LWG: How did you develop your financially savvy identity?
Mr. Smith: When I was in grad school, my wife was working full time while I was working part time. We were living in an apartment, and just starting to learn how to pay the bills. I really wanted to buy a house after graduation (for no particular reason). To make this happen I had to figure out how much we’d need for a down payment and how much house we could afford, and that forced me to learn how to make and balance a budget. I also started looking at retirement since the retirement calculator was right next to the mortgage one. After running some numbers, I was shocked by how much we’d have to save. That scared me into the person I am today.
LWG: How do you integrate saving into your regular routine?
Mr. Smith: I love automated things. I have my 401k set to take out 9% of my paycheck, send another 15% to my employer’s stock purchase plan (which I flip immediately for 10% profit), and send yet another part of my paycheck to my investment account directly. I also dedicate most of my bonus to our Roth IRA accounts. We try to reserve shopping for replacing things that wear out and for special occasions like birthdays, and we focus our time on being together and being outside.
LWG: What do you splurge on?
Mr. Smith: Durable hobby-related items: things I know I’ll get a lot of use out of and that I’ll have for a long time. By buying something used that will retain its value, I can get a lot of value for not much money. For example, I recently bought a down jacket off Craigslist. It cost $75, but it should last for literally 20 years or more, and I’ll use it several times a month. It was also a birthday present. We also go to almost all “once in a lifetime” opportunities like weddings, and we visit family on the East Coast fairly often.
LWG: What is the best piece of financial advice you've ever been given?
Mr. Smith: My dad told me “Save as much as you can in your early years.” I don’t think he even knew the full extent of how important this is. A dollar saved today is worth around $32 in retirement (based on historical averages). If you’re making an inflation-adjusted salary of $250,000 in retirement (nice job!), you’d need to save $32,000 – 13% of your gross salary – to make up for not saving $1000 today – which is 2% of a $50,000 salary. 2% vs. 13% (of a salary I may never reach) - I know what choice I’m making!
LWG: What is the advice you'd give to someone who wants to be lean with green?
Mr. Smith: Math is your friend. Figure out how much money you need to save for retirement and for other major life expenses (rainy day fund, kids’ college, future car purchases). Then figure out how much you need to save each paycheck to meet those goals. Then set up a direct deposit or automated transfer so that that money is saved automatically. If you do this, you can’t fail to save because you’re effectively “buying” your savings before you get the chance to buy anything else. Of course, you might not be able to afford that much savings, which leads to my second piece of advice: analyze your spending and think about what really makes you happy. Does the $75 you spend on cable TV really make you happy? What about the $500 some people spend at bars every month? The thing you’ll realize isn’t just that some things aren’t worth it but that others are really worth it. For example, a breakfast out with your spouse once a month might cost you $25 but make you both feel great for days. Putting a value on things is especially important with houses and cars. You would think long and hard before spending $1000 on a stereo for your home, but it seems so easy to check the box for the stereo option package at the car dealer. Is it really worth spending $1000 on that? Also, be careful about anything with a subscription. $30 a month doesn’t sound like much, but that’s $360 a year – not cheap (remember, that’s about $11,000 in retirement!). The last thing I recommend is to choose your hobbies wisely. Auto racing costs $200+ dollars a day, going out to bars can easily cost $200 a month, while a membership to the Seattle Art Museum is $60 a year and hiking and playing basketball with your friends are free. Cheap hobbies tend to be good for you, too.
Thanks Mr. Smith!
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