When I began this year, one of the new and interesting things I did was evaluate my financial goals. Sounds boring, but it’s an interesting consideration that I think requires introspection as to what you feel the purpose of money is. In college, I found it was easy for me to be lax about understanding my transactions, and although I had a general sense of what was a bad purchase and a good purchase, I didn’t put any real effort into figuring out how much money was flowing in and out of my bank account.
In January, I moved to San Francisco and got hit with the sticker shock of incredibly high rent ($1300 a month to share a studio with Tim), and it really knocked my financial sense into focus. I felt some pings of regret about deciding to sign the lease, and figured that the only way to repent would be to learn more about money in general, and cultivate a growing understanding of my own money. I set out with a new belief, a belief that I have a personal responsibility to my future self to figure out what money means to me, my financial goals, how I should reach those goals, and finding habits and feedback loops for me to continuously improve those habits.
I outlined my financial goals:
- To provide a short-term safety net for unexpected circumstances: The emergency fund for medical emergencies, car repairs, ransom for me being kidnapped in a foreign country, etc.
- To provide a long-term safety net for retirement: The retirement fund, to be used for a reliable source of income when my faculties decay to the point where I can no longer earn an income.
- To provide for items of high utility: Rent, food, transportation.
I outlined a methodology to get me to those goals:
- I get paid bi-monthly, and due to my rent being almost half of my income, I conceptually dedicate one paycheck to rent, and the other to savings. The leftovers I use for living expenses.
- Upon receiving the rent check, I consider that money already “gone from my account”
- Upon receiving the savings check, I either put it into an investment account, or use it to build up my emergency fund if it is below a certain threshold.
- I regularly check my balances on my checking accounts to make sure I have less than $500 total cash on hand. I’ve noticed that having a four figure bank account somehow makes me more lax on purchases. If I have too much money in checking, I move it to the savings immediately.
I outlined some habits that I want to maintain:
- Cooking healthy, cheap meals for breakfast, lunch, and dinner
- Save first, spend later - as outlined in my methodology
- Analyze and reflect - this post
- Research and learn - reddit, blogs, forums, books
My spending in January:
- Rent and Utilities - 1350
- Food - 215
- Transportation - 94.5
My spending in February: (picture of my spending)
- Rent and Utilities - 1350
- Food - 243
- Transportation - 57
I feel that with my new mindset, I’ve gotten costs down to the point where if I maintain good health, I can make significantly less than what my friends are making at their big companies and still have a consistent savings rate that I am comfortable with. At the same time, I think it’s worth my time to investigate other housing options in San Francisco once my lease ends in a couple months. A big reason my food costs were able to come down is because of my heavy usage of the kitchen, so any new housing would have to have an accessible kitchen.
The main issue with our society and personal finance is that it’s such a taboo subject, mainly because in our society self worth is tied to $$$. It results in situations where if money matters are discussed, there’s always somebody feeling worthless (or, worth less). The limited common discussion about money results in the status quo of financial ignorance. This has a multitude of terrible societal effects rippling outward that result in dysfunctional systems (healthcare, I’m looking at you!).
I think it’s a problem that we should all aspire to be a solution to, and to quote Michael Jackson, “Take a look at yourself and then make a change”. I’m not asking the world to suddenly become ultra-frugal (everyone has different financial goals), but instead to take an active role in cultivating a sound financial mind. Thanks to the wonders of the Internet, with some minimal Googling, anybody can find communities of people talking about this stuff: