Profiles in Saving: Mr. Smith

In our ongoing series Profiles in Saving, Lean with Green interviews people we admire when it comes to being financially savvy. This week's profile is Mr. Smith, married to Mrs. Smith (profiled two weeks ago). Mr. Smith has been a good friend of mine for many years. He works for a large software company in Western Washington, and is also the CEO of Splitts.com, an online company that matches people who are interested in fractional ownership of boats, vacation homes, and other big purchases. I loved what Mr. Smith had to say!

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!

Are you interested in being interviewed for Profiles in Saving? Leave a comment or contact us at leanwithgreen@gmail.com.

Profiles in Saving: Mrs. Smith

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!

Profiles in Saving: BudgetBabe

Has there ever been someone you've admired for certain qualities (their business skills, their straight-A habits, their parenting abilities, etc) and you always wanted to ask how do they do it? I thought it would be interesting to do just that. I asked a few of my friends and family members whose financial skills I admired and present them to you in Profiles in Saving! For the first profile, I decided to do myself...I was available for an interview. :)

LWG: How did you develop your financially savvy identity?

BB: I think it took me awhile to get a sense of what I should be doing with my money. I have always been good about tracking it - as soon as I got my first checking account, I diligently updated my checkbook register. I switched soon to online banking and checked my accounts multiple times a week. I even signed up for Mint.com 3 years ago (way before it was cool). But I did not understand the importance of money until further on down the line. I had multiple credit cards and I only paid the minimum balance. I had store credit cards. I didn't save money I earned. My husband's unemployment really made me stop and think about what I was doing. I started noticing how my spending habits weren't matching up with my goals, and noticing the things I spent my money on didn't necessarily make me happy. Since I had my financial epiphany a year and a half ago, I'm credit card debt-free, I'm a homeowner of a house well within my budget, I have built up an emergency fund to last 6 months, and I co-write a personal finance blog! :)

LWG: How do you integrate saving into your regular routine?

BB: IFor me, it starts with being a savvy consumer. For big purchases (anything over $500), I do some research and shopping around. For everyday purchases, I shop smartly. I don't spend time clipping coupons - they are usually for products I don't buy and it seems like a waste of 30 minutes to save $2. I do shop sales at grocery stores and stock up if there's a product I use frequently. I use group saving sites, like Groupon and Living Social. My other purchase that adds up tends to be coffee - my solution was limiting myself to $25 per month. Once I go over, that's it for the month. It allows me to have an indulgence but I reign it in.

As far as savings go, I need to be better about making it automatic. Right now, anything that's left over at the end of the month goes into savings, and that's usually a decent amount. But making it automatic will just make it less work for me and make it more routine.

LWG: What do you splurge on?

BB: I definitely could slim down my clothes shopping budget. I've improved and I still don't usually spend more than $100 on clothes per month, but I do still get things that are not necessities. I try to stick with the rule of throwing one thing out if I'm going to buy something new, but that takes discipline that I lack sometimes. What I'm splurging on currently is higher quality food products. I subscribe to a CSA (community supported agriculture) and I get an organic produce box every other week for $30. I really believe that what you put into your body is so important and it can affect everything - your health, your skin, your mood. Plus, it's better for the environment to buy local. It is really worth the investment in my opinion.

LWG: What is the best piece of financial advice you've ever been given?

BB: Save at least 10% of any money you ever get - salary, gift, inheritance, etc. My dad said that to me a few years ago when one of his friends said he'd been doing that since he was 15 and it really stuck with me.

LWG: What is the advice you'd give to someone who wants to be lean with green?

BB: I think to not obsess about saving money. I think that ends up backfiring and causing more stress and headaches than it's worth. Live your life and spend your money in a way that's meaningful to you, but make good choices.

Coming next week, a Profile in Savings about some of my best friends. They are a married couple who have inspired me in many ways, but particularly when it comes to being financially smart! I hope you learn as much as I did from them! Stay tuned!