Living up to the hype...how do I make this work?

March 22, 2011 5:22 PM

First World Problems: what does a 23-year-old do to protect future but enjoy a few luxuries? Less snarky inside, promise...

First, I'd like to preface this by stating that I realize how fortunate I am to be in this situation. Yes, I have received some amazing gifts from my family--namely, free college tuition for wherever I went to school.

I am just looking for some objective advice about my financial state and future. It can be awkward to talk about money with my friends and family.

So, about me...
-23, male
-no kids, no SO
-been working with same company since graduating Feb 2010 (13 months)
-recognized as high performer, on management track if I want to stay at current company

So, my financial breakdown...
Debt
$0, except credit card 'debt' which I pay off monthly (don't carry a balance)

Income
$3200/month, after taxes, healthcare insurance, 7% 401k contribution (company matches up to 6%), etc.
I work some freelance-type jobs and average $35/hr for, on average, 10 hours per month for the past 3 months

Cash Accounts
$1-2k in my checking account

Investments / Savings
Brokerage account: $22k (+/- $1k, depending on market)
Actively trade in my account and have locked in $3k in profit since I started investing/working a year ago, so I expect to continue to grow this, started with a base of $0
401k: $7k, also have pension (rare, I know) but not sure when it starts vesting or whatever the term is, I believe it's 'defined contribution'

Major Physical Assets
Vehicle, 100k miles, early 2000 SUV
MBP (honestly, the second most valuable thing I own)

Major (In)tangible Assets
Graduated with degree in computer engineering from top 20 school, 'employable'
No major health problems, most are sports-related from exercising

Major expenses
$600/month for rent
No personal cellphone bill
$150/month on healthcare related expenses
$600/month on entertainment, food, groceries, coffee, dry cleaning, gas, etc. (basically, everything else)

-Questions-
When I first starting working and had little money, I felt very vulnerable despite having tons of people I could turn to if needed. So now that I've built of a financial base for myself I have been wondering--'How am I doing?'

At some point, I would LOVE to get a used sports car (cayman, 911, m3, z4m, etc). I have literally been fascinated by sports cars since I can remember--even counting them on a family vacation to Hawaii when I was younger. At this point, I have VERY little interest in settling down (owning a home, or stuff I can't take with me)--in fact, I'll probably move several more times in the next 3 years. Do I have enough money saved up to consider this kind of purchase? I know the following comment could derail this entire thread, BUT I have considered leasing a car if that's a reasonable option (fixed/no maintenance costs, may only have it for a few years, may want to upgrade or change to latest and greatest, may want to get rid of it entirely).

I also cringe at the thought of taking money out of my investment/brokerage account. I have only done it once so far to fund a 'lavish' trip to Las Vegas. Fortunately, I couldn't managed to spend more than $1.5k in a weekend. So, the damage was minimal and I'm back to growing the principle. Would taking money out to fund a luxury purchase be a decision my 30-year-old self would regret?

Finally, I have this fear in the back of my mind that I will never be able to enjoy the money I make. One of my parents died young (at 50 years old) and I can't help but think I plan too much for the future. That's probably a ridiculous statement. BUT, I'm really not that frugal...see Las Vegas trip and frequent trips to Whole Foods, bars, nice restaurants.

Maybe I just think I'm so much better off than I am...~$30k isn't really much money to have to your name.

I guess I have been told I will be 'successful', but I feel like I can only disappoint people if I make a poor financial decision. Sometimes, I feel like I have everything to lose. Yes, these are 'first world/rich people/whatever' problems, but they are very real to me and I want to make the best decisions for my future while enjoying the here-and-now.

(And let's assume that 'therapy' is already an acceptable answer ;o) )

posted by anonymous to Work & Money (13 answers total)

Seems like you're doing really well for someone your age in terms of financial discipline and savings. You should max out your 401(k) because, hey, tax-free.

Anyway, start another checking / savings account to be considered your "fun" account; after you have paid off all your credit cards and made all your savings contributions each month, toss any extra in there, and make it a rule that you can always spend whatever you want from the fun account, but never touch the savings/brokerage for random junk.
posted by rkent at 5:47 PM on March 22, 2011

It sounds like you already have your financial house pretty well in order. However I think you might benefit from Ramit Sethi's I Will Teach You To Be Rich. Whether or not you use his specific finance automation techniques (it's likely you already do), his overall philosophy on "Conscious Spending" might put you at ease.

The philosophy is that as long as you put aside x percent of your income away in investments, emergency savings, etc--"pay yourself first"--you should not feel guilty for anything you spend in excess of that. Spend on the things you care about (a sports car, going out every weekend) and don't feel guilty about it! These could be the best years of your life and you should enjoy them (wisely) before other obligations creep in.
posted by ista at 5:53 PM on March 22, 2011

I had this same problem once, but with the added constraints of family and kids. Fortunately, I met a wise financial planner who told me that "living poor and dying rich" doesn't make sense nor does the other way round. The key is to have a balance.

We started off by going forward 40 years, finding out how much I would need then (inflation and other factors considered) and then working backwards to find out how much I should start saving now. With periodic increases in income, I found that a retirement/pension account + some equity investments (in a mutual fund) would serve my needs.

There was some money left over from my salary, not much on a monthly basis, but enough over 4-6 months to enjoy a vacation or a luxury item. But as a family, we decided that having great experiences is more important to us than material things, but that's just us.

Old jungle saying, "Indulge your hobbies and interests, but only after you have paid your future self."
posted by theobserver at 5:55 PM on March 22, 2011

I hope this is a relevant insight to your question: everything you mention spending money on is... I don't want to say shallow, but you don't seem to be spending your money on new or challenging experiences that would help you continue to grow as a person, and that might be part of the anxiety you're feeling. Maybe putting some of your post-savings/post-investment cash toward a trip somewhere culturally exciting (not Vegas-- think Europe if you haven't been, or Asia or South America) would be a good thing to consider? It wouldn't have to be insanely expensive, and youthful travel is something people rarely, if ever, regret when they get older.
posted by oinopaponton at 6:03 PM on March 22, 2011

For the sports car, it's probably too soon. But, when you do get around to it, you might consider a used Lotus Elise. Four cylinder Toyota engine, not nearly as expensive as they look, no compromise sports car. But, you'll need another car, as they aren't very good at being a general purpose car.

Oh, and max out the 401k.
posted by smcameron at 6:08 PM on March 22, 2011

I think you're doing fantastic; congratulations on having the discipline at such a young age to have any savings. My suggestion would be to max your 401k contributions (limit in 2011 is $16,500): this is the time to take full advantage of compounding. I would also establish some accounts in cash:
- Emergency fund: While your job seems secure now, you've only been there 13 months, and a lot can happen in short order (company downturn/layoffs of "last hired, first fired"; reorg that has you reporting to a terrible manager; you changing your career goals);
- "Slush" fund: For vacations, clothes, or even a sports car!

You don't want every penny tied up in investments to the point where you can't get a substantial amount of cash without selling. You may need/want the money when the market is in a downturn.

"I feel like I can only disappoint people if I make a poor financial decision." Who are these people? Parents, friends? One thing to remember, it is your money and business, not theirs. I went through something similar with my family: they were always talking about my money, saying I was just lucky, being judgmental, etc. I finally figured out to never mention it to them, and the problem went away. So, don't beat yourself up and don't allow anyone else to, either. You're doing great!
posted by sfkiddo at 6:33 PM on March 22, 2011

I've been in a relatively similar position to you, although I'm a little older and more married now (although I'm living the single life for another 2.5 weeks still). I had parents who paid for my education and have avoided debt apart from the convenience of a credit card that I pay in full every month.

The main thing I would say you're missing is giving yourself more leeway to splurge on things once in a while. If you're taking home $3200 a month and spending only $1300 of it, you can afford to spend more money! Max out your 401k for sure, and put some money in a brokerage to play around with, but give yourself a little bit more of a buffer in your checking account so that you can spend money on some fun things. Want an iPad? You can totally afford that. Think you could have some fun with a couple weeks in Europe? You can totally afford that. Splurge every couple months or so! One thing you could do is to take all of your freelance income (minus taxes and social security, of course), and use that to have fun. If you have a budget, budget for it so you don't feel guilty spending it. If you want that sports car and you can see how you can afford it, buy it!

You will always have people who will criticize you for your financial decisions. I think it seems unlikely that you would make a really poor financial decision (which, for your case, I would consider to be putting yourself into debt or completely eliminating your ability to save money for the future). If you buy a sports car there will be people who thought you did something stupid. But if buying it was within your means, that was a fine financial decision for you, as it bought you some enjoyment without putting you in a position to struggle in the future.
posted by that girl at 6:43 PM on March 22, 2011

I'm in a vaguely similar position. One thing that really helped me: make a spreadsheet with all of your assets over time. For the future, I split this up into 3 projections based on different returns (bad, probably reasonable, really good). Just doing this will massively reassure you. But then you can also do things like say "what if I buy this sports car now" and be able to make a more informed decision about it WRT the future rather than feeling guilty about it for no reason. The model only needs to be as detailed as you need to feel comfortable about it - I'm a math/stats geek, so mine is probably needlessly complex, but it makes me feel a hell of a lot better about buying a round of shots for my friends on Friday night.
posted by devilsbrigade at 6:46 PM on March 22, 2011

If your question is; should you buy yourself a nice fast car at the age of 23, single, with a degree and a good job, then the answer is yes. Just respect what it can do. Take a course in fast driving or consider some track days. You likely think that you are good driver. As a driver trainer, I can assure you that you very likely are not. At your age, with your limited experience it would be extremely unlikely. 90% of drivers describe themselves as better than average, BTW. Most drivers I see on the road commit multiple driving errors constantly.

Don't forget that classic cars can appreciate in value as well. Getting a fast and nimble car needn't be a financial negative, when done systematically, and you seem damn systematic to me!

Enjoy your life. Really.
posted by PareidoliaticBoy at 8:12 PM on March 22, 2011

Track Days.
posted by PareidoliaticBoy at 8:12 PM on March 22, 2011

Having 6 months of your weekly salary saved (in your case $20,000) and set aside for emergencies would be a worthwhile goal.
posted by mlis at 9:57 PM on March 22, 2011

From the OP:

@oinopaponton
I have spent some money on new challenges, but you're right I am focused on things. Fortunately, I've been able to travel through Europe, but not Asia of South America--so I will consider those as potential investments. The problem with traveling is that I don't want to take that much time off of work--because, well…I sometimes enjoy working. And none of my friends are really in a position to travel (money, time, etc) and traveling alone doesn't really appeal to me. But I WILL float the idea to them ;o)

Also, thank you for the reassurance that I'm doing fine financially and that it's OK to spend a little more money. In fact, I probably have some other expenses I didn't detail, but they don't really change the fact that I have a pretty significant amount of extra money each paycheck. It's just challenging to create a balance between saving and spending. I fear being perceived as a screw-up if I make a bad financial decision--I suppose I'm more afraid of feeling stupid than being broke...hmm.

And I would definitely be getting some fast driving training--I can't even drive stick yet…ahh…embarrassing…

posted by jessamyn at 7:48 AM on March 23, 2011

I think you should get a sports car. Normally I'm opposed to sports cars, but you are doing well financially and it seems your problem is more that you are afraid to indulge yourself. If you want to avoid the feeling of splurging or making a bad financial decision, why don't you use the purchase as an opportunity to practice saving up for a larger-ticket item? You could think about how much you want to spend, when you want to buy it, and then start putting $1000/month (or whatever other amount you decide is reasonable) in a special account for your sports car. While you're saving, you can start researching and test driving cars, taking driving lessons, or other preparation that is also part of the fun.

Another suggestion: how about seeing a financial planner to set up a long-term plan for how to handle your money? Maybe you would feel more comfortable spending money on some fun things if you knew that were part of the long-term plan.
posted by medusa at 10:30 AM on March 23, 2011