Category: Economy

The Carrie Finances: Honey, I Shrunk the Budget

Now that I’m in my 30s and my health app has officially launched me into the 30–39 age group, I thought it was time I rewatched my beloved “Sex and the City” again.

In the first episode of season one, Carrie Bradshaw rekindles things with an ex (who has been resurrected a few times) and her best friend Stanford Blatch says, “Are you out of your mind? What the hell do you think you’re doing?” Carrie replies, “Oh, calm down. It’s research,” after making a “date” for 3:00 p.m. to inspire her next column.

My own research boils down to what mistakes the characters are making with money, and how I can avoid them at all costs. By the time your 30s roll around, you are expected to have certain things figured out. But I’ve learned that this timeline can be restrictive—and, at times, misogynistic. Women have different reasons to spend money. As much as I would love to have a 3-in-1 shampoo instead of mixing three different ones to get my desired results, the majority of products marketed toward women are meant to only serve one purpose. This means we must buy more and more things to stay socially acceptable as we age. (I resent this fact, but the older I get the more I see it happening.)

When I started tracking my spending at the end of March, I was trying to figure out how I could be budgeting and still overspending. A lot of money went to my short-term goals, but there was still not enough room in my budget for what was needed. I got some new cleansers for my skin, trying to figure out my latest flare up. I was going more places and doing more things, which was good for my mental health but not my bank account. I still struggled to find balance and maintain my no-buy strategy for the year.

Later in season one, Carrie exclaims, “My new shoes shouldn’t be punished just because I can’t budget!” Once I saw the damage of March, I knew April could not be a repeat if I wanted to stay on track with my savings. When I broke my spending down by category (transportation, groceries, restaurants/coffee shops, clothing and pay later payments), I was able to see where the problems were. I managed to reduce the amount I spent on transportation by more than half in April. So far in May, I have been avoiding spending any money on transportation since I know that I have some activities planned for later in the month.

For my May 2024 budget, I am allotted $233 per week. My utilities have been steady with a mild start to spring, and I’m almost done with my monthly loan payments (as of publishing this, only three more to go!). So far, I have come in under budget, but I want to make sure I can keep this momentum going.

When I reflect on how hard it has been to both live my life and not buy things I don’t absolutely need, I think about how I used to spend all day at the mall when I was 12 years old and only spend around $20. Of course, this was the early 2000s, so everything was cheaper back then. The economy was good and even in my naive state I had some semblance of a community. The park, the public library and other places where you can be part of a community and not necessarily spend all your money are considered “third places” outside of home and work. The mall, a café, a bookstore and the gym are also on this list but have become places geared more toward spending money than interacting with others.

You could argue that tipping your barista gives back to the community, especially if you’re a regular at your coffee shop. But this still relies on spending money in order to build a community, instead of using the resources we already have to make connections with people.

Social media could also be considered a third place, but I’m not seeing much community there lately. If anything, social media has gone so far as to replace community with buying things in the way our outside world has monetized every interaction we have with others. In the same way, this transactional way of thinking can hinder us from getting together with others when there is no monetary incentive. Think of a friend charging you for having a home-cooked meal at their house even when they invited you over or sending you an invoice after hanging out in one of those public third places. Yikes!

Grace Nevitt, who gave me the idea for the no-buy year strategy, recently posted a YouTube video about how to discuss it with your loved ones. I never really ran into this issue since I announced it on the blog for everyone to see! But she cites the level of American consumerism and how ingrained it is in our society as part of why she thinks a no-buy year is important. If we can train ourselves to not feel the need to buy something just because it’s new, or because we feel like the world is doomed, maybe we can connect with each other in more meaningful ways than capitalism currently allows.

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High-Yield Savings Accounts: Where Are They Now?

While I may not be making money in my investments right now, my high-yield savings accounts are making me more than I’ve made in years on my savings!

The market is down. Even if you’re not in the market, I’m sure you heard. But I’ve been trained well by AAII; I’m not scared by the red numbers on my Schwab account. In fact, I’ve made friends with them! We’re getting brunch on Sunday since the market is closed.

You might also be hearing about interest rates lately, and the possibility of them being raised. One of my savings accounts just raised my interest rate! It was an email I actually wanted to see from an institution I keep my money with. My high-yield savings account with LendingClub is now yielding 1.05% per year, up from 0.65% when I opened my account. LendingClub also noted that there is no minimum balance for my account (before it was $2,500). This makes me excited to see what this account can do for me; it’s already made a whopping $6.44 since the end of March (compared to $0.13 a month on my regular savings account, we’re living like kings).

I recall Erin Lowry saying 1.05% is the best rate on the market in “Broke Millennial,” so I feel like I lucked out with LendingClub. But Lowry also says, “Online banks will routinely fiddle around with the APY on savings accounts. One month it’s 1.05 percent APY, and two months later it drops to 0.75 percent. It’s actually within the bank’s right to do this—but that doesn’t mean you should hang tight at your measly 0.01 percent rate with your current bank because another bank might change from 1.00 percent APY to something a little bit lower. Because 0.75 percent still crushes 0.01 percent.” It’s good to know that my interest rate might not stay at 1.05% forever, especially since interest rates are fluctuating in other areas of the economy.

So with this higher interest rate, I should probably add more money to my LendingClub savings account to take advantage of it! My other high-yield savings account with SmartyPig is also doing well, and I’ll be adding more money to it soon to make the most of the 0.75% yield.

If you want to know more about interest rates, AAII’s financial writers and guest writers all have much smarter things to say than I do—I’m still recovering from high school trigonometry.

Hereditary Financial Habits: The Generational Wealth Gap

https://investingdiscoveries.blog/wp-content/uploads/2022/04/GenWealthAudio.mp3
You can listen to the audio of this post!

When I was first developing my ideas for this blog, I would talk to my best friend Ilana about her perspectives on money, investing and finance. One night, I asked her what she thought of the word “wealth.”

Many other millennials and young people likely feel the same about “wealth” remaining an idea. So, what gives?

My super light and fun research revealed a few compounding issues that affected many millennials in the beginning of their wealth-building years: 1) We have lived through two major recessions, and many young professionals were just starting their careers in 2007–2009; 2) student loan debt has increased exponentially as the cost of college tuition rose faster than the rate of inflation for decades, starting in 1980; and 3) wages have remained stagnant while inflation and cost of living have increased.

Economic Recession

In 2001, around the time when the millennials born in the early 1980s were in college, the economy entered a recession for a period of eight months from March to November. My only potent memories from this time were of 9/11 when I was in second grade. My baby boomer parents, in contrast, recall that “9/11 caused a sharp and shocking drop in the market, and the uncertainty of the time caused people to view what had been a fairly mild recession with more fear, causing more volatility.”

The dot-com bubble that burst in 2000 also contributed to this recession, and many people lost their jobs as unemployment climbed to 5.7% by the end of 2001.

Then there was the Great Recession that lasted from December 2007 to June 2009. This one I remember. I was at the tail end of middle school, and it was on everyone’s minds—yes, even 13-year-olds! My parents recently told me, “It did put a hurt into our 401(k) and stock values. It started with the burst bubble of the housing market, and then unregulated financial institutions, especially mortgages. We didn’t buy or sell a home, so we weren’t affected too much there. Beginning in 2009, stocks started to slowly come back and did well for the most part for 10 years.” My dad says it was “a wake-up call, and I tended to watch the market more closely for signs of volatility after that. I still do. Not that I can do that much about it!”

This recession greatly impacted not just the U.S., but the world. Many countries felt the shocks at different times. At the end of 2009, U.S. unemployment was at 9.9%.

According to an article from Trust & Will, in both of these instances of recession, people with the least amount of wealth—millennials—were the most affected.

Student Loan Debt

First, I want to say that I was extremely lucky in that I had very little student loan debt despite going to an out-of-state, private liberal arts school. My parents started 529 college savings plans for me and my brother in 2001, right around the time of that recession, and my dad recalls that they grew nicely over the years despite blips in the market. I’m so incredibly grateful for the planning that preceded me. It gave me a huge leg up and allowed me to simultaneously start paying off my debt and saving as soon as possible.

When I asked my parents about how much they paid for college, my mom remembered writing a check for $1,000 for a semester (!!!) and my dad said it was between $3,000–$4,000 per year for him. Nowadays, the average tuition for a year at an in-state public school is around $10,000; for out-of-state public school, around $23,000; and for private school it’s closer to $40,000.

Let me throw some more numbers at you from that same Trust & Will article: “In 1989, 40-year-old boomers had a median income of $70,000, median wealth of $112,000 and median debt of $60,000. In other words, income and wealth far exceeded debt. In contrast, millennials have more debt relative to their income and accumulated wealth. With a median debt of $128,000 and income of $73,000, millennials have a much harder time paying off debt and building wealth. In addition, you might notice that the median income for millennials is only $3,000 more than the median income for boomers back in 1989. Wages remain stagnant and are outpaced by inflation.”

It’s likely that most of the debt millennials are carrying is related to student loans. An article from Visual Capitalist investigating the rising cost of college tuition found that “Since 1980, college tuition and fees are up 1,200%, while the Consumer Price Index (CPI) for all items has risen by only 236%.” This staggering difference need not be quantified further: College is so damn expensive that we need the government to subsidize our education, but we need the education to qualify for a career to pay off the debt!

Thankfully, there is some good news. For the first time since 1980, the cost of college tuition is finally not rising faster than inflation.

Wage Stagnation

As I briefly mentioned in my book review of “Broke Millennial,” wages stayed roughly the same for 40 years compared to inflation, as supply likely overwhelmed demand in the job market.

When I looked into this further, I found a Fast Company article that noted, “While recent pay hikes are certainly a positive development that will benefit millions of workers, they are not close to making up for years of wage stagnation.” They also can’t outpace inflation over the last year, which has overtaken most of the raises people received in 2021.

In addition, the purchasing power of the average American hasn’t really changed in 40 years and everything around us has become more and more expensive, forcing many people to work multiple jobs just to pay rent and get food on the table. Some news outlets will give this a trendy name like “polywork,” as if it’s something new and exciting to report on instead of people being overworked and underpaid into eternity.

Conclusion

Though I won’t be able to solve all of these economic problems in this blog post alone, knowing that all of these factors are at work helps me to understand why millennials have struggled to bridge the generational wealth gap. Are there any other possibilities you think I missed? If you’re an older millennial, how have you combatted these external circumstances? If you’re a younger millennial with a lot of student loan debt, stick around because I’ll be looking into how you can invest even while you pay it off.