Financial Check-in 2019 H1

I’ve been asked by multiple friends, how do you save money? Save money, not in the sense of couponing or budgeting, but how my savings are allocated.

I think this is very personal and how people save money can really vary depending on what stage people are in their lives and what their goals are, but I think it’s nice to have different reference points.

I decided to start doing half-yearly check-ins to see how I’m doing financially.

DISCLAIMER: I am not qualified to give any financial or tax advice. The following is what I have done in my experience. It does not mean that I am recommending that you do the same or that it will work for you. This post is educational in nature and does not represent any tax or investment advice. All tax and investment decisions are ultimately your responsibility.

Goals

• FIRE (Financially Independent, Retire Early)
• Move to Asia and travel around for a year
  • I might probably freelance when I’m living abroad, but that doesn’t mean that the cash flow will always be constant
• Start my own company
  • I want to have enough money so that I can afford to live and pay myself when I start my own company

Retirement

This is the money that I plan to live off of when I reach the retirement age.

• I’ve maxed out my Roth IRA for 2019 and I’ve done the same for the past three years.
  • I wish I had learned about IRAs sooner in my life and I had started investing sooner.
• I was contributing 18% of my paycheck to my Traditional 401k through work. Recently, I increased it to 26% and I should have my 401k maxed out by September.
  • I want to note that 18%-26% is high. When I first started working full-time, I was contributing anywhere between 0%-7% depending on anticipated expenses.
• In addition to my retirement accounts, I have a monthly automatic deposit set up to transfer a portion of my monthly salary to a brokerage account. Three years ago when I first started putting money in the market, I started at $100-$200/month. At the beginning of this year, I increased it to 8.5%. Recently, I noticed that I had extra cash still laying around my checking account not doing anything at the end of the month, so I recently increased it to 17%.
  • This is the money I hope to use someday for (maybe early) retirement. All the shares I buy, I expect to hold long term.

Safety Net / Rainy Day Fund

This is the money I have stored in case some sh*t hits the fan.

• I’ve been told that it’s good to keep anywhere between three to six months of expenses in an easily liquid-able account in case something comes up like an expensive repair, a hospital bill, or losing employment. Liquid-able account meaning a place that is easy to withdraw money from quickly, like a checking account with interest or a high-yield savings account.
• I’ve reached my goal for my safety net, so I am no longer contributing to it.
  • Before I got there, I was contributing anywhere between $100-$500 per paycheck and it took me a few years before I got to a point where I felt comfortable.
• It’s good to note that if you have debt, Ellevest advises you pay off high-interest debt before putting money in your safety net.
  • I don’t personally invest with Ellevest and I’m not affiliated with them in any way, but I read a lot of the articles they post on their site and I find them really helpful!

Other

This is what I do with the rest of the post-tax income that I am planning to use in the near future (within the next 1-2 years), either for traveling around Asia or for bootstrapping my own company.

• Each month I was putting 35% of my monthly salary to a 12-month CD. However, the rates of CDs have dropped from 2.75% to something lower. Personally, for me, it doesn’t make sense for me to put money into a CD at a low rate because CDs have strict fixed terms, so I can’t access the funds easily without an early penalty. In addition, since I increased my 401k contribution, my post-income tax decreased so I can’t set aside as much. So I’m now putting 20% of my post-income tax into a high-yield savings account.
  • Since I am planning to use this money within 1-2 years, it makes more sense for me to put it in an account with predictable, linear growth, unlike the market, which can be unpredictable.

Looking back

I was really irresponsible with money when I was younger to the point where I made it a point to spend my entire paycheck each time I got paid from my part-time jobs and internships. I worked at the mall and I was hooked on social media, so I was influenced to spend entire paychecks on material goods. However, ever since I got my first full-time job, I’ve been saving aggressively.

To be honest, I am pretty bad at budgeting. I find it time-consuming to sort through expenses and categorize each item, plus I always forget the limits I’ve set.

Instead, what’s worked for me is prioritize saving first.

• I have the money deducted from my paycheck automatically for my 401k, so it never hits my bank account and I don’t count it as a part of my spending allowance.
• I have automatic deposits set up on paydays to move money into my brokerage account and high-yield savings account, so I don’t forget to manually move money over.
• After that, I then pay off any necessities (think rent, utilities, etc.) and finally, anything remaining is free for me to spend as I’d like.

Don’t get me wrong, I still live pretty frugally — I meal prep every week, I do all my grocery shopping at Trader Joe’s or Costco (the cheapest places for groceries in New York City), I buy the majority of my clothes on sale or at outlets, I don’t go out much, and I take advantage of the library (this has saved me so much on books, haha).

Update (7/29/2019): Earlier, I realized that some of my calculations were off since I didn’t redo the math after increasing my contribution to my 401k. I’ve updated the post to reflect more accurate numbers!