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The Money Post
Hello, dreamwidth! I’m gonna try and use this a little more often, if only because I need to word vomit somewhere. I’ll use tumblr for that sometimes, but today I’m here because the topic is a little too sensitive to put on tumblr: money. Specifically, the fact that I make a lot of it, and what I plan to do with it.
I’ve never been particularly good with money. While my worst money decisions happened during my Manic Episode of 2014 (racked up a lot of credit card debt just to finance going out to eat and making impulse purchases everyday), I haven’t exactly been making great choices over the years besides that. I’ve generally been quick to spend any cash I have and had a very casual attitude toward debt. I sometimes used my credit cards irresponsibly to offset not having money (like putting all my PhD application fees on credit cards and then NOT DOING a PhD, what a great way to rack up debt!) Even getting my master’s by taking out student loans wasn’t exactly a great financial decision, even though I believe it was the best decision I could make at the time given the state of my mental health.
After graduating, I got a job that frankly underpaid me given it was software development in a very high cost of living area, but it still paid enough for me to move out of my mom’s house and into a one-bedroom apartment alone. I was very comfortable financially despite the lower salary. Then 2021 happened and I nearly doubled my salary within the span of a year, yet I didn’t feel like I had been saving much more money despite the increased cash flow.
That was because of what I mentioned earlier - I like spending money when I have it, so I went on more trips (since I obviously couldn’t do that in 2020), and generally indulged every impulse purchase I wanted to make. Essentially, I fell victim to lifestyle creep.
It’s only been in the last couple weeks that I thought, hmm, I should probably turn my finances around. So I ended up devouring a ton of content from r/personalfinance and doing research, so I’m writing up what I’m doing in the short-term.
But first, some salary benchmarks:
Actual 2020 Salary: 71k (worked at same company all year)
Actual 2021 Salary: 106k (got a raise to 77k, then jumped to 120k job in April)
Expected 2022 Salary: ~135k (went from 120k job to 135k job, but in January)
Expected 2023 Salary: 135k + 15% bonus for 2022 = 155k (assuming I stay at my current job the entire year; I was not eligible for the 2021 bonus this year obviously)
As you can see, I got a lot more money very quickly. What do my actual finances look like? Well, as of a couple weeks ago, I had 12k in my checking account and 40k in my savings account. I also had ~6k in credit card debt and ~40k in student loan debt.
So these are the steps I’m taking after all of my research:
They say the first priority is to save 3-6 months worth of expenses for an emergency fund. With $1,475 in rent and myriad other bills/expenses, I need roughly 3k/month - this number hasn’t really changed in years, which is why I was still living comfortably prior to increasing my salary. 3k x 6 months = 18k, which is less than half of what I had in my savings account already, so I’m good there, though I’ll bump it up to 20k to have some wiggle room.
This money needs to stay easily accessible, so it has to stay in a savings account and not say a brokerage account where I can invest it and try to protect it from inflation. I’ve already lost some of the value of my savings over the last couple years due to inflation, but there’s not really any other reasonable place to put an emergency fund. I did however end up opening high rate checking and savings accounts at Alliant Credit Union, which both have double the APY that my current accounts at Capital One have. I’m still in the process of moving everything over, but at least I’ll get better returns than what I’ve been getting so far.
The next priority is to pay off all high-interest debt (typically credit cards). For a long time I was only paying the minimum payments on my cards. Last year, once I started the new job, I doubled the minimum payment and set up auto-pay to spend that amount instead. Doing this for a year improved my credit score quite a bit and I was given credit line increases on top of it, and improving my utilization rate in turn also helped my credit score. It also decreased the total balances from 9k to 6k. But I would have been able to afford paying off my credit cards months ago, so I paid extra interest for no reason. Still, better late than never. I changed the auto-pay to cover the statement balance for all of them, in order to spread out the hit to my checking account a bit, but essentially I no longer have credit card debt. Yay!
My student loans all have a roughly 6% interest rate. I’m not entirely sure if this is considered high-interest debt; many people say it is, but paying off 40k is more difficult than 6k lmao. Since the government has paused interest accumulation though, there’s no need to worry about paying them off just yet. Once interest resumes, I think I will drop a considerable lump sum payment (like the rest of my savings) and then have high monthly payments.
The next order of business is dealing with retirement savings. A part of me thinks it’s foolish to pretend I’ll be able to retire when we’re gonna be hit with the realities of climate change (among other possible apocalyptic scenarios) in the next couple of decades. Since I don’t know the future, though, it’s probably better for now to imagine that retirement is possible. Problem is, I’m pretty far behind in retirement savings - I don’t have any retirement savings from the jobs I had in my 20s. I had to withdraw the 401k money I had from my first full-time job in 2015 due to running out of money… Again, I’ve historically been terrible with money lol. If I want any chance of not being in poverty when I retire, I need to get serious about retirement saving now.
I don’t have this all figured out yet, but this is what I’m doing for now. I already knew the golden rule of 401ks is to contribute as much as needed to obtain the free company match. I’ve already been doing this at my current and previous 2 jobs. Last I checked, I have around 7k in my previous 401ks and 3k in my current one, which is pretty abysmal for being 33. So I need to decide how to best increase my retirement savings.
I read up a lot on traditional (pre-tax) vs Roth (post-tax) IRAs. I started doing all this research right before the deadline to contribute for 2021, so on impulse I opened a Roth IRA and contributed the max 6k to it from my savings. I did this knowing that my 2021 income was below the Roth IRA limit. The problem comes from my 2022 and later salaries. My 2022 income will be too high for me to contribute the full 6k to a Roth, but I would be able to contribute a reduced amount. My 2023 income will likely exceed the Roth income limit entirely though.
Since I have all these accounts floating around, I’ve decided to consolidate them. I opened both traditional and Roth IRAs with Fidelity. I’m in the process of moving my existing Roth IRA there primarily because the provider I first chose (SoFi) doesn’t have the option to invest in index funds, which are the ideal investment vehicle for people who don’t know or want to know how to invest by themselves. I happen to be both. I don’t care to learn much more about the stock market lol. It’ll take longer to rollover my old 401ks into the traditional IRA but it’ll be nice to have them all in one place.
The big question is what to do going forward. There is a process known as the backdoor Roth IRA for higher income earners like myself, who make too much to contribute to Roth IRAs directly, and can’t deduct their post-tax traditional IRA contributions from their taxes. Basically, I put 6k post-tax cash into a traditional IRA, then roll over the funds into a Roth IRA. Sounds simple enough, but there’s a catch: if you have additional money in traditional IRAs, say old 401ks rolled over into an IRA, that money will be involved in determining the tax paid on the traditional-to-Roth conversion. Not entirely sure how the calculation (known as the pro-rata rule) works, but generally if I do a backdoor Roth, I don’t want to have any money sitting in a traditional IRA. Done correctly, with nothing in traditional IRAs, there’s no tax levied, since you’re moving post-tax cash into a post-tax account.
I believe it’s possible to rollover the money from the traditional IRA into my 401k, where it will sit safe from any taxes during the backdoor Roth. I know it seems silly to move my old 401ks into a traditional IRA and then move that money into my 401k, but I can do all that via direct transfers, aka the providers will exchange the money with each other, and I don’t touch a cent of it. My 401k, by contrast, requires an indirect transfer, where the old provider cuts me a check, and then I forward it to them. They also withhold 20% of the money and you are required to make up the difference with your own savings. Going from old 401k -> traditional IRA -> current 401k is literally less of a hassle than old 401k -> current 401k lmao. I also don’t need to do the traditional IRA -> current 401k rollover right away, I would just need to do it before the end of the year if I decide to do a backdoor Roth.
But I’m really not sure if the backdoor Roth is worth the hassle at all. I could just as easily keep the traditional IRA with the old 401k money as is and focus on maxing my 401k contributions. There is a yearly limit, ~20k. At my current 6% I’ll be contributing roughly 8k, so I have a lot of wiggle room to increase my contribution. I do however also have my student loans to worry about. Repayment won’t resume for months but I still need to keep in mind. I’m thinking I’ll start by doubling to 12% (~16k) and adjust as needed. Using paycheck calculators shows that doing this naturally decreases my taxable income, and so I end up paying less in taxes and my net income only drops a couple hundred per paycheck. Which I know would be a lot for most people, but that’s a change I can easily absorb.
The next order of business would be housing. “Common wisdom” dictates that owning a house/condo is much better than renting, and that renting is just “throwing your money away”. However, in my research I found that it’s not quite that simple. There are a lot of other expenses to home ownership besides the mortgage: property taxes, mortgage insurance, homeowner’s insurance, HOA fees, utilities included with rent that I’d have to now pay myself like water, sewer and trash, maintenance, etc. Even if you manage to pay off the mortgage, you will still have to pay most of these other fees indefinitely.
There’s also the fact that buying a house requires significantly more money than renting. There’s the down payment, which is generally advised to be 20%. It can be lower but you have to have a higher interest rate and/or additional monthly fees to compensate. What’s less talked about are the closing costs, a bunch of fees and other bullshit involved in facilitating the sale. Closing costs can range from 2-5% of the value of the home as well.
Still, it probably makes more sense to buy than rent if you live somewhere with a low to medium cost of living. Seeing as I live in the LA metro area, one of the highest cost of living areas in the US, it starts to make more sense to rent than buy. I mentioned my rent for a 500sqft one bedroom apartment earlier, $1,475. This would be a shit ton of money in probably most of the country, but this is one of the most affordable rents in the area for a one bedroom apartment.
I am getting more annoyed the longer I live here though, but only because I’ve come to find that I don’t enjoy apartment living. There are too many fucking people out and about all day and evening, all year round. So if I were to buy property, I would want a standalone house in a smallish neighborhood to get some more privacy.
Of course, doing that here of all places is basically lunacy. There is some variability based on city but most condos are in the 400k-600k range. There are a shit ton of houses that are over a million, and most others are approaching it. With my income I could probably afford a condo here, but the monthly payment after adding everything in would likely greatly exceed what I’m paying for rent right now. But as I said, I don’t want a condo. House prices are getting to be too much even for my income level.
So if I really want to buy property, I have to look outside Orange County and the LA area. California is a huge state, so there are other areas that have more reasonable prices (though with the housing market lately that may not be the case for long). I could also move out of state, though I am very spoiled when it comes to weather so there aren’t many places in the country that are particularly appealing to me. Then again, the other areas of California where it’d be cheaper for me to buy also don’t have as nice weather as where I currently live, otherwise they’d cost just as much. But I’d still have proximity to all the great things about California, so I don’t think it’s likely I’ll move out of state.
As long as I stay in California, I think it’s likely that I would have to pay a minimum of 400k to get what I want. With a 20% down payment and 5% closing costs, I would need to save up 100k. Minus my emergency fund, I am nowhere near 100k! If I save very aggressively, I might be able to pull that off in 2-3 years. But retirement savings and student loans are more important than saving up for a house, and if inflation and the housing market keeps going like it has been, I might need even more by the time I reach that number lmao.
So for now I’ve decided to not worry about buying a house. I’ve been able to cope with the annoyances of living in my current apartment so far, so I’m not super compelled to move out ASAP. I’ll revisit the topic in the future, of course, and keep it in the back of my mind, but renting is the better option for me at the moment.
So, what else will I do? I’ll attempt to curb my more egregious impulse shopping habits as much as possible - I’ll let myself indulge from time to time because I want to enjoy my life lol. But I should get my spending under control so I can try to save as much money as possible. Primarily to pay down the student loans first, but I may also set some cash aside in case I want to invest in index funds or I change my mind about homeownership.
If you’ve made it this far, then I apologize for rambling so much. I’ve been working on this post for a couple weeks as I’ve been conducting research; I needed to write everything down to solidify everything I’m doing and why, which is why it's so long lmao
So here’s the tl;dr:
I’m feeling so much better about my finances after doing all this research! I hope my rambling was at least somewhat entertaining or educational and not a total snooze fest 🤣
I’ve never been particularly good with money. While my worst money decisions happened during my Manic Episode of 2014 (racked up a lot of credit card debt just to finance going out to eat and making impulse purchases everyday), I haven’t exactly been making great choices over the years besides that. I’ve generally been quick to spend any cash I have and had a very casual attitude toward debt. I sometimes used my credit cards irresponsibly to offset not having money (like putting all my PhD application fees on credit cards and then NOT DOING a PhD, what a great way to rack up debt!) Even getting my master’s by taking out student loans wasn’t exactly a great financial decision, even though I believe it was the best decision I could make at the time given the state of my mental health.
After graduating, I got a job that frankly underpaid me given it was software development in a very high cost of living area, but it still paid enough for me to move out of my mom’s house and into a one-bedroom apartment alone. I was very comfortable financially despite the lower salary. Then 2021 happened and I nearly doubled my salary within the span of a year, yet I didn’t feel like I had been saving much more money despite the increased cash flow.
That was because of what I mentioned earlier - I like spending money when I have it, so I went on more trips (since I obviously couldn’t do that in 2020), and generally indulged every impulse purchase I wanted to make. Essentially, I fell victim to lifestyle creep.
It’s only been in the last couple weeks that I thought, hmm, I should probably turn my finances around. So I ended up devouring a ton of content from r/personalfinance and doing research, so I’m writing up what I’m doing in the short-term.
But first, some salary benchmarks:
Actual 2020 Salary: 71k (worked at same company all year)
Actual 2021 Salary: 106k (got a raise to 77k, then jumped to 120k job in April)
Expected 2022 Salary: ~135k (went from 120k job to 135k job, but in January)
Expected 2023 Salary: 135k + 15% bonus for 2022 = 155k (assuming I stay at my current job the entire year; I was not eligible for the 2021 bonus this year obviously)
As you can see, I got a lot more money very quickly. What do my actual finances look like? Well, as of a couple weeks ago, I had 12k in my checking account and 40k in my savings account. I also had ~6k in credit card debt and ~40k in student loan debt.
So these are the steps I’m taking after all of my research:
They say the first priority is to save 3-6 months worth of expenses for an emergency fund. With $1,475 in rent and myriad other bills/expenses, I need roughly 3k/month - this number hasn’t really changed in years, which is why I was still living comfortably prior to increasing my salary. 3k x 6 months = 18k, which is less than half of what I had in my savings account already, so I’m good there, though I’ll bump it up to 20k to have some wiggle room.
This money needs to stay easily accessible, so it has to stay in a savings account and not say a brokerage account where I can invest it and try to protect it from inflation. I’ve already lost some of the value of my savings over the last couple years due to inflation, but there’s not really any other reasonable place to put an emergency fund. I did however end up opening high rate checking and savings accounts at Alliant Credit Union, which both have double the APY that my current accounts at Capital One have. I’m still in the process of moving everything over, but at least I’ll get better returns than what I’ve been getting so far.
The next priority is to pay off all high-interest debt (typically credit cards). For a long time I was only paying the minimum payments on my cards. Last year, once I started the new job, I doubled the minimum payment and set up auto-pay to spend that amount instead. Doing this for a year improved my credit score quite a bit and I was given credit line increases on top of it, and improving my utilization rate in turn also helped my credit score. It also decreased the total balances from 9k to 6k. But I would have been able to afford paying off my credit cards months ago, so I paid extra interest for no reason. Still, better late than never. I changed the auto-pay to cover the statement balance for all of them, in order to spread out the hit to my checking account a bit, but essentially I no longer have credit card debt. Yay!
My student loans all have a roughly 6% interest rate. I’m not entirely sure if this is considered high-interest debt; many people say it is, but paying off 40k is more difficult than 6k lmao. Since the government has paused interest accumulation though, there’s no need to worry about paying them off just yet. Once interest resumes, I think I will drop a considerable lump sum payment (like the rest of my savings) and then have high monthly payments.
The next order of business is dealing with retirement savings. A part of me thinks it’s foolish to pretend I’ll be able to retire when we’re gonna be hit with the realities of climate change (among other possible apocalyptic scenarios) in the next couple of decades. Since I don’t know the future, though, it’s probably better for now to imagine that retirement is possible. Problem is, I’m pretty far behind in retirement savings - I don’t have any retirement savings from the jobs I had in my 20s. I had to withdraw the 401k money I had from my first full-time job in 2015 due to running out of money… Again, I’ve historically been terrible with money lol. If I want any chance of not being in poverty when I retire, I need to get serious about retirement saving now.
I don’t have this all figured out yet, but this is what I’m doing for now. I already knew the golden rule of 401ks is to contribute as much as needed to obtain the free company match. I’ve already been doing this at my current and previous 2 jobs. Last I checked, I have around 7k in my previous 401ks and 3k in my current one, which is pretty abysmal for being 33. So I need to decide how to best increase my retirement savings.
I read up a lot on traditional (pre-tax) vs Roth (post-tax) IRAs. I started doing all this research right before the deadline to contribute for 2021, so on impulse I opened a Roth IRA and contributed the max 6k to it from my savings. I did this knowing that my 2021 income was below the Roth IRA limit. The problem comes from my 2022 and later salaries. My 2022 income will be too high for me to contribute the full 6k to a Roth, but I would be able to contribute a reduced amount. My 2023 income will likely exceed the Roth income limit entirely though.
Since I have all these accounts floating around, I’ve decided to consolidate them. I opened both traditional and Roth IRAs with Fidelity. I’m in the process of moving my existing Roth IRA there primarily because the provider I first chose (SoFi) doesn’t have the option to invest in index funds, which are the ideal investment vehicle for people who don’t know or want to know how to invest by themselves. I happen to be both. I don’t care to learn much more about the stock market lol. It’ll take longer to rollover my old 401ks into the traditional IRA but it’ll be nice to have them all in one place.
The big question is what to do going forward. There is a process known as the backdoor Roth IRA for higher income earners like myself, who make too much to contribute to Roth IRAs directly, and can’t deduct their post-tax traditional IRA contributions from their taxes. Basically, I put 6k post-tax cash into a traditional IRA, then roll over the funds into a Roth IRA. Sounds simple enough, but there’s a catch: if you have additional money in traditional IRAs, say old 401ks rolled over into an IRA, that money will be involved in determining the tax paid on the traditional-to-Roth conversion. Not entirely sure how the calculation (known as the pro-rata rule) works, but generally if I do a backdoor Roth, I don’t want to have any money sitting in a traditional IRA. Done correctly, with nothing in traditional IRAs, there’s no tax levied, since you’re moving post-tax cash into a post-tax account.
I believe it’s possible to rollover the money from the traditional IRA into my 401k, where it will sit safe from any taxes during the backdoor Roth. I know it seems silly to move my old 401ks into a traditional IRA and then move that money into my 401k, but I can do all that via direct transfers, aka the providers will exchange the money with each other, and I don’t touch a cent of it. My 401k, by contrast, requires an indirect transfer, where the old provider cuts me a check, and then I forward it to them. They also withhold 20% of the money and you are required to make up the difference with your own savings. Going from old 401k -> traditional IRA -> current 401k is literally less of a hassle than old 401k -> current 401k lmao. I also don’t need to do the traditional IRA -> current 401k rollover right away, I would just need to do it before the end of the year if I decide to do a backdoor Roth.
But I’m really not sure if the backdoor Roth is worth the hassle at all. I could just as easily keep the traditional IRA with the old 401k money as is and focus on maxing my 401k contributions. There is a yearly limit, ~20k. At my current 6% I’ll be contributing roughly 8k, so I have a lot of wiggle room to increase my contribution. I do however also have my student loans to worry about. Repayment won’t resume for months but I still need to keep in mind. I’m thinking I’ll start by doubling to 12% (~16k) and adjust as needed. Using paycheck calculators shows that doing this naturally decreases my taxable income, and so I end up paying less in taxes and my net income only drops a couple hundred per paycheck. Which I know would be a lot for most people, but that’s a change I can easily absorb.
The next order of business would be housing. “Common wisdom” dictates that owning a house/condo is much better than renting, and that renting is just “throwing your money away”. However, in my research I found that it’s not quite that simple. There are a lot of other expenses to home ownership besides the mortgage: property taxes, mortgage insurance, homeowner’s insurance, HOA fees, utilities included with rent that I’d have to now pay myself like water, sewer and trash, maintenance, etc. Even if you manage to pay off the mortgage, you will still have to pay most of these other fees indefinitely.
There’s also the fact that buying a house requires significantly more money than renting. There’s the down payment, which is generally advised to be 20%. It can be lower but you have to have a higher interest rate and/or additional monthly fees to compensate. What’s less talked about are the closing costs, a bunch of fees and other bullshit involved in facilitating the sale. Closing costs can range from 2-5% of the value of the home as well.
Still, it probably makes more sense to buy than rent if you live somewhere with a low to medium cost of living. Seeing as I live in the LA metro area, one of the highest cost of living areas in the US, it starts to make more sense to rent than buy. I mentioned my rent for a 500sqft one bedroom apartment earlier, $1,475. This would be a shit ton of money in probably most of the country, but this is one of the most affordable rents in the area for a one bedroom apartment.
I am getting more annoyed the longer I live here though, but only because I’ve come to find that I don’t enjoy apartment living. There are too many fucking people out and about all day and evening, all year round. So if I were to buy property, I would want a standalone house in a smallish neighborhood to get some more privacy.
Of course, doing that here of all places is basically lunacy. There is some variability based on city but most condos are in the 400k-600k range. There are a shit ton of houses that are over a million, and most others are approaching it. With my income I could probably afford a condo here, but the monthly payment after adding everything in would likely greatly exceed what I’m paying for rent right now. But as I said, I don’t want a condo. House prices are getting to be too much even for my income level.
So if I really want to buy property, I have to look outside Orange County and the LA area. California is a huge state, so there are other areas that have more reasonable prices (though with the housing market lately that may not be the case for long). I could also move out of state, though I am very spoiled when it comes to weather so there aren’t many places in the country that are particularly appealing to me. Then again, the other areas of California where it’d be cheaper for me to buy also don’t have as nice weather as where I currently live, otherwise they’d cost just as much. But I’d still have proximity to all the great things about California, so I don’t think it’s likely I’ll move out of state.
As long as I stay in California, I think it’s likely that I would have to pay a minimum of 400k to get what I want. With a 20% down payment and 5% closing costs, I would need to save up 100k. Minus my emergency fund, I am nowhere near 100k! If I save very aggressively, I might be able to pull that off in 2-3 years. But retirement savings and student loans are more important than saving up for a house, and if inflation and the housing market keeps going like it has been, I might need even more by the time I reach that number lmao.
So for now I’ve decided to not worry about buying a house. I’ve been able to cope with the annoyances of living in my current apartment so far, so I’m not super compelled to move out ASAP. I’ll revisit the topic in the future, of course, and keep it in the back of my mind, but renting is the better option for me at the moment.
So, what else will I do? I’ll attempt to curb my more egregious impulse shopping habits as much as possible - I’ll let myself indulge from time to time because I want to enjoy my life lol. But I should get my spending under control so I can try to save as much money as possible. Primarily to pay down the student loans first, but I may also set some cash aside in case I want to invest in index funds or I change my mind about homeownership.
If you’ve made it this far, then I apologize for rambling so much. I’ve been working on this post for a couple weeks as I’ve been conducting research; I needed to write everything down to solidify everything I’m doing and why, which is why it's so long lmao
So here’s the tl;dr:
- I’m maintaining an emergency fund to cover 6 months of expenses, and I’m switching to Alliant Credit Union for checking and savings in order to take advantage of their higher interest rates.
- After years of making minimum or slightly-more-than-minimum payments on my credit cards, I am paying them all off once and for all. No more credit card debt!
- I’m starting to prioritize my retirement savings by doubling the amount I contribute to my 401k and consolidating my old 401ks into an IRA. I’m still debating whether to do the backdoor Roth IRA process or not.
- Since student loan interest accumulation has been paused by the government, I’m currently not doing anything with these loans, but once interest resumes, I will start focusing more on paying down this debt, with a combination of lump sum payments and high monthly payments.
- Homeownership is currently not feasible and may not be feasible for a while, so I will keep renting and revisit the topic later.
I’m feeling so much better about my finances after doing all this research! I hope my rambling was at least somewhat entertaining or educational and not a total snooze fest 🤣