Living Intentionally: Financially

Money is the root of all evil.  Or so they say.

Since I was young money has played an interesting role in my life.  My dad grew up with nothing.  He actually was homeless for some of his teenage years.  While my family is by no means rich, when I was a child, I feel like my dad was making up for lost time by splurging on things.  He’d go overboard on Christmas gifts.  He bought me a brand new car the day I got my driver’s permit.  Then I crashed my mom’s car, so she got to keep the brand new car.  But that is neither here nor there.

I grew up living next door to my grandparents and they practically served as surrogate parents for me.  My grandmother was born in 1907 and my grandfather was born in 1913.  They lived through the Great Depression and the dust bowls.  In contrast to my dad, they were relatively financially conservative.  However, my grandfather’s lasting line about money was that “you can’t take it with you when you go.”  As a tribute to this motto, we actually put some cash in his suit jacket pocket before we buried him.

I think in large part because he grew up poor and homeless, my dad worked tirelessly throughout my childhood so I would never have to worry about money.  I always had what I needed and if I wanted something badly enough and gave a good reason for it, nine times out of ten I got it.

While I enjoyed living this way growing up, difficult times arose for me after I graduated from college and became financially independent.  I was used to hitting the mall every weekend and buying whatever outfit I wanted.  It was normal for me to go out to nice dinners three or four nights a week.  However, once the money was coming out of my own pocket to support all of my life’s habits, I had to begin living intentionally.  There have been some struggles along this process as I’ve learned things I wish I would have learned earlier in life.  However, I’ve taken away some good tips that have allowed me to gain a reasonable sense of financial security for a 28-year-old.

1.  High Interest Snowballs

The one thing in my life I wouldn’t let my parents pay for was law school.  Law school was my dream, not theirs.  As such, I thought it was appropriate that I foot the bill for it.  Thus, I have student loans.  For what it’s worth, it turns out that when you go to law school in one of the most expensive counties in the United States that your law school bill gets a little hefty.  Who knew?

After law school I dug into books filled with investing advice.  Many of these books have suggestions of ways to pay down your debt.  The strategy I’ve adopted is a combination of Suze Orman’s and Dave Ramsey’s theories.  So far, it’s proven successful.

Suze Orman is a big proponent of paying off your debts that bear the greatest interest first. She says if you do this, you’ll eliminate debt quicker.  Dave Ramsey promotes a “snowball” method, where you pay off your smallest debt first irregardless of its interest rate.  Once that debt is paid off, you roll over what you would’ve paid on the now paid off debt to the next lowest debt.  And so on and so forth.

Suze is smart.  Dave is smart.  When you combine both of their ideas, you are met with financial genius.

The intentional action plan I have adopted to pay off my student loan debts is one where I work each month to pay off smaller loans that have higher interest rates.  By doing this, I make a dent into some of my higher interest loans while also paying some off more quickly and in turn, receive the opportunity to reallocate what I would pay on them to pay off other debts.

In the last year, I’ve used this method to pay off two of my student loans.  Granted, they weren’t my biggest loans, but still–they’re gone.  For a twenty-something person, I’m not sure if there is a better feeling than receiving the letter saying that you no longer have to pay a debt.

2.  Budgeting

Truth be told, the hardest thing for me to do financially is budget.  I like nice things.  People at Nordstrom may or may not know me by name.  NFL players may or may not ask me to help them purchase wardrobes.  It’s a passion of mine.

However, I wasn’t born with a silver spoon in my mouth and I am not independently wealthy. As such, I cannot live as though I am either of those things.  Therefore, I budget.

Budgeting can be a real buzz kill.  There are things you want to buy and things you want to do.  Realizing that you can’t can cause disappointment and stress.  Thus, with budgeting it’s important that you intentionally set limits that are within your boundaries and are realistic.  It’s also important that you don’t let your budget consume your life.

When my student loan payments became due in October 2009 I sat down and listed all of my monthly expenses in an Excel spreadsheet.  I then subtracted that amount from my income.  With that, I was left with a number of remaining funds.  From there, I decided a reasonable amount to invest with (which I will discuss below) and a reasonable amount to use each month for shopping and fun.

I visit my Excel budget each Monday.  On Mondays I pay all of my bills that are due that week and also track how much money is in my checking account.  If that number is lower than it should be, I adjust my personal spending during the week so that I can get back to my goal.  If it is higher that I expected it to be, I allow myself some flexibility and treat myself to something like a new outfit or a nice dinner.

Budgets are some of the biggest causes of stress for people my age.  If you let the thought of money consume your life, it will.  The most important thing when it comes to budgeting, is to be realistic.  I know I could be saving more. However, I also know that I’m the type of person who wouldn’t be happy if I was saving any more than I am.  As such, with budgeting it’s important that you intentionally set yourself up for success.  You know what you are capable of and you also know how much you need to put away for a rainy day.  Budget accordingly.

3.  Saving

Once I hit the real world, I was put in a position where I had no choice but to begin saving.  One of my best friends from law school, Austin, became a financial analyst after we graduated.  After sitting for the bar, Austin and I met in his office and went over the various saving tools his company could offer me.  At the time, I had an enormous mountain of debt and had just begun working.  In other words, I was pretty broke.  However, Austin gently told me that I needed to begin saving something for my retirement and other big milestones in my life, like buying a house.

Investing pundits like Suze Orman tell you that you shouldn’t save money until all of your debts are paid off.  I coudln’t disagree more.  I think that I would be at my wits end if I didn’t know that I had some money in the bank saved up.  It’s unrealistic to tell people that they should not begin planning for their future via saving until their past expenditures are paid off.  Therefore, each month I put approximately ten percent of my paycheck into mutual funds.  On top of this, I have my 401K offered by my work.  While neither of these are going to allow me to retire by the time I am 40, I know that I am at least beginning to make a dent in saving the amount of money I need to save for retirement.  Additionally, committing myself to saving these amounts has forced me to be intentional with my budget.  Each month I know that draws will be made from my checking account to put the money into these accounts.  As such, it holds me accountable and forces me to spend accordingly.

If you have trouble putting money into these accounts, perhaps the best advice I could give you is to hire one of your good friends as your financial advisor.  Whenever we review my finances, Austin points out to me how much more I could’ve saved had I not taken that trip to Miami or bought that designer handbag.  While I’d like to say that his hassling me about these things has made me turn completely to the good side and become a total Saving Sally, that would be a lie.  However, his comments have motivated me to become a better saver and work harder towards achieving my financial goals.

If you don’t have a good friend in the financial industry, I offer you mine.  He is a star at what he does, has always gotten me a good return on my investment and if you tell him you know me, he’ll probably tell you some good stories about the trouble we got into in college.  You can check him out here.

Overall, for me, living intentionally financially comes down to balancing the financial practices of my dad and grandfather.  It is the realization that yes, I need to save for that rainy day, but at the same time, I need to live life and enjoy it.  Because as we all know, you can’t take it with you when you go.