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!.
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!
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.
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?
In previous blog posts I described myself as a big saver, but I wasn’t much of one before I got my savings account. I opened my savings account back in 2016 after I graduated from college. I was working consistently and paying off my student loans, but my parents encouraged me to put money into my savings account because if I kept it in my checking account I was just going to spend it!
Savings accounts are basically your bank paying you to keep your money with it. I think of my savings account as a place to hold money before its intended use. The average savings account today has a 0.06% interest rate, meaning the money in your savings account will appreciate by that percentage over one year. It’s definitely not a place for my money to grow—I’m making $0.14 per month at most on my savings. Rather, it’s a place to accumulate money until it’s time for it to shine and fulfill one of my goals.
I learned from Bola Sokunbi in her book “Clever Girl Finance” that psychologically it’s better to separate savings for different goals into their own savings accounts to not only avoid confusion but to not feel that you’re being set back on your other goals when you need something for one specific goal. Right now I have money to be invested and my emergency savings in the same account, but they should really be in separate places so I can see my goals clearer. Thankfully they soon will be, but I also want to look into a high-yield savings account, which I learned about while dissecting Carrie Bradshaw’s financial situation.
First, it’s important to make sure that any bank you’re putting your money in is insured by the Federal Deposit Insurance Corp. (FDIC). This means that your money will be safe should the bank go under. You can check if a bank is FDIC insured here.
After some researching and reading reviews, I found a few candidates for my future high-yield savings account: Sallie Mae’s SmartyPig, Axos Bank, LendingClub and Discover. SmartyPig offers a 0.70% annual percentage yield (APY) or interest rate on my savings, but the caveat for this higher yield is that it only applies to amounts under $10,000. Once you have more than $10,000 in your SmartyPig account, the APY falls to 0.45%. Axos Bank can give you 0.61% per year up to $24,999, but after you hit $25,000 the APY is much lower at 0.25% and goes down to 0.15% on more than $100,000. LendingClub offers 0.60% APY for balances of $2,500 or more. Through AAII’s partnership with Discover, you can get 0.55% APY without any restrictions or minimums (this is higher than what you can get through Discover without being an AAII member). These are all high yields with good options—I would just have to decide which option fits each goal. Maybe I’ll end up having more than one high-yield savings account to maximize the interest rates for the amount of money I want to save.
On the topic of how much you should have in a savings account, I recall many years ago when someone told me that they couldn’t believe a person they knew had more than $100,000 in their savings account. I knew that having too much in a savings account was as bad as not having enough—the opportunity cost of not growing all of that money in investments outweighed having all of that money stowed away, and in a manner akin to stuffing cash under your mattress!
I will be revisiting this high-yield savings account research when I open one in the near future, so stick around for more of my investing discoveries!
I found “Clever Girl Finance” by Bola Sokunbi when searching for beginning investor books, and I hesitated before buying it. Though the world of finance is dominated by men, particularly white men, I wondered if financial literacy needed to be gendered at all. Sokunbi answered this question within the first few pages of the book, saying that “despite [women] earning more than ever before, we are paid significantly less for doing the same work as our male counterparts in nearly every single occupation and industry. On average, women earn about 20% less than men … On top of that, we are living longer than men by an average of 5–10 years, which means we actually need more money for our financial well-being in retirement than men will.”
This reminded me of a comment on a video by YouTuber Elena Taber covering investing for beginners:
While reading, I did find it easier to learn from someone with similar life experiences as me. I had a feeling that nothing was being left out that might apply to me specifically.
Sokunbi covers your money mindset, how to get your money organized, budgeting, debt and loans, investing, credit, protecting yourself, making more money and key financial actions. Each section has helpful “Take Action” checklists with activities you can do to understand your relationship to money based on how you grew up, what you want to accomplish with your money, tracking your spending, creating a budget, getting your student loans under control, outlining a retirement savings plan and more.
I was most drawn to the chapter on budgeting and saving, especially how much is recommended to have in emergency savings. Sokunbi mentions budgeting apps as a simple way to start, but cautions “it can detach you from closely monitoring your finances if you don’t make a conscious effort to do so.” She says that you should have “three to six months of your essential living expenses in emergency savings. This includes living expenses related to your housing, transportation, and food needs” and the range is dependent on if you’re partnered (three months) or single (six months).
Regarding where to keep your emergency savings, Sokunbi suggests that they should be “easily accessible and liquid so you can get to it when you need it without having to wait and without having to worry about how financial markets are performing. Therefore, it shouldn’t be tied up in investments like the stock market or in real estate. An interest-bearing savings account or a certificate of deposit are good places to keep this money.”
But what I really appreciated about this breakdown is how Sokunbi highlights the behavioral aspect of saving, “You also want to make sure that you are keeping your emergency savings separate from your other financial goals. Blending your savings goals together can get confusing, and in the event you have to use your savings, taking the money out of a comingled account can make you feel like you are setting yourself back with your other goals as well.”
Though I could take or leave the gendered jokes about handbags and shoes (Carrie Bradshaw would love this book), overall I found Sokunbi’s writing style extremely informative and easily accessible. The “Take Action” sections are the most valuable part of the book, and I’ll be returning to them throughout my investing discoveries.
Before I got my first paid internship as a college student, money was something that was just out of my reach. Like many kids, I was given an allowance by my parents to do chores around the house. I would empty the dishwasher, set the table for dinner, take the garbage out, etc. I appreciated that there were also things I was expected to do that I didn’t get paid for, like doing my own laundry and cleaning my room. I would get paid for the things I could do for other people, but the things I didn’t get paid for had to be self-motivated; it was a great way to build discipline.
I learned from a young age that being independent and doing things for myself was an asset to me. To this day, I will try my hardest to solve any problem that arises before asking for help (yes, sometimes to a fault, but I’m working on it!).
As I’ve gotten older, I’ve noticed more similarities between me and my parents in the way we think, the way we conduct ourselves socially and how we interact with the world. Some of those things my dad will address as “the family curse,” others as his “insanity,” but one of the ripest that I want to break down further is what financial habits, if any, I inherited from my family.
Unfortunately, my grandma on my mom’s side died when I was very young, so all I have is stories about her. As I grew up, I learned that she was an accountant and started her own tax business in the 1950s. It wasn’t an easy time to be a woman, let alone a businesswoman. She was the only woman in her accounting class, and people questioned why she wasn’t getting a teaching degree instead. But she proved all of them wrong, and she went on to meet my grandpa on my mom’s side, who was active in his parents’ phone and answering service business. My mom’s parents ran the phone business together, and my grandma kept her tax business on the side up until the 1980s when my mom recalls a little old lady about four feet tall coming to the office asking for my grandma to do her taxes because she couldn’t possibly go anywhere else!
On my dad’s side, his father died very young, so we never got to meet him. But his mom was around for a little while after I was born. She was big into investing, and when she passed, she left her estate to my parents. My dad told me that when he was 15, his mom bought him stock in IBM Corp. (IBM) to get him into investing. To keep him engaged, she also had him oversee her dividends! My dad would have to verify which amounts were going into her account and match the dividend depending on the company and the month. They had a manual bookkeeping spreadsheet (on paper!) of when the dividends were expected that he helped to maintain.
So I grew up with a lot of business-minded people in my family. But how did that affect how I view money?
As a kid I used to think that my parents would always have enough money to take care of me, that money was something infinite, but I quickly learned that wasn’t the case. My parents had just made good decisions with their money and gotten lucky. I think the biggest lesson I learned from growing up in this environment was to save. When I started making a steady income, I was big into saving because I wanted to be someone who had reserves if something went wrong. If I had a sudden health issue and couldn’t work, I wanted to make sure I could live for at least a year on my savings. It also strikes me as an extension of my need to be fiercely independent; I didn’t think of asking anyone else for help if I fell on hard times, I expected to be able to handle everything myself.
How did you view money growing up, and how did that influence your relationship with money and investing?
Frosty, our littlest investor, doesn’t have a job so he invests all his time into waiting for food.
