In February, I posted some very general thoughts about my personal finances. After three months of regular paychecks, I have established some habits, not all of which are consistent with my earlier post.
1. Emergency Fund. My initial impulse was that my emergency fund should have a balance in the ballpark of $25k. It would take some time for me to accumulate a fund of that size and, back in February, I wasn’t sure how I should balance emergency savings with my competing interest in paying down consumer/educational debt (accumulated while in grad school) at an accelerated pace. After thinking carefully about interest rates (debt v. equity), totaling my bare bones month-to-month expenses (which are relatively small given my status as a single, childless gal with a lease that terminates if I lose my job), and checking the balance of the remains of my pre-grad school savings account (~$10k) and my IRA (~$40k), I decided that I have enough emergency funds on hand. Instead of bulking up my emergency funds, I am directing all excess cash to debt payments.
2. Retirement Savings. This is a priority. I arranged to have 401(k) contributions automatically withdrawn from my paychecks and am on pace to make the maximum permitted annual contribution. Could I do more? Of course, but for now I am comfortable with this plan.
3. Saving for my First Home. *sigh* I’ve been dreaming of owning my own home/condo since my early 20s. Many of my friends bought their homes in Orange County at that time. Ten years later, I find myself in one of the country’s most expensive real estate markets and feeling like home ownership is impracticable (see, e.g., recent post on lack of job security). Because of this I didn’t save any money for a down payment in the first three months that I’ve been working as an attorney. All the extra cash went to accelerate debt repayment instead. But, for reasons I won’t dive into now, I think it would make me feel better if I made at least a token contribution to a down payment fund each month. The token contribution amount is $100. You can track my progress via the SmartyPig widget in the sidebar.
4. Debt Repayment. This has been my focus in the first three months of regular paychecks. I have a budget that I created on Mint. It’s conservative. At the end of each month all unspent income is used to pay down my debts. I’ve heard people say that paying down debt is unsatisfying because there is no tangible reward, but I get immense satisfaction watching debt balances shrink and my net worth grow. In fact, just this month, I paid off a student loan in full. This was a small but important success!
5. Splurges. In March, I posted about a few splurge purchases. I felt comfortable making these purchases because I had received but not used a per diem payment while working in Tokyo. I felt like I “needed” these splurges because work has been incredibly unsatisfying and I need something else to absorb my energy. Japanese class started last week and is looking to be a lot of fun. The Kindle is a hit–I’m nearly finished with my first book (”Delivering Happiness” by Tony Hsieh of Zappos fame). Yoga has been incredible and deserves a post of its own at some point in the future. Ballroom dancing class has been a dud and I don’t plan to continue. The pace is slow and I don’t have a partner.
6. Charitable Contributions. In the last few months I have made a number of unplanned charitable contributions. I need to spend some time learning how to maximize the impact of the money I give–because I’m not sure how helpful my one-off donations have been.
Each month I thank my lucky stars for my paycheck. When I feel frustrated with the time it will take me to reach my financial goals (this happens regularly), I remember how little cash I had left at the end of the month when I worked as a paralegal. I may not yet have a home to call my own, but I am better off than I once was and, for that, I am grateful.
Read the full article: Small Success