Here we are already in mid-December. It’s been a rough year for several people I know and in big-picture ways for the world at large. We’ll be glad to see the back of 2016. At the same time, however, I made some pretty radical improvements in self-awareness and direction financially that will have long-term positive benefits for my own future. And it’s been pretty damned empowering. While I didn’t set out to do this as a counter-weight to events outside of my control, I sort of think it has turned out that way. No matter the anxiety world events give me, I’m in a good place to deal with the future, whatever it may bring.
Don’t get me wrong, as a single, well-paid professional, I was already doing pretty ok. I give off a vibe that says “Hey, I have my shit together!” But I was doing the minimum necessary for retirement, definitely not paying close attention or planning in any structured way, and was sometimes surprised by expenses or overspending. I had a stubbornly lingering sense that I should be doing more for myself, but what exactly? I started reading a bunch of blogs and books on personal finance and investment, and did some thinking about what I want but then at the end of the year, I took what has proved to be the most important catalytic step: I started using a budgeting tool.
A budget seems like the obvious answer, but it hadn’t really helped in the past. It’s like finding a doctor – you need to find a tool that fits your needs and works with your style and how your brain works. I had had a static spreadsheet of monthly income and expenses that I would update periodically, but it wasn’t specific enough. Mint could tell me where my money had gone, if I spent all the time correcting the categorizations, but that didn’t help me plan. My bank introduced a similar feature to online banking, but it wasn’t any more helpful or more accurate in assigning categories. Quicken held bad connotations of complicated spreadsheets, importation, and manual tracking. The tool I landed on in December 2015, cheesily called You Need a Budget, or YNAB, is cloud-based with mobile apps, syncs accounts, has a simple interface, and lots of helpful reference material. It encourages priority setting, planning ahead for less frequent or likely expenses, and getting to the point where at any point in time you’re spending money you earned a month ago. Despite my fears of hating or not remembering to track individual transactions, it quickly became habit. More detail on YNAB another time perhaps, but this really was transformative of my mindset and my habits. I’ve never spent so much time immersed in the details of my finances. A few victories:
- I consistently have at least a full month’s worth of expenses in my checking account. No paycheck-to-paycheck living.
- I’m able to see my budgeted priorities and obligations, but have flexibility to move money between them if events require it, while still staying on track overall. The tradeoffs are clear. No stress.
- Paid off a lingering credit card balance in short order. Now I’m using the credit cards only because I get the added benefit of travel rewards/cash back. Balances are paid immediately with the cash budgeted, so I remain consumer debt free.
- Topped off a 3+ month emergency fund.
- Was able to pay cash from that fund when hit by almost $7000 of unexpected dental and medical expenses in the beginning of the year. (Which is not to say that paying it didn’t still hurt like hell!) Re-built the reservoir over the middle of the year, and tapped it again for closing costs on my mortgage re-finance. Restored those funds by year end. Yay emergency fund!
- I’ve pretty much stopped impulse shopping altogether, be that Amazon, Old Navy, Macys or others because I can see at a glance whether it’s still in the budget for the month.
With a month’s cushion in my budget, a solid emergency fund, and a LOT of time spent reading about debt reduction, investment, and financial independence, I made other changes:
- Shifted my investment allocations from a rather haphazard selection of mutual funds to all low-fee index funds; consolidated accounts by tracking down and transferring an old 401k from a defunct employer into my rollover IRA.
- More than tripled my TSP retirement contributions from the bare 5% matched by my employer, to the maximum allowed. Recommenced contributing to my Roth IRA monthly.
- Refinanced my mortgage from 4.375% to 3.5% in the nick of time before departure to Tanzania, and before the rates bounced back up after the election.
- Set a goal to pay off the remaining $24,000 in student loans by the end of 2019 instead of 2029 and chunked $6,000 into it over the last 6 months.
- Started tracking the changes in my net worth and have a mental marker in mind for financial independence, far away as it may be.
On the student loan front, it finally sank in that I’ve been paying $200/month to Sallie Mae/Navient on autopilot for a DECADE. Ten years ago, I took my first paying job in international development, making $35,000. You’d think I would have reassessed my ability to pay more at least once in the intervening years, right? Nope, I did not. It was “good debt,” low-interest at 3.125%, worth ignoring, so goes the common logic. Didn’t give it a thought. Clearly now my feelings have changed. It’s still debt and I’ve given away more money in interest payments than I like to think about it. No sense crying over spilled milk, but I want it gone. NOW. Having this priority spelled out in YNAB with the others means that I have a clear roadmap for all income. Tripled my regular monthly payments and roll other extra money into it when I can.
It’s funny, that once you get your own ducks in a row, sometimes the universe gets behind you with another extra push. I realized my months in Tanzania will have unexpected financial benefits, as my expenses are lower than they were at home, and I’m getting per diem reimbursement. So I’m using my YNAB roadmap to sock those extra funds into my goals, and of course, a safari vacation or two. It’s not ALL business all the time over here after all, and once-in-a-lifetime opportunities must be seized!
So what’s on tap in 2017?
One lesson I’ve learned (or maybe I’m still learning it) is that, while it’s exciting and motivating to be making big steps to change the status quo, it’s far less inspiring to watch the system you set up just quietly humming along toward your goals. “Hey, I did all this work and made changes and why am I not simply THERE already??” I felt like I had something new to track or read or to do every day for a good part of this year, but I’ve definitely hit another big lull. I need some new interim goals and a new project. Two things have been circling on and off the back burner of my mind. One is the parallel between the discipline needed for financial health and for physical health. The other is the need to give back more substantially, to get more directly involved in the health of our democracy at home in non-financial ways. Lots to dig into on both those subjects.
With all the negatives blowing through 2016, I remain grateful for all that I have and all that I might yet do.