Over Budget: Car Trouble and Stress

It’s mid-June and, friends, one thing is clear: I’m going to go over budget this month in a few categories. Shout out to work stress, soy covered car wiring (explanation below) and my emotional health (or lack thereof); the sources of my overspending.

As you all know, I budget using the YNAB (You Need a Budget) software, which articulates a fundamental rule that budgeters “Roll With The Punches”. The rule encourages budgeters be flexible and address overspending as it happens – by pulling from other categories or accessing savings – instead of being discouraged and giving up.

Before I go any further, I acknowledge that most of my overspending was squarely within my control and that not everyone has the flexibility to “redirect from other categories” when they need extra money. I am aware that sometimes going over budget means going [further] into debt for absolute necessities. (I remember those days well!) However, I encourage folks to not let one bad month discourage you from pursuing financial health! Much to my chagrin, financial freedom is often a two steps forward, three steps backward type of journey.

Having said all that, I know that the money available to me is finite, and when I overspend in one category, YNAB has taught me that I have to (i) be flexible and not be discouraged (ii) as illustrated in the photo below, cover overspending with money from another category or newly earned money (cash-flowing).

Photo from YNAB

When deciding which category to pull money from, I try to pull from my discretionary categories – such as clothing, fun money or dating – first and actively avoid pulling from savings goals or unrelated sinking funds. I also exercise caution when “cash-flowing” since too much spending in June can disrupt July’s budget and my annual savings goals.

Having said all that, let us dig into where I went over budget in June and why. Let’s also talk about how I used the appropriate sinking funds to cover the overspending.

Car Repairs. I received a dashboard alert about my car cameras and since the car is still under warranty, I hustled over to the dealership to have it looked at. A cursory glance by a service technician revealed that six wires in my car had been chomped on by a pest. (Note: A later google search revealed that this is not uncommon in newer cars due to soy-based wiring insulation that car companies rolled out to be environmentally friendly). Unfortunately, all of these wires had to be replaced for safety reasons; repairs that were not covered by my warranty. 😭 The bill was a discouraging $1156.00. While I was able to cover some of the repairs with $350 dollars from my car maintenance sinking fund, I was still ~$800 short. I pulled the extra $800 from my car replacement sinking fund, which I started contributing $200/month to when I paid off my car. Having to pull from these funds was not the end of the world but I’ll need to replenish the used funds, which means that meeting my savings/investing goals for the year will be a little bit more challenging.

Dining Out and Lunch at Work. The second and third spending issues stemmed from a lack of time or desire to cook at home during the first two weeks of June. My personal time has been significantly eaten away since both of my teammates are out on parental leave this month and so, it’s been just me – with the assistance of outside counsel – handling much of our workload. In addition to the late nights, the heavy workload has been quite stressful and has left me feeling down and I have no energy to meal-prep.

Given this new reality, I made the affirmative decision this week to rest on Sunday instead of meal prepping and gave myself permission to eat lunch at work and grab takeout for dinner (Shake Shack for life)! Obviously, this required me to re-calibrate my budget to account for the shift in priorities. The result was that I moved $100 from my grocery budget and split it between my “dining out” and my “lunch at work” budget. So far, I’m still staying within my $260.00 “food” budget overall but the breakdown between subcategories is different. I will need to consider adding more money to this category when I get paid, but am hoping to keep the food budget under $300.

Full Disclosure. Since I no longer have any non-mortgage debt and I also have a significant “buffer”, after I scheduled this post, I decided to top up my grocery category and my food budget expanded to $310 for the month.

How are you all doing with June’s budget? Everything on target? How do you adjust when you overspend? How do you avoid the guilt?

-Barlow

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Investing: It’s Never Too Late to Start

I was 25 years old when I read my first personal finance book. And, as I shared last week, it was only then that I started thinking seriously about my money and, more precisely, what I should be doing with it.

While answering some of my fundamental questions, the book also made it apparent that I needed more education on the subject of money, so I asked my friends questions.

• How much should I be saving?
• How do I “save” when I don’t receive a paycheck?
• What is this retirement crisis everyone is talking about?

My friends were uncomfortable talking about their personal finance progress – or lack thereof – and instead recommended a hand full of personal finance blogs as the basis of my education.

I pored over the recommended reading but quickly became discouraged. I was a law student with a very negative net worth and, based on the compound interest charts I’d reviewed, I’d already waited too long to start investing. Like any reasonable person, I closed all the tabs I had opened on the subject and ignored the matter until the following year.

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The time for financial procrastination came to a halt when I started my first post-law school job, where I noticed that no one else seemed befuddled by what to do with our “Big Law” dollars. I spent much of my orientation hunched over a pile of financial documents and calculating the required payments on my debt. Two frustrated days later, there was no avoiding it, I needed to get it together.

I targeted some low hanging fruit – understanding my 401(k) investment options and deciding how much to contribute from each paycheck. In the interest of starting off strong, I followed the direction of a mentor and contributed 10% of my salary. Having not received a paycheck before that election, I literally never noticed the difference.

What did you invest in? In terms of investment strategy – I had none. I invested my 401(k) into a “target date fund” – a professionally managed fund invested in stocks and bonds that became more conservative as the “target date” (my retirement date) approached – until I got a better sense of how I should otherwise invest. A couple of years later, I shifted those dollars into a less expensive (as measured by the expense ratio) group of funds which better aligned with my long-term goals.

You are a professed member of the #dfc; did you pay off your debt before investing in your 401(k)? No. I am “Dave-ish” (meaning I don’t agree with everything he says, particularly with regard to investing) and did not feel comfortable not contributing to my 401(k) while I paid down my debt for four reasons:

• I was straddling two tax brackets and received significant tax benefits by contributing to my 401(k);
• I wanted the benefit of compounding growth and wasn’t sure how long my debt free journey would take;
• My debt was low interest and therefore investing was a more efficient use of my dollars; and
• I didn’t want to give up free money by not contributing at least enough to get the match my company provided.

Instead, I ignored the 10% of my salary which went to my 401(k) and planned the rest of my life (and debt repayment) around the 90% of my salary which remained after I got paid.

Are you maxing out your retirement fund? Today, I still contribute 10% of my salary to my tax advantaged retirement accounts I receive a company match on (i) 100% of the first 3% of eligible pay and (ii) 50% of the next 3% of eligible pay. I also receive a matching contribution of 3% of my salary no matter how much I contribute. I have taken full advantage of this matching program (an effective 7.5% match) since the day I started, resulting in my saving approximately $40,000/year in my 401(k) since I started.

How about you? Are you investing in your 401(k)? Are you earning your matching dollars?

-Barlow

Why I Automated My Savings

What was the first personal finance book you read?

The first personal finance book I read was “The Automatic Millionaire*” by David Bach. While some of his findings have been undermined recently (see articles regarding the “Latte Factor” here, here and here), the idea of “automating my savings” stuck with me because it was simple and actionable.

Automating ones savings, Bach explains, requires structuring accounts so that a set percentage of your income is automatically transferred into a 401(k), taxable investment account and/or savings account before you can ever seen those funds in your account. Set my savings goals and then forget them day to day? Sold.

If it’s so simple, why didn’t you implement it sooner?

Prior to reading Bach’s book, I had the best of intentions when it came to saving. I really did! Every now and then, I would stress in the presence of spreadsheets and notepads and commit to pulling $1,000 a month into a savings account and mayyyyybe setting aside some money in an IRA. Perhaps I would even get around to figuring out my other tax-advantaged account.

My intentions never progressed to action and, unfortunately, I would (i) run out of money before I could ever get around to transferring it to any of my savings goals or (ii) move the money into my savings account only to “revisit” the decision later in the month and guiltily transfer the cash back into my checking account.

A year and a half after finishing Bach’s book, I acknowledged reality. In order to be financially secure, I needed to take flexibility out of the equation. In addition to knowing what hadn’t worked in the past, I knew that, at that time in my life, I was paralyzed by decision-making and would likely hem and haw myself out of ever committing to a financial decision.

After re-reading the book and consulting with friends who were a bit wiser with their money, I built a schedule – based on pay frequency and:

• Set my 401(k) contribution to 10%. This seems high I know; but I also knew I needed to feel a little pinch and told myself I would adjust to the reduced paycheck. I did.
• Set up recurring contributions to “Emergency Fund”. I also set up a recurring “bill pay” transaction from my checking to a high-yield savings account at Ally to fully fund my emergency fund. The extra step of having to wait several days to get the money back to my checking account deterred me from “stealing” from my savings.
• Automate Investments. I also set up an automatic transfer into a taxable brokerage account at Vanguard, which I invested in low cost index funds.

It’s been a few years since I set up that initial “system” and I have seen my net worth triple thanks to consistent and systemic debt repayment and savings. During that time, I was able to successfully manage my money without guilt, distraction or anxiety.

What about now? Over the past two years, having adequately stretched my “savings” and “disciplined decision making” muscles, I took off the training wheels and take a more active role in managing my savings goals. It’s still not a “manual” process (because I simply do better with automation) but I goal set quarterly and annually and then set up recurring transactions (e.g. contributions to 529, 401(k), IRA and brokerage account) to match those goals.

How about you? What did you learn from your first personal finance book? What do you carry with you today? Have you automated your savings? If so, have you run into any issues?

-Barlow

* Barlow Street is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to amazon.com or whatever). If you use this link, I may receive a commission.

Budgeting for June.

As I previously shared, I budget using You Need a Budget (YNAB)*, a zero-based budgeting program. I thought it might be interesting if I shared my monthly budgeting process, so let us get to it.

Since I’ve been trying to take advantage of my large deck (and my mornings), I quickly brewed some coffee this morning and enjoyed it on my deck while I worked through my June budget. With May wrapping up and summer getting into full swing, I wanted to make sure that I was budgeting enough in my “fun” categories to avoid overspending. I started by quickly jotting down upcoming events – like dinners with friends, dates and holidays and then working through my YNAB categories.

Housing. Generally, my housing costs stay the same each month, including my utilities since I signed up budget billing. However, my escrow is now self-managed and the monthly amount is “paid” into a sinking fund in my high yield checking account at SoFi since Wells Fargo made some errors calculating the correct balance last year. This way, when the relevant bills for property taxes and insurance come in, the money will already have been set aside. Otherwise, there are no changes to my usual budgeted amounts.

I don’t have a phone bill since my job handles that bill.

Food. I stocked up on chicken and other staples on Tuesday and am planning my meals around those items for June, so I am lowering my grocery budget to $150 (from $200). I also have a few dinners with friends planned for this month so I’m increasing my dining out budget to $75 (up from $50).

I generally pack my lunch but budget some “oops” money for days that I forget.

Health. Since I am getting re-certified as a foster parent, I need to get a physical and a TB test in June. I’ve also been feeling a little down and have been thinking about returning to counseling. Based on those upcoming expenses, I’m budgeting $125 for June, which should cover my co-pays.

I added $0.47 onto the $125 I budgeted to make the category number even.

Getting Around. Despite having a paid off car (yay!), I feel like I budget so much for transportation. 😒 One of my most expensive items is gas but while I’m taking a couple of trips out of town in June, $150 in gas should be enough. I’d also love to use some of my car cleaning sinking fund to get my car detailed but that is TBD.

Except gas, my transportation categories are sinking funds that I contribute to monthly to prepare for the expense. I budget the same amount each month for these categories and June should be no different.

Household Expenses. My house feels a little stale and dusty, so I’m adding $50 to my “Cleaning Service” sinking fund and will use the money sometime in June to arrange for a deep clean of my house. I’m also budgeting $300 to my durable household items category to bring that line item back up to $1,000: it dropped down in May when I purchased a replacement vacuum.

Savings. I’ll continue to save aggressively to ensure that I meet my 2019 Financial Goals, while also diligently saving for other priorities such as my niece’s college fund, a future adoption and the shenanigans of my biological family.

Fun Money. In addition to my subscriptions (Netflix, Hulu, Apple Music, Costco and Prime), I try to thoughtfully monitor how much money I am spending on “Treat Yo’ Self” lifestyle choices. This month is kind of spendy, but doesn’t run afoul of my financial priorities or values.

Since I’m dating someone, I’m budgeting $50 for a couple of tickets to a tequila tasting I think we might enjoy for a nice date night. I also have my eye on a couple of books that might not be at the library yet, so I’m budgeting $50 to my “Interests” category as well. Other than budgeting a bit more in my hair and skincare category to account for some box braids I want to get next week; everything else should stay the same as they have been since I paid off my student loans.

Giving. I committed to matching donations to a charity last month, so my charitable giving is a bit higher this month. At $200, my budget for gifts is also higher due to a nephew’s birthday and my propensity to buy my niece things she does not need. As for Christmas, I always budget between $75-$100 dollars per month so I don’t have to stress about buying presents at year end.

Once I get to the bottom of this long list in YNAB (and top up my “Taxes” sinking fund), I double check the final figures against my one-month buffer, move any “leftover” money into a carry forward category and “lock the budget” by printing a copy to .pdf and saving it in my electronic financial binder. This process allows me to see where I moved money around during the month (usually between groceries and dining out) and adjust accordingly in the future. In sum, it keeps me honest.

How about you? What is your budgeting process? How to you react to unplanned expenses when they occur?

-Barlow

*The link above is an affiliate link. While I don’t receive any commission if readers sign up, I do get a free month of YNAB if you sign up after the free trial.

Checking In: 2019 Financial Goals

Hello and welcome back to Barlow Street! Let’s sit for a spell and chat about our financial goals for 2019.

I believe that, unless I proactively set goals for my dollars, they will slip right through my fingers. As a result, setting financial goals has never been about putting pen to paper for me; it has been about identifying and articulating my priorities and finding ways to spend my money in a manner consistent with those priorities.

Prioritize. Goal Set. Act. Evaluate. Repeat.

Being able to point to my values and priorities when I spend money keeps my “are you stewarding your money well” anxiety and fear at bay and is, therefore, critical to my mental health. Mercifully, since I already identified my priorities for 2019 – security, restoration and accountability – all I have to do is make sure my spending aligns with them.

To ensure I could actually meet my goals, I made sure that they were realistic, achievable and somewhat flexible. For 2019, I set five financial goals which align with my 2019 priorities.

1. Max Out 401(k) (Security Priority)
2. Max Out Roth IRA (Security Priority)
3. Save or Invest 10% of After-Tax Income (Security Priority)
4. Take a Vacation (Restoration Priority)
5. Budget Consistently and Honestly (Accountability Priority)

To keep myself honest, I am checking in once per quarter to see if a goal needs to be modified or if I need to pick up the pace. I also have a financial “accountability partner” who can give me a gentle nudge if I’m giving myself “too much grace”.

Since I have this blog now, I figured I’d capture my Q2 “check-in” here. So let’s get to it.

1. Max Out 401(k) ($19,000)

With my salary, I have to contribute approximately 10% of each paycheck to meet this goal. I confirmed with my HR department on January 1st that my pre-tax contributions were set at 10%. I also confirmed that any excess contributions would count as an After-Tax Contribution to my 401(k), which I would count toward meeting goal #3.  I also receive an employer match but don’t count that toward my financial goal. (On Pace)

2. Max Out Roth IRA ($6,000)

In 2018, I contributed $500 a month to a high-yield savings account so that I would have the $6,000 required to max out my Roth IRA this year. Since I make too much to contribute directly to a Roth, I contribute to my Roth via a “Back-Door Roth” contribution, an odd legal loophole in the tax code.

In January, I contributed the $6,000 in my sinking fund to an empty Vanguard traditional IRA and later that same week converted it into a Roth IRA. As highlighted below, I also began saving for my 2020 Roth contribution in March by contributing $500 a month to a high yield savings account. I track my savings in You Need a Budget (YNAB) to ensure I am on track for 2020.  (Complete)

Roth IRA Sinking Funds (in YNAB)

3. Save or Invest 10% of After-Tax Income

In addition to the After-Tax 401(k) contributions referenced in Goal #1, I automatically deduct ~$2,000 a month from my paycheck and send it to a high-yield savings account. I budget those funds directly into savings goals or toward my brokerage account which I use to invest in low cost index funds.

Like many, I have had some anxiety around investing this year (due to volatility in the market) and think I could benefit from a second set of eyes on my investment approach. Therefore, I’d like to meet with a financial planner by September of this year to discuss whether I have too much cash on hand and my current allocation. (On Pace)

4. Take a Vacation

I hate planning vacations and, besides milk, there is nothing that makes my stomach cramp up more than thinking through the details of getting away. As a result, I never get around to using my vacation days. However, I’ve been feeling a bit burnt out so I made taking a vacation a priority this year.

Vacation Sinking Funds (in YNAB)

To fund this vacation, I have been setting aside $200-300 a month in a “Vacation” sinking fund and tracking my credit card rewards in similar sinking funds since 2018 and I’m finally going to use some of that money.

I am taking (and already booked!!) two trips: (i) one to France in July and (ii) one to Iceland in October using rewards and a small bit of the cash sinking fund. Since Paris is up first, I am already researching the best place to grab coffee and eagerly awaiting early July. I’ll definitely keep you in the loop as to how vacation goes. (On Pace)

5. Budget Consistently and Honestly

As highlighted in the screen shots above, I’ve been budgeting with “You Need a Budget” (YNAB, affiliate link) for the past twenty months (or so).  In 2019, I hoped to better align my spending with my priorities and to continue growing my net worth. So far, I’ve been successful, thanks – in part – to YNAB.

I love how YNAB encourages intentional spending by forcing you to decide where to put each dollar in your budget. By setting realistic “dining out” goals and setting aside money to grab tacos with friends, I am finding less reasons to feel bad about my spending. I’d like to continue this trend for the rest of 2019. (On Pace)

What about you? What are your financial goals for 2019? How are you planning to meet them?

-Barlow

Introducing “Barlow”

Hi! And welcome to my blog!

I’m “Barlow”, a Chicago based thirty-something mildly obsessed with budgeting and a good cup of coffee.

What experience do I have with money? Not a lot! Until 2013, I never dealt with “money” because I never had any. Growing up, I lived briefly with my mother before being shuffled through a series of foster homes.

The U.S. foster care system is notorious for a lot of things but teaching money management or “life skills” is not one of them. In my teens, I watched anxiously as my foster siblings “aged out” of foster care – turned eighteen without being adopted – and into adulthood where they struggled to make ends meet. I would get physically sick to my stomach as I wondered how I was supposed to “make it” when no one I knew had figured it out.

With a non-existent safety net, a checked out caseworker and foster parents who weren’t particularly interested in how things turned out, I knew my margin for error was razor thin. Figuring that it would provide me some needed structure, I enrolled at a private four-year college at seventeen using Pell Grants and a host of private scholarships. Despite having generous scholarships (83% of my cost of attending was covered), I graduated four years later with $20,288 in student loans I no idea how to repay. 

Still, I’d landed a job in DC working for a congressional member and moved to DC two days after graduation and tried, with limited success, to pay down my student loans. A few years later, I followed a boss’s counsel (and a large scholarship) to law school in New York. Despite my scholarship, I increased my debt load by $87,986.  Accounting for accrued interest and my outstanding undergrad loans, I had more than $100,000 in loans when I graduated from law school in 2013.

I began working after law school at a great firm – although the hours left much to be desired – and considered myself “pretty good” with money. After all, I had a 401(k), a savings and investment account – and I was paying more than the minimum on my student loans. Yet, I found myself staring at spreadsheets often and spent a lot of my time worrying about losing everything.

After taking an honest look at my finances and reading more personal finance articles than its probably healthy, two things became obvious (i) I did not know enough about money to be “good” with it and (ii) it was how I was spending money that was causing anxiety, not how money I was making. I committed to learning more about my relationship with money, paying off my student loans, spending money more intentionally and increasing my savings rate. This blog is how the rest of the story played out.

I hope that my perspective on money helps to create positive change in how others interact with money. I also want to end the secrecy around debt and talk freely about the “bad” money decisions we make.

Welcome to Barlow Street!

Welcome to Barlow Street – my personal finance blog! Yes, another personal finance blog. And, I know, there are already so many of them. Still, I hope that “Barlow Street” will provide an authentic look into a somewhat atypical journey to financial freedom and, eventually financial independence.

Over the next few weeks, I will be detailing more about who I am, what to expect from this site, why you should consider reading my content, my thoughts on money management and many other topics.

I look forward to seeing you again!

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