Dealing with the B-word

Per special request a series of posts will deal with practical budgeting. I’m not claiming my way is the right way, or the best way, for you to deal with your money. I’m simply offering the #BrokeMillennial budgeting system.

Other children of the 90s might remember the glorious time when clogs were fashionable for everyone, not just Dutch milkmaids, and before crocs existed. In 1996 clogs were quite the trend at St. Michael’s Catholic school in Gastonia, North Carolina. Every time I would see all the trendy 8th graders (aka the oldest girls in school) wearing those comfortable clogs my saddle shoes would feel so restrictive. My second grade self became determined to own a pair of clogs.

saddle shoes(Yeah, I was rocking those before Cole Hann made them trendy. This version is available at Payless!)

My mother, an always practical woman, knew that I would outgrow those clogs or the fashion would end within minutes of buying them for me. Instead of giving into my incessant pleading she made a one-sided deal with me. I could have the clogs, if I bought them with my own money.  Luckily, I was still sitting pretty on some money from my Krispy Kreme donut sales and had recently started to branch out into the cat-sitting business.

Armed with $15, I headed to the local Payless and made the first big purchase of my life.  I loved my $13.85 navy clogs with cork bottoms and I wore them proudly, every day for two weeks. Then St. Michaels banned clogs because they somehow clashed with our school uniform. Regardless, it remains a pivotal financial and budgeting milestone for me.

Denim-Cloth-Clogs_1776712B(My $15 did actually buy a full pair.)

***
Few things seem to bother people more than dealing with a budget. Who enjoys them you ask? Let’s call them accountants, accountants and me.

If it weren’t for my intense aversion to non-financial math and the horror stories about tax season, accounting probably would have been my calling. More than once my first roommate would walk into the apartment and find me gleeful pounding away on a TI-83 calculator and furiously writing numbers in my money notebook. The number crunching always proved, yes, I was still quite poor. Even so, I enjoyed knowing just how much money I did, or more realistically didn’t, have to spend.

A plethora of systems exist to help people deal with their money. Previously, I’ve discussed the envelope system of budgeting and explained where I made budget cuts when I first moved to New York (spoiler alert: it was food). Today, I don’t particularly endorse either but they fit at the time.

My goal of budgeting is simple: spend less than I make. For the sake of this post, I claim to earn $2,300 a month after taxes (this is a fictional number).

For those readers who remember my financial origin story it should come as no surprise that my budget focuses on saving. Future posts will discuss the importance of saving at least a little bit every paycheck, putting money aside for retirement and dealing with student loans and other forms of debt.

Before you can start saving, or paying off debt, you have to be able to survive your day-to-day expenses. As a 23-year-old living in New York City with no dependents, my expenses will vary drastically from people with children, joint-incomes, still living at home and various other factors. Please keep that in mind when reading my outline.

There are two types of budgets I focus on, weekly and monthly. I’m not neurotic enough to crunch numbers daily, but I have an idea each week how much I’ll need. If I’m traveling, going out for a friend’s birthday, entertaining visitors or a myriad of other situations, I mentally prepare to scale back expenses the week prior or after.

My weekly budget mostly deals with how much I can afford to spend on food and entertainment. Each month I budget $300 for food, because it only costs about $50 each week for my groceries and I add extra for dinners or drinks with friends.

My set monthly expenses are:

  • Transportation (NYCpublic transit) – $112 monthly pass
  • Laundry – $21
  • Toiletries (shampoo, conditioner, soap, toilet paper, etc) – around $10
  • Utilities (heat and electricity) – ranges from $30-$55 because my roommate and I      don’t use AC in the summer and we only have lights on in rooms we’re using.
  • Hulu Plus – $7.99 (We cut cable and went with a Roku box instead.)
  • Phone bill – $70
  • Food – $300
  •  Rent – $950

For a grand total of $1455.99, more than 50% of my monthly earnings.

roku(I highly recommend cutting cable and switching to a Roku device to save a few bucks.)

Working under the assumption that I earn $2,300 a month I then have $844.01 each month to allocate towards other expenses and savings. Realistically, each month brings a new hidden expense that aren’t factored into the monthly budget. For example, needing items dry cleaned, buying birthday or holiday presents, taking trips to visit friends or entertaining guests.

For those of you interested in starting to budget your money I encourage you to take the first step by writing down all your monthly expenses and subtracting it from your monthly earned income (after taxes). Once you have an understanding just how much money you actually have after expenses it becomes easier to know where to allocate your funds be it savings, paying off debt or a shopping spree.

Stayed tuned for future posts about how this millennial deals with budgets. During the interim, follow the journey on Twitter @BrokeMillennial or subscribe for emails about new posts. Feel free to email feedback or topic requests to brokemillennials@gmail.com.

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Why hiding your funds under a mattress makes you lose money (and not because it was stolen)

In June of 2011, three weeks after college graduation, I packed two bags and boarded a plane to New York City. I had landed a job working as a page for an iconic late night talk-show host. A fun, rewarding job but certainly not a well-paying.

Even though I came prepared to be broke…

IMG_3092(Yeah, I ferreted away hotel shampoos and soaps in preparation to be too broke to clean myself.)

…the cost of New York City living shocked me.

Everything I budgeted for seemed to be hundreds of dollars off. My measly paycheck of $200 a week (thanks taxes) didn’t even cover monthly rent. The time to “hustle” had arrived.

Like many millennials I turned to Craigslist. Those ads were terrifying. What did people want to do with my feet?! For the record, “Talent” rarely means credible acting gigs.

craigslist-new-york-city-classifieds-for-jobs-apartments-personals-for-sale-services-community-and-events_1250476179720After losing a lot of faith in humanity, I started applying to babysitting gigs (not on Craigslist) and also got a job working for the world’s largest coffee chain. Being able to make barista-level drinks sure looks good on a resume.

starbucks_getty--525x400(Green is a good color on me.)

Babysitting/nannying is the mainstay of struggling artists, students and financially-destitute New Yorkers. We endure spoiled kids, leering fathers and emotionally-distant mothers for the opportunity to walkaway with cash at the end of the night. Some families are great, but sadly many Manhattan parents should be forced to take parental aptitude tests before procreating. The Nanny Diaries are pathetically accurate.

ScarlettJohanssonsdenimshorts(Check out the Nanny Diaries trailer here for context. Oh, and nanny cams are a real thing.)

However, babysitting (and tips from Starbucks) resulted in quick cash-in-hand. Cash that went right into envelopes. Four envelopes to be precise.

IMG_3104Shortly after getting my influx of cash, I developed the “envelope system.” The envelopes represented different expenses in my life. The cash I earned was divided into:

  • 50% – Rent
  • 25% – Money for Anna (Anna was my roommate and the utilities were all in her name so I’d just pay her in cash when the bills came.)
  • 25% – Savings

IMG_3101(It’s always important to have money goals. I wanted to have saved $500 by May and set aside $50 each month in order to achieve my goal.)

The “fun times” envelope only got love on nights I received a tip from babysitting, or earned more than anticipated. That envelope usually was found wanting.

The methodology behind the envelope system is great, allocate money to the appropriate causes and then save some. The practice is really, really dumb.

For one, I usually had hundreds of dollars “hidden” in my room just begging to be stolen. Second, all that money in my room wasn’t doing anything for me. Money in the bank earns interest (also commonly referred to as compound interest). Money under the mattress just sits there.

money-under-mattress(Nope, not where I hid my money! I’m far too clever for that.)

When you’re ready to diversify your financial portfolio (or start one), IRAs, bonds or CDs (certificates of deposit — insert lame pun about music here) are excellent ways to invest money for long-term gain. IRAs and bonds will be addressed in the future. For now, I’ll break down putting your money in a CD.

Unlike the stock market, CDs are a low-risk way to save money. The interest rates are higher than those of a regular savings account and they are protected by the same insurance as other bank accounts. By choosing a bank backed by The Federal Deposit Insurance Corporation (FDIC), you are guaranteed to get at least a portion of your assets back in case the bank goes under. Typically around $100,000. One reason it’s important not to have all your money in one place.

bank-run-wonderful-life(Points if you know the movie and reference.)

The first step of purchasing a CD is to have a designated amount of cash that you won’t need to access. This money should be separate from any sort of emergency cash fund, because once you put funds in a CD there are early withdrawal fees. CDs have various maturity dates: 6-months, one-year, five years, etc. Once the date hits then you can withdraw funds in full.

The second step is to investigate the best CD for you. Banks vary on the cost of early-withdrawal fees. They also vary on the rate of interest and annual percentage yield (or APY). APY is the rate of return you will earn each year and it accounts for compound interest, making it different from APR (annual percentage return) which does not account for compound interest.

Don’t strain your brain, let this fun, online calculator do the math for you.

If you’re a broke millennial like me, I understand wanting to put off investing until later. However, the earlier you start investing the bigger your return when you’re pushing retirement age. If you want to be a millionaire, now is the time to start.

millionaireusa                                     (All about the timely pop culture references)

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