How a 27-Year-Old Worrying About Lifestyle Inflation Does Money

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Alice is a 27-year-old policy wonk in Washington, DC.

So, Alice, tell us a bit about your finances.

Well, I think of myself as pretty on-the-ball financially at this point in my life. Healthy 401(k), use credit cards but don’t carry a balance, emergency fund. I thank my union for a lot of that financial stability.

My big stressors are my student debt load and lifestyle inflation. I’ve struggled with credit card debt in the past. I graduated from college with some credit card debt racked up during a summer of interning in DC and then slowly paid it down. Then I got into credit card debt again, living beyond my means in DC and going to a million weddings, but again managed to pay it off about three years ago.

Weddings! How much do you think you spent, going to all of those weddings?

Oh god, that is tough to think about. Being maid of honor and attending 2 other weddings as a guest in one summer set me back 5 grand, at least.

I’m sure I could have spent less than that, but when my best friend was having such an awesome major life event it was easy for me to excuse the extra spending. Then you have to go home and deal with the credit card bills and the annoying emails from Mint.

Very true.

As time has gone on I’ve gotten better at saving each month for that kind of thing, recognizing I can’t just pay for things out of regular cash flow.

Do you have a saving system? Sub-savings accounts? Pay Yourself First? Automatic deductions?

I have a system, but it is pretty flexible.

For my 401(k), between my negotiated employer match and what I put in, 20 percent of my income goes into a target retirement date fund. I check the quarterly statements and that is it.

I also have a savings account that gets $250 per paycheck automatically, and then I challenge myself to match that bimonthly deduction with another $250 from my checking account and/or throw extra at my student loans.

So sometimes I shift money over each payday thinking of things like weddings/Christmas/vacation, and sometimes I’m more focused on my student debt, but I try to make it $1,000 that I’m “saving” a month.

But then, of course, I do have to turn around and spend some of that on the wedding or what-have-you. I used to try to keep a three-month emergency fund, but I gutted that to move earlier this year. I’m on track to have it back by the end of the year.

Right, there’s this huge mental thing you have to overcome when you spend your savings. It’s like, “these are my savings! I’m supposed to have them forever! What if I need them later for something more important?”

That’s the way I think about my 401(k).

Oh good gracious, don’t pull money out of your 401(k) though. There are PENALTIES!

Since I just use one savings account at the same bank my checking account is in, and they’re right next to each other on my bank’s website it all kind of feels like my money. In an ideal world I would have a CD ladder that would keep more of my savings away from me.

So do you find yourself spending your savings often?

I don’t think I would be able to sleep at night if there was only a three-figure amount of money in that account. But yes, the balance changes all the time.

By the end of the year I’ll have my three-ish month emergency fund back, which is a nice round number, and then I’ll just pretend that number is invisible.

Then any money I save over that amount will be for travel and gifts and such.

Got it. So I want to ask you about lifestyle inflation. What parts of your lifestyle have you inflated recently, and do you feel like those inflations have improved your life, or just cost more money?

The big one is my living situation. I recently doubled my rent. DC is very expensive, but I never again want to live in the VA suburbs. I did that for a year and then in 2011 lucked into a very small room in a great neighborhood in DC for pretty reasonable rent with three other roommates who were all nice people but not friends.

In 2013 i got a job that paid a lot better but keeping the tiny place let me throw a lot of money at my student loans—and, honestly, just have a lot of disposable income. But i was getting deeply sick of the group house life, as was one of my best friends, so we started looking and found a place in the same great neighborhood I loved at the very top of our budget.

I love the place, and I love living with a friend—not worrying about food labeling and other awkward situations. But that was a huge budget adjustment. I can’t throw nearly as much extra money at my student loans, and I can’t eat/drink out as much anymore.

I feel like one of the big Adulthood Lessons we have to learn is When To Inflate Our Lifestyle. Like, getting out of a group house in your late 20s is great! You still have a roommate, you made a budget, you improved your lifestyle commensurate with your financial circumstances.

Yeah, it was definitely the right decision to move, it was time. But that month was financially stressful. The weekend we moved in, I think I spent $4,000 between the movers, Ikea, and Costco.

But now I feel like I have a more adult life, which is worth a lot. I just came home from a ten-day trip at 11 p.m. last night and there was food for me in the fridge and someone to watch Netflix with!

I’ve read a lot about personal finance, especially when I was in credit card debt, and even Dave Ramsey says you can only keep up “gazelle intensity” for about three years. Last winter, I just felt like I was at this crossroads where I needed to spend more money on my own happiness or make immediate plans to leave DC and move to a place where I could afford more happiness.

That makes sense, being 27 and starting to establish your career. It’s like, you get to a certain point and realize you have the ability to make choices about your life. Which is hard, because then you actually have to make those choices.

Yes, a lease is a pretty big financial commitment.

It’s a year-long lease, right?

Yeah, but I think we’ll be there at least 2 years. And am I really going to go back to group house living? Doubtful. So now I would really like to get promoted at work!

It seems like you made a smart move, and I say this knowing only what you’ve written so far about your finances. But you’ve paid down debt, you’ve moved into a better living situation (which in turn can lead to a healthier/happier life), and now you’re working on getting that emergency fund back up.

Let me ask you this: How did you become so financially savvy? Was it something you picked up in childhood? Also, when did you start reading Dave Ramsey, and why?

I don’t know if I could say it is something I picked up in childhood. I’m from the Upper Midwest, and I remember my parents telling me it was impolite to talk about money.

But my parents did tell me all the right basics. When I went away to college, I got a student credit card “only for emergencies” which my mom told me to use just for gas and pay off every month to build my credit score. I mostly stuck to that until I was an intern in DC and just… lived off the credit card. Which was so dumb but felt like the only option at the time.

It was an unpaid internship? Or an underpaid internship?

Underpaid. I thought I could keep it mostly in check, but didn’t factor in taxes, cost of living, and the weirdly expensive metro.

I was just in DC for a weekend. THE METRO IS SO EXPENSIVE.

But I headed into my senior year of college with this debt monkey on my back, and I didn’t feel like I could really talk about it. People talked about their student debt, but nobody around me ever talked about credit cards.

So I started reading a lot of personal finance stuff online. This was kind of in the heyday of blogging—2009 or so if I’m remembering correctly. Get Rich Slowly was really good, and that site turned me on to a lot of books and personal blogs. Also, I don’t think you can do a Google search on paying off credit card debt and NOT find Dave Ramsey.

I read Get Rich Slowly in 2009! 

I learned so many basics on that site—the difference between a traditional IRA and a Roth IRA, CD ladders, budgeting basics, Mint…

I bet you also read The Simple Dollar, right?

Yep, also definitely read The Simple Dollar. I don’t read either of those now. Just The Billfold and Mr. Money Mustache (despite the weird rivalry) and two personal blogs that are still going from that time.

Were you crushed to find that the interest rate on CD ladders was so low? Let’s commiserate about interest!

Yeah, that was definitely disappointing. It was also such a weird time, macro level, to be looking at my finances. Recession, low interest rates, housing crisis, investigations into banks…

It was probably immediately post college when I got really determined to pay off that credit card debt and never miss a payment on my student loans, all on a $12/hr fellowship wage commuting from the VA suburbs. It was kind of the only thing I had to focus on. No friends, no life, working all the time.

I’d be curious how many people turn to financial blogs when they have very little money.

Probably quite a few.

What do you think you do well, money-wise, and what do you wish you could do better?

I think I do well on big-picture things: spending less than I earn, having a plan for paying down my student debt, 401(k), not spending too much on rent. Even if it is more than I’ve spent in the past, my rent is still a third of my net income.

But it is the day-to-day I struggle with. The latte factor, or more like the “happy hour factor.” And I am terrible on vacation. I just went to an event in a big stadium over my vacation and spent $9.50 on a Coke Zero and Reese’s Pieces.

That stuff really does add up. But it is hard to deny myself, knowing what I make and that I’m doing most other things well.

I totally understand—and stadium food is designed to be that expensive.

I know, and I know with planning I could have gone to a CVS and snuck food in, or just gone without.

Well, at some point, just like moving out of group houses, you can stop sneaking candy into theaters and stadiums.

I’m 27 years old and I just don’t want to have to fight and scheme to save three dollars at a time.

YES. That is it. That is it right there.

Last question. What is your advice to other Billfold readers?

Hmmmm. Overcome your hang ups or your Midwestern-ness or whatever and talk about money more.

I try not to pry into people’s lives or anything, but I’m now that friend who talks about my salary and my student loan interest rates, and it has opened up a lot of interesting conversations.

Generally keeping secrets about money only favors the boss, if you’re at work. In your personal life it makes it easier for your friends to say “Look I really can’t go on this beach weekend, even though I want to.” And I’d never want to put my friends in uncomfortable positions or feel like I can’t speak up about my own financial stuff.

 

Photo credit: Ron Cogswell

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