be able to say that I have no student loans or credit card debt. My only loan is for my (former) car, which will be sold to my brother before too long. I have 4 different bank accounts, each with varying amounts of money in them. One is a “brick-and-mortar” checking account, another is an online checking account (with 3% interest), the third is an online savings account (with 4.2% interest), and the last is an online brokerage account.

My living expenses have recently increased with the move to NYC. Thanks to an Excel spreadsheet I created, I have a handle on what my expenses have been since the move (and compared to Ohio), and what they “should” be. Using an online finance program, I was also able to see exactly where I’ve been spending my money (sadly I’ve been to McDonald’s 19 times in the past 6 months).

Financial Plan

Based on my assessment, I realized there are a number of things that I needed to improve:

  1. Organize. Based on interest rates and convenience, I need to move some of my money around. My “bills” account will move to the online checking account, the “emergency fund” to the online savings account, the retirement/investment money to the brokerage account, and a new “drew tarvin inc.”-type account to the brick-and-mortar bank.
  2. Automate. I already do Direct Deposit at work, but I need to modify it so that it goes to the “bills” account. After that, I need to automatically contribute money for investments. I’ll have 4 types of investments: 1) Retirement 2) Investing/Money Growth 3) Small business and 4) “drew tarvin, inc.” (With #4, I’m saying that I will be investing in the business of me, aka my comedy).
  3. Adjust. Based on where I saw I was spending my money, I need to make some changes. For example, food (more specifically dining out) accounted for a huge portion of my monthly expenses. Considering I have, on average, 90 “meals” a month (30 days at 3 meals a piece), dining out for all of them would get quite expensive. Assuming a typical breakfast is $4 (reasonable if it’s at McDonald’s or Starbucks), a lunch is $8 (assuming it’s not a formal sit-down restaurant), and dinner is $15 (the average for a moderately nice establishment), that’s over $800. If I can keep the number of meals I eat out to 50%, and assume a $200 monthly grocery bill (2x my current average), then I could save $200 a month or $2400 a year.
  4. Invest. As it stands, I have yet to enter the realm of the stock market. As any financial site will tell me, the biggest thing I have going for me is time. If I start a moderate investment program now and get a modest 8% return, I could be looking at over $1 million for retirement easily. Through a Roth IRA and otherwise, I need to pick a few Index funds and other investments to get started soon.

Conclusion

Everyone’s financial situation is different. Maybe you have more debt than me, or make more money. But hopefully seeing my personal exploration can help you with your own. Though not everything will apply, I can tell you that you can reapply doing the research on personal finance (online or through books like YF&B) and research on yourself (through a budget or online service). Those two steps alone will get you on the right track to financial clarity and freedom.

With some smart decisions, conscious spending, and diligent tracking, hopefully we can all be experiencing “Mo Problems” in a few years.

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