I’ll be honest, me and my budget have not been friends recently. We’ve been struggling to communicate, and when we do it always ends in confusion and despair! Some months I save the right amount according to my budget, and other months I fear I will never save a penny again.
Inflation is affecting everything I touch recently, including my apartment. My rent is going up in September, and over the summer I spend about double on electricity with the luxury of air conditioning, so it’s time to revisit my budget.
Last time we talked budgeting, I was using the percentage budget outlined in Erin Lowry’s “Broke Millennial.” I’m going to stick with it for now so that I can make sense of how much I really have to spend after these changes take effect. The percentage budget allocates 50% of monthly income to fixed expenses, 20% to savings or financial goals and 30% to wants and flexible spending. My rent went up from $1,085 to $1,200 (yes, I tried to negotiate with my landlord, but he said they were already eating part of the cost with that increase—oof!), and with double the electricity my utilities are $110.
I’m relieved that my total fixed expenses are still under 50%, though just barely! I decided to break down my leftover money (after savings are accounted for) on a weekly basis to see how much I can really spend per week. This encompasses groceries, going out to dinner with friends, etc. Though I probably won’t track everything down to the cent, I will keep in mind what I can actually spend instead of just guessing and hoping I’ll have enough along the way.
Now that I’m contributing to my retirement account, just a reminder that the monthly savings percentage doesn’t include retirement savings. This is because the percentage budget should be performed using your aftertax income and retirement contributions will come from pretax income—unless you’re fancy and have a Roth 401(k) or similar account.
We’ll see how this budget works out, and I’ll check in with you all when the leaves start falling and everything starts dying around us—my favorite time of year!.
OK Anine, it’s been six days. Are you going to keep thinking about that guy who called you corazón and then said he didn’t want to date anyone? No, you’re going to build yourself a budget because he wants to “get his life together” and you already have!
In Sex and the City, Carrie Bradshaw was notorious for relying on the men in her life for money and housing, to the point that it made me a bit sick to watch. She goes to Big when she needs money and she lets her ex-fiancé Aidan buy her apartment (which, unsurprisingly, doesn’t turn out well). When things backfire and she’s nearly homeless, she has no backup funds to bail herself out.
Ever since I was told at age 15 that to be a writer in any capacity I’d have to “get myself a rich boyfriend,” I’ve loathed the idea of relying on a man (or anyone) for anything. It also helped that I listened to Deap Vally’s song “Gonna Make My Own Money” hundreds of times!
Like investing, in dating past performance is not indicative of future returns. For now, I’ve given up on a future reduction in rent were I to move in with someone. (As Whoopi Goldberg said, “I don’t want somebody in my house!”) Instead, I’ve made a life for myself on my own terms.
This also means that I’m a one-income-stream household, and that me, myself and I have to cover the entire rent payment, utilities and other monthly expenses. I live in a one-bedroom apartment in Chicago, and I pay for electricity and internet, but I don’t have to pay for water or gas/heat. I’ve cut back on my monthly subscriptions, so those only cost about $13. My monthly fixed expenses are $1,188. So, what do I do with the rest of my monthly income to ensure my financial stability?
Remember when I read “Broke Millennial” and Erin Lowry introduced me to the percentage budget? It’s time for that budget to shine. First things first: Let’s spreadsheet it!
The percentage budget outlined in “Broke Millennial” designates 50% of monthly income for fixed expenses, 20% for savings or financial goals and 30% for wants or flexible spending. The first thing I wanted to see was the true percentage of my monthly fixed expenses. I was pleasantly surprised to see that it was under 50%. This gives me even more flexibility in this budget, especially if some months I want to save more than 20% of my income, or I need to spend a little more on dental costs—or fancy cheese!
I tried out this budget for the month of February this year and it worked out well for me, even when it came to paying off my credit card! I haven’t set a specific food budget yet, but for now I’m including it in my 30% for flexible spending and will determine it in future months. I’ll also be looking into some other budgeting methods, including trying out a budgeting app or two, so stay tuned for more of the Carrie Finances series!
Have you tried a budgeting method? Did it work, or did you have to create your own?
Why are millennials the most educated and underpaid group of people? Is it because the workforce doubled when women entered it? Is it because wages stayed roughly the same for 40 years compared to inflation and supply overwhelmed demand? Is it the rise in student loan debt? Is it because our superiors’ families are able to live on one income and have been since the beginning of their careers? Is it because the world consistently asks more of us than it can offer in return?
These were the questions running through my head as I read Erin Lowry’s “Broke Millennial: Stop Scraping By and Get Your Financial Life Together.” Rife with hashtags and helpful action lists, “Broke Millennial” is the most in-depth finance book I’ve read so far. Lowry emphasizes getting out of debt and building your credit while lifting the anxious veil from money that has plagued so many young people. She covers how to overcome psychological blocks when it comes to money, the basics of budgeting, picking the right place to put your money, credit reports and scores, how to ditch debt and student loans, finances and friends, getting financially naked with your partner, living at home after college, negotiating salary, decoding investing, retirement basics, financial planners and buying a house.
Her lessons on credit and budgeting were the most helpful to me. She says, “Think of a strong credit score as an insurance policy for your financial life. A strong credit score proves to a lender that you’re reliable, which directly correlates to favorable loan terms.”
Lowry emphasizes credit throughout the book, but her chapter on credit cards specifically pushes for millennials to not carry a balance on their credit cards month to month, “‘It’s been a rough month. Can’t I just charge this to my card even if I can’t afford it?’ The short answer to this question is no, you can’t. Okay, that’s not entirely true because, yes, you are capable of charging unexpected expenses to your card, but you probably shouldn’t. Credit cards can be, and often are, a fallback for unexpected expenses except that this option comes with a hefty price tag. Having an emergency fund even when you’re in debt is incredibly important for this reason.” This is why I put off getting a credit card for so long—credit freaks me out! But her breakdown helped me understand how vital it is to only use a credit card for what you can afford.
Saving, or “paying yourself first,” is also something Lowry thinks is extremely important: “Saving money prevents you from sinking deeper into debt by providing a buffer when you hit a streak of bad luck and everything you own suddenly breaks. The other option is to finance your emergencies on a credit card and begin or continue the downward spiral of high interest and a principal balance that refuses to decrease.”
Lowry suggests this behavioral finance hack: “Put your savings in an account you don’t see when you log into your main checking account. This probably means using a different bank entirely. The out of sight, out of mind principle will apply when you feel a bit strapped for cash. This way your savings isn’t sitting right in front of you saying ‘Hey, you can skim some off the top here!’ and it’s easier to let it continue to accumulate.” I’m already planning on opening a high-yield savings account with a different bank than my current one, so I’ll soon have this covered!
A few different budgeting methods are discussed, but the one that stood out to me was percentage budgeting: “One of the more effective and less stringent budgeting methods—the percentage budget—often outlines three main categories for your cash: fixed costs (50 percent), financial goals (20 percent), and wants or flexible spending (30 percent).” Lowry also notes that the financial goals (or savings) percentage doesn’t include retirement savings since the percentage budget should be performed using your aftertax income and retirement contributions will come from pretax income. I like the idea of this budgeting process, so I’ll be trying it out and I’ll report back on how it goes.
The chapter on student loans was quite detailed, and I’ll be returning to it when I cover student loans in the future. Life looks different for millennials and the generations to come than it did for our parents and elders, and “Broke Millennial” does a great job of educating and demystifying money without overwhelming me with existential dread!
In my recent rewatch of Sex and the City, an episode where main character Carrie Bradshaw is forced to buy her apartment or be evicted by her ex-fiancé Aidan revealed that Carrie only has $700 in her checking account and $957 in her savings account! Indexed to inflation from 2001 to 2021, that would be approximately $1,100 in checking and $1,500 in savings. Given that Carrie’s apartment was previously rent controlled for $750 per month (a steal in New York City then and now, at around $1,200 with inflation), the bulk of her income was spent on her Achilles heel: expensive shoes—according to her, $40,000 worth!
The down payment required to buy her apartment is $30,000. After consulting a loan officer at the bank, her ex-boyfriend Big and her three closest friends, her friend Charlotte gives Carrie the engagement ring from her first marriage to float the bill and save the apartment. Carrie promises to pay Charlotte back in full.
At age 35, Carrie has little to her name in assets but “many life experiences,” she notes. As much as we like to enforce the idea of saving from a young age, Carrie makes a good point about enjoying your life while you’re young—but shoes are not the same thing as life experiences! What if Carrie had spent only half of the $40,000 that she estimated she spent on shoes, and put $20,000 in savings …
Carrie says that at this point she has lived in Manhattan for a decade, so let’s see how much money Carrie would have if she put $20,000 in her savings account for 10 years. The average savings account today has a 0.06% interest rate, meaning the money you have in your savings account will appreciate by that percentage over one year. The more you put into your savings account, the more money you’ll make in the long run. Over a 10-year period, Carrie would make about $270 on her savings, which isn’t much and wouldn’t cover her down payment.
But what if she used a high-yield savings account? High-yield savings accounts have interest rates much higher than the average bank, some as high as 0.70% today. If Carrie had her money in a high-yield savings account, she would have almost $21,000 in total savings.
This would be the best Carrie could do at this level if she still wanted to maintain half of her Manolo Blahnik shoe collection. Even with a high-yield savings account, she still wouldn’t be able to pay for her apartment on her own at today’s low interest rates.
When I first watched this episode, I was horrified by Carrie’s financial state! I couldn’t help but wonder: Would she would be able to support herself? Unfortunately, she would have to start investing or save more of her income to do anything more with her money. She might also have to sell some of those shoes, but that would be even more painful for her! Through my Carrie Finances series, I intend to teach myself about budgeting and life-planning so that my finances are in better shape by the time I turn 35 than Carrie’s are!
