Welcome to the first installment of my “Money, Honey” series, where I’ll be taking you through a shit ton of (literally) valuable advice from the Refinery29 Money Diaries book tour. (And as I read the book, I’ll probably be sharing more.)
Keep in mind this investment, budgeting, and advising insight isn’t coming from me and my degree in public relations. It’s coming from Manisha Thakor, a Harvard MBA, CFA, and CFP® who’s nationally recognized for her expertise on financial wellbeing.
Her pedigree ain’t the only impressive thing—she’ s worked in the financial services industry for more than 25 years and is currently the VP of Financial Education at the Seattle-based wealth management firm, Brighton Jones. (Little ~fun fact~: most wealth management firms have a minimum net worth value of $1,000,000 before they'll work with you. Cute!!)
She’s low-key hysterical, too—she kicked off the night explaining that her ex-husband’s mistress sent her a “greatest hits compilation” of their salacious emails which made her thankful for her prenup during her divorce. Yikes.
This first piece focuses on loans, debt, and savings, as the title suggests. Over the next few days, look for:
Let’s get started, people.
How much should I be saving? What if I’ve got hella debt?
First of all, Manisha's comments on emotion and attitude surrounding money were intriguing to me. She noted:
"You don't have to pull back totally on your joy, but if you save excessively right now, 10 years from now your life is going to look VERY different from your friends'."
As a self-proclaimed minimalist, she said she had two work dresses, two pairs of jeans, a couple pairs of shoes, and four work outfits when she started her career in her twenties. Essentially, she cut ties with the materialistic rat race and instead 'saved excessively.' Obviously her lack of wardrobe options didn't affect her career too much, seeing as she's a 45-year-old vice president now.
This also hit me in the feels because, as a young person living in Dallas, I feel constant pressure and temptation to say yes to every "dinner & drinks" invitation and cash in on my 25% Lululemon discount every time they drop new leggings. The idea of being freed from that (and the promise of wealth looming) was so, so appealing to me.
So, that's a saving mantra—but what about debt?
Not to toot my parents’ horns, but damn, they really set me up for success. By establishing early in my life that hard work = $, I was fortunate enough to have my Alabama out-of-state tuition free. Obviously, college is still expensive as hell even WITH tuition paid for, and my mom and dad foot the bill. Thank you, Mary and Chris. I now realize how huge that was.
For this reason, up until now I really didn’t know shit about student loans (having not dealt with them myself) so when people would reach out to me with questions I’d have to inform them I was utterly useless.
Let’s tackle this in two steps, because Manisha’s advice will probably make you feel better, not worse.
First: Let’s say you have no debt.
You were privileged enough to get through school (and your life thus far) debt-free. But you’re not packing a trust fund or a six-figure salary, either, so you’re still concerned about building up your own little nest egg.
The standard advice is 3-6 months of expenses. Manisha explained that for some people this is really, really unrealistic: “It could take some people a decade to save that much.”
The average American spends $2,000 on truly unexpected expenses per year: a fender bender, your cat’s bladder surgery, you name it. She suggested an “emergency fund” magic number of $2,000 instead. This is $2,000 you never touch unless you absolutely need it. She said hitting this $2,000 figure was more important than contributing to your 401k, which is obviously controversial, but her reasoning was this:
If you’re contributing to your 401k but you don’t have $2,000 in savings available and something happens, what are you going to do? You’re going to put it on a credit card.
Then, you’re going to have to save for several months (or more) to pay off that credit card, while it accrues 20% interest or higher. The compound interest or match that that same money would make in your 401k won’t compensate for that compounding credit card debt, unless your company has a full 20% match (if yours does, are you hiring?).
Once you've got $2,000, then contribute to your 401k up to the company match, at LEAST. It's literally free money. Don't be dumb.
Here's a little exercise to illustrate why you shouldn't even think twice about this:
Say you're 28. You make $50,000/year. Your company matches 100% of the first 6% of your salary that you deposit into your 401k. (That's a pretty good rate.)
Your portfolio will have an 8% annual growth over the course of your lifetime, based on the past 100 years of U.S. markets.
If you contribute 6% of your salary, by the time you retire, you'll have:
But let's say instead you max out your 401k (right now, the max annual contribution is $18,500), and the first 6% of your salary is matched.
By the time you retire, you'll have:
Now do you still think your shopping budget takes precedence over a 401k contribution?! Y'all!!! It's free money!
Back to emergency funds really quickly...
Of course, if you can swing 3-6 months, do it. Crossing that milestone granted me an incredible amount of financial relief, knowing that I’d be fine even if I were without income for six months. It’s a good goal to strive for.
Second: You’ve got some debt.
Student loans, credit card debt, who knows? There is now more money in the United States in student loan debt than credit card debt, so if you have student loans, you are not alone.
Someone in the audience asked a question about how urgently you should pay off student loan debt.
Should you sacrifice for a couple years to prioritize paying it off as quickly as possible, or should you pay it off slowly over time and live your life normally in the meantime?
Interestingly, the author (Lindsey Stanberry) herself had a lot of student loan debt, and she explained that she and her husband just finished paying it off last month—they’re in their mid-30s.
In the time since finishing school, Lindsey bought and sold an apartment, had a child, and got married—in other words, she lived a fairly normal life. Buying and selling real estate, having a baby, getting married: these things cost money. She explained she prioritized a normal life and decided early on to slowly make payments over time.
Manisha said the magic number here is 7%. “If your loan has an interest rate of 7% or higher, I’d suggest sacrificing and paying it off quickly. If you have a government loan with a rate below 7%, I don’t mind Lindsey’s approach.” She noted that usually only private loans have a rate of 7% or higher.
Credit cards, on the other hand, typically have interest rates in the double digits. Do whatever you have to do to pay that shit off.
But let’s say you’re in a tight spot.
Let's say you took out a credit card for a few large purchases, but now you have a LOT of debt and you’re in-between jobs. That “0% APR” first-year offer is coming up, and you’re about to start accruing 20% interest on that debt and you don’t have income to pay it off.
Merely imagining this scenario gives me a knot in my stomach, so if this is you, I feel for you and I’m sorry. An audience member raised her hand and described this exact situation, and asked if she should work with a debt consolidation company (she’s been getting packets in the mail).
Manisha’s answer was, unequivocally, no: don’t mess with debt consolidation packages.
Easy for you to say, vice president and millionaire Harvard grad, I thought. But then Manisha dropped the sneakiest hack I had never considered.
“If you anticipate more money soon, but not soon enough, and you need to buy more time, roll that balance onto a new card. Open a new card with 0% APR. You’ll pay 3% on that total, which will suck, but it’s a lot better than the alternative of accruing 20% per month while you figure it out.”
Convinced you need this book in your life?
Pick it up on Amazon for $13.38 here.
In case you're unfamiliar with the Money Diaries series on Refinery29, it's essentially a series of editorial content in which they ask women all over the country how they spend their money over the course of a week.
The anonymous contributor writes how much they make, their take-home pay, what they're investing in, how much they pay in rent (and where they live), and then they take you through an entire week of their expenses and lives. It's truly fascinating.
This book compiles all of these entries and inserts financial tips, tricks, and advice throughout. In short, you need this. It's a $13 investment that could teach you things that'll someday make you millions.
See you for my next 'installment' soon!
The young woman's money guide to all the things you're too embarrassed to ask your friends. Build the life you thought you were too broke to afford through managing your spending habits, travel hacking, and simple, smart investing.
Full-time Brand marketer at Southwest Airlines, part-time Yoga Sculpt teacher, occasional Waffle House Model and reformed materialist.
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