Wednesday, May 01, 2013

Money Honey

Money makes the world go 'round. 

That's what Sally Bowes said in the Broadway musical "Cabaret". And as trite as it sounds, I'd tend to agree with Liza's character. Money gives you freedom, opportunity and the security of knowing you can stay afloat during a rainy period.

I remember my 20s, when my income was low and Maslow's needs were expensive, and I didn't have the opportunity to save for a rainy day.

Those were the days when I had to choose between auto repair and paying a late utility bill. I didn't manage what money I did have, and I got stuck in a cycle of poor financial decisions.

There is a bit of an upside to those woes. I learned to live on cash and within my means. To this day, I only carry one credit card with a $300 credit limit. Everything I have or do is paid for with money I've already made. Otherwise, I have zero debt.

Nothing lost, but nothing gained, I suppose.

At 36, I'm finally ready to take control of my finances; it was easier to live in a state of denial when I was younger and I felt like retirement was a million miles away. These days, I realize I'll likely be retiring in 30 years or so and that I need to make some smart decisions to ensure I'm not living in my sister's attic and eating Kraft Singles and Spam.

My sister would hate that. And truth be told, so would I.

Ready to take stock of my future, I met with my financial advisor to roll over a 401k from a previous employer and get some advice on my current employer's retirement options.

The meeting set me ablaze.

I used to think money matters were a boring and scary entanglement, but this weekend I've crawled the internet to find sound advice and make some big decisions.

  1. Set a budget. I can't believe it took me this long. A lovely friend of mine tried to help me a couple years ago, revealing an extensive spreadsheet she developed with her husband. I remembered hearing her say the budget hurt in the beginning, but she was inspired and excited as she watched her savings and investments grow.

    I'm finally in a place where I can be more truthful about my expenses and savings.

  2. Remember the 50/30/20 Rule. LearnVest says you should designate 50 percent of your budget to life's essentials (rent or mortgage, e.g.), 20 percent to savings, and 30 percent to lifestyle choices like charitable giving, fine dining and hobbies.

    LearnVest goes on to more explicitly define those categories; my expenses and lifestyle are a little non-traditional (no car, no kids), so for now, I'm designating my expenses to each of those categories on my own. Regardless, I'm most excited that I've earmarked 20 percent of my income for savings and have managed to designate an additional savings budget to buy a condo next year.

  3. Diversify your savings. This is a no-brainer for you financial types, but it's a bit of a new thing for me. As part of my savings, I've designated eight percent of my income to my Roth 401k (this option involves contributing taxable income now as opposed to getting squeezed by taxes when I'm older), as well as nine percent savings to savings account at a bank, and three percent savings to a portfolio managed by my financial advisor.

    This second savings effort will give me access to liquid cash; the other investments carry penalties if I decide to dip into the well before retirement. I can use this cash to cover things like unexpected medical expenses or planned vacations.

    Let's hope it's more of the latter and less of the former.

I know this is going to hurt a bit in the beginning - the discipline, the choices in the name of frugality - but the end result is the difference between my living in a retirement community with a margarita fountain and living in my sister's sweaty attic in Atlanta.

Easy decision.

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Kate's Random Musings by Kate the Great is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 United States License.

1 comment:

Elizabeth J. Neal said...

I didn't manage what money I did have, and I got loans stuck in a cycle of poor financial decisions.