This 39-year-old makes $85,280 annually in Worcester, Massachusetts as a Financial Risks Analyst III. We’ll look at her income, net worth, and plan to pay off debt and invest. You’ll see exactly how she spends her money now and what recommendations I have.
Job and Income
She’s paid $3,281 gross biweekly and initially contributed only up to her company match of 6%, or $196.80, into her 401(k) plan. She receives a dollar-for-dollar company match or $196.80 per paycheck.
Now she’s investing 10% of her gross paycheck, or $328.13 each paycheck. Her take-home after taxes and other deductions is now $2,125.36 every other week.
Last year she earned an annual bonus of $11,000 gross, or around $7,800 after tax. She also has a side hustle part-time job at a boutique women’s clothing shop. Typically, she works two Sunday’s a month earning $17/hour or $150 gross per shift and around $3,750 gross extra a year.
With the bonus plus her side hustle, she earns around $100k total annually.
Her top three money goals
She wants to have a plan with money to pay for home and car repairs stress-free, and to save up for a car purchase within three years.
Current Net Worth and Balance Sheet
She has a net worth of $301,848.
The Balance Sheet is a snapshot or picture of exactly where you stand at a specific point in time. It shows the total current assets (everything you own), total current liabilities (everything you owe), and net worth (assets- liabilities).
Assets
This is the total current value of everything she owns right now. She has a complete emergency fund, 401k plan, rollover IRA from a previous employer, and is a homeowner with a paid off car.
Liabilities
This is everything she currently owes right now.
Aside from her mortgage, she’s practically debt-free except for furniture she purchased on her credit card.
How she spends her money: Starting Cash Flow
She initially had multiple accounts for spending: two checking accounts, a high yield savings account, and a credit card. This resulted in frequently transferring money back and forth with a lot of confusion and uncertainty.
Here’s a summary of her spending from this past June.
Total Monthly Take-Home Pay: $4,620.33
Fixed Expenses:
Saving: $315.27 after taxes (plus $393.60 to her 401K and a match of $393.60)
Housing: $1,568.30 went to her mortgage including homeowners’ insurance, solar panels, water, and sewer.
Insurance: $723 for car insurance and a really expensive (and unnecessary) whole life insurance policy. She initially viewed the insurance policy as savings monthly for her future.
Services: $148.08 for internet, cell phone, gym, and streaming shows
Debt: $98 for her furniture loan
Flex Expenses:
Weekly Cash: $582.87 on groceries, gas for her car, train tickets for work, eating out, etc.
Medical: $699.46 for her cat’s shots, vet visits, and a therapist’s copay
Maintenance: $257.42 on a water pump repair and Home Depot stop
Projects, Celebrations, and Travel: $0
Fun: $313.93 on musical tickets and Amazon plus Target buys
Debt Payoff
The $2,000 she owed on her furniture loan, she recently paid off in full to get rid of the debt.
My take-aways and recommendations:
To reach her goal of stressing less about car and home repairs she can create an annual budget and forecast upcoming big-ticket purchases from one checking account.
This will simplify everything! With an annual budget she can automate her fixed expenses and then spend guilt-free without transferring money back and forth.
Life insurance is a must-have, IF you have dependents, but she’s a SINK. Single income, no kids and without dependents. It’s also insurance, and NOT investing. Whole life insurance policies are very expensive, and she’d get a better return investing in the stock market versus the cash value of her policy. She was spending $600 a month! Instead, she can cancel the plan and use this money to save and outright buy her next car with cash! Then invest this monthly.
The Finance Plan
With money, it’s hard to know where to start. The Finance Plan is a roadmap and your step 1, 2, 3, and 4 with money.
Here’s a quick overview:
Step 1: Save 10%
Step 2: Get out of Debt
Step 3: Emergency Fund save 3-12 months of expenses
Step 4: Life Purchases: Save for a home, car, or early retirement
She is on step four now!
Here’s her monthly budget following The Finance Plan:
First off, I’m creating a budget based on two paychecks monthly.
Income:
Take-Home Pay: $4,428.52
Fixed Expenses:
Savings: She’ll increase her investing to 10% (before tax) or $328.13 per paycheck with a $196.27 match. Most months this is investing $1,048.80. After tax she’ll save $700 ($600 what she was spending on insurance plus her old debt payment of around $100) for her upcoming car purchase and can outright buy her next car in around two years.
Housing: $1,640 for mortgage, homeowners’ insurance, electricity, solar, water, and trash.
Insurance: $123 for car insurance (no more expensive whole life insurance!).
Services: $295.62 for a new gym, cell phone, internet, book club, and lawn service.
Debt: $0
Flex Expenses:
Weekly Cash: $480 (or $120 weekly) to spend on groceries, gas for their car, breweries, eating out, etc.
Cashless Online spending: $1,189 monthly to spend on medical, maintenance, projects, celebration, travel, and fun each month.
This gives her plenty monthly to cash flow expensive repairs around the house and also enjoy life with fun trips. This is her base budget, but again historically she received $7,800 net bonus, and she’ll have two months with additional paychecks, or $4,250.
This is $26,318 guilt-free and stress-free she can spend throughout the year for bigger home improvement projects and flex expenses.
Car Purchase
She currently drives a Toyota Corolla and can sell it privately for around $5,500. Saving $700 a month for two years will give her $16,800, or $22,300 to outright purchase her next car in cash. This is doable if she buys a gently used two- to three-year-old car.
Retirement Plan
For the next two years she’ll contribute $13,648 annually to her 401(k) with her company match. Again, this is $328.13 per paycheck with a $196.80 match, or $1,137 on average monthly. Then two years from now, she’ll boost her retirement investing. The $700 she was saving for a car; she can contribute additionally to her IRA.
Assuming an average return of 8% by age 62 she’ll have a nest egg of $1.9 million!
Amazing things happen when you have a plan!
❤️ Carly
Ready to turn things around? The fall session of Best Money Class Ever starts live September 23. Get the details and save your spot here.
