Our second Profile in Saving comes from one of my very good friends, Mrs. Smith. Besides being an excellent cook, a great conversationalist and a nature lover, Mrs. Smith is a twentysomething Western Washington resident who will soon have her Masters in Teaching! Bravo, Mrs. Smith!
I've long admired Mr. and Mrs. Smith's savings mentality, and they were an inspiration for Profiles in Saving. I hope you love Mrs. Smith's words of wisdom as much as I did.
LWG: How did you develop your financially savvy identity?
Mrs. Smith: I really don't know for sure - my mom is pretty prudent about spending, and she was always pretty honest about what we could and couldn't afford. Her general financial philosophy was "be reasonable, and hopefully you'll be able to pay at the end of the month." Not exactly sophisticated. I will say I think New England is a pretty financially conservative area in general - people just aren't really big status consumers for the most part, and growing up in a rural area, I never had the opportunity to develop big spending habits as a kid or a teen. It was 30 miles to the mall, and most of the restaurants near home were diners. So I guess part of it is just how I grew up.
I think the other part of it is I'm terrified of not being able to pay for my lifestyle. I carried about a $1000 credit card balance for two months at the end of college (the cost of a totally worthwhile spring break trip with some girlfriends), and it freaked me out! I couldn't wait to pay it off, and I spent most of the money I got as graduation gifts paying it off as soon as I could. We had one month when we first moved to Washington where our expenses exceeded our income - I hadn't found a job yet, and there were a lot of moving expenses. But it scared the crap out of me, and I've never forgotten it! I think about it when I'm making the littlest decisions, like "should I get a new shower curtain?" Little things add up.
LWG: How do you integrate saving into your regular routine?
Mrs. Smith: Like I said, I think about the wisdom and value of almost every purchase. Almost. I have a tendency to overspend on cosmetics and treats - coffee, special food, new lip balm. But I'm very aware of that habit and I pay attention to it. I figure if I mostly restrict it to things under $5, it's never going to get too out of hand, and I do think it's a good thing to feel like you have a little financial freedom.
In college, I only had an ATM card for years. Every time I wanted to buy something, I'd pick it out, bring it to the register and have them put it on hold, then walk to the ATM to get cash. Usually, somewhere in that process, I'd decide the purchase wasn't worth it. Sometimes it took actually holding the cash in my hand. It's not really a practical way to live as an adult, but it was a habit that really made me more aware of the cost of things.
I'm not a coupon clipper - I never have been, and I doubt I ever will be. I need to feel like my time is valuable. Also, I haven't bought an item of clothing that wasn't on sale in YEARS, with the exception of running shoes and jeans.
LWG: What do you splurge on?
Mrs. Smith: Not much. Makeup and mani/pedis. I have sensitive skin, so I buy all Clinique, which I probably don't really have to do, but it makes me feel better about how I'm taking care of myself. Mani/pedis is really purely about feeling a little decadent, but it's a pretty cheap way to do it, especially since I don't do it that often. I have had too many bad haircuts to bother looking for a cheaper hairdresser. I used to drive to Portland (about a 3 hour drive) for a $45 haircut, and that was great, but it was ridiculous and inconvenient. Now I pay $80, which makes me cringe, and my highlights are $125, which I think is crazy. But my hair looks great, it lasts, and I don't get irritated every single morning.
The other thing I splurge on is excercise. I am willing to pay a lot more money for a gym that I actually like going to.
LWG: What is the best piece of financial advice you've ever been given?
Mrs. Smith: Last year, we were thinking about selling our condo and moving into a larger house. My mom gave me some good advice, which was "Don't buy a house until you can really afford to buy one that you'll love until your kids have moved out of the house." Fair enough. When I do buy a house, I'll have years to enjoy it, and I'll enjoy it more if it's actually big enough to entertain in and to have some flexibility with the space.
I worked for a financial consulting firm for several years, and most of my clients were retirement plans. I used to talk to people who were in their late 50's with maybe $10,000 or $20,000 saved who wanted to know how they should invest in order to get the best income in retirement. It was really tough to talk to them knowing that there was essentially no way they'd be able to retire. It wasn't exactly like someone gave me advice, but I learned my lesson well - PLAN for your retirement from the day you get your first job, and save as much money as you can while you're young. Don't go crazy trying to figure out exactly how much to put in Roth, how much to put in an IRA, how much to put in 401(k), how much to put in taxable savings. Put a good chunk in a 401(k) if you can, especially if you have any kind of match, but don't go nuts. Just put the money somewhere, put it in a balanced portfolio of stock funds, and DON'T TOUCH IT. One thing we realized is that if we ever have kids, it will be so much less financially stressful if we've already got our retirement more or less taken care of.
Otherwise, almost all the financial advise that people have given me when I haven't asked for it has been pretty crappy. Everyone always thinks they've found the new best idea, and usually, common sense and a conservative long-term view are the best way to go.
LWG: What is the advice you'd give to someone who wants to be lean with green?
Mrs. Smith: Money is important. But it's not the only thing. One thing I've noticed is that people who spend a lot of time thinking about how they're going to spend their money often end up earning less of it. Think about how you can grow as a person in your free time, not how you can spend your money. That will probably translate into spending more time doing cheap or free stuff (like volunteering, or taking up a new hobby), and the new, savvier, more self-aware you will probably start doing better in your job or figure out what kind of work you really want to be doing - and eventually, that will translate into bigger paychecks. Which you can put in the bank for retirement and look forward to spending more time on your hobbies and personal growth when you are 55 and sitting pretty on a big 401(k). I think people who are satisfied with their careers and with their personal growth don't tend to look for satisfaction in material things as much.
Thanks Mrs. Smith! Look for Mr. Smith's Profile in Savings next week!