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Background: 26 year old single woman living in the Boston metro with roommates, making 50K a year. I'm getting a master's degree part time for free through work in strategic analytics/business intelligence. Diagnosed with Stage IV cancer 4 months into my first job out of college and spent 2 1/2 years either fighting cancer or fighting the medical/logistical/transit bills with no financial help from family on 35K a year. My credit is wrecked from the experience, but I have been in the black for the past year thanks to focusing on paying down debt and an internal transfer that pays significantly more.
Current stats:
403b (I put in 5%, work puts in 8% for a total of about $550 a month) - $6500 (got a late start at 24 and when my income was lower and I was non-exempt, the percentage for matching was lower)
Checking: $1500, a month's expenses
Savings: $5300, saving ~$500 a month, goal is 1 year's expenses or $18000
Betterment: $350, adding $100 a month - goal is to use this as a downpayment for a home eventually, but currently functions as a back-up emergency fund and low-risk way of getting used to market fluxuation
Debt: Currently lease my car (bad decision, but felt the most prudent when I had to emergency buy a car upon diagnosis), buying it at the end of the lease in May and will owe about 10K
I'm finally in a position where I can really focus on saving and I prioritize building an 1 year emergency fund as rapidly as possible because realistically, I'm still at a moderate risk of relapse and if I relapse I could easily use that 1 year in 6 months of copays, compounded with needing to be out of work for 6 months. I have long-term disability through work, but my work does not offer short-term and unfortunately, I did not think about buying it when I was 22 before my diagnosis.
My budget is pretty tight - including budgeting for savings- though I do spend more money than I'd like on prepared foods/takeout and shared utilities with roommates because my roommates are often using our (small) kitchen until 9pm and they are not as cogniscent as I am about turning off the lights or turning down the heat. It's a constant problem, but I need at least 10K more in income before I could consider moving to my own place so for now I put up with those logistical and financial inconveniences. I also spend more money on average in continuing medical care. My only "big" planned upcoming expenses is my first *real* vacation in over 5 years on Birthright to Israel and my brother's wedding in 2015 where I am maid of honor. Birthright is a free trip to Israel for Jewish young adults ages 18-26 and this is my last shot to go before I age out. I will only need to get myself to NYC and back plus some money for food and souvenirs.
All said, I'm pretty happy to be able to save about 20% of my income and hope to kick it up to 25% with my upcoming annual raise and continuing to cut back.
But where should I be saving it? My savings account earns next to nothing - I'm getting a grand total of .03 a month. I like the idea of laddered CDs, but is there a better option for the emergency fund? I opened a Betterment account to start building a portfolio with what little money I have. I don't miss that money and hope to increase my contribution as my income increases. Does opening an IRA make more sense for saving for a house downpayment? I'm anticipating needing at least 60K for 20% down in my region, so that is years off though I hope to be married and have a larger income before that happens! I also will need to adopt in order to build my family, which is an additional 20-40K per child that I need to be considering in addition to the general savings one should have before becoming a parent.
Any advice or guidance on how to structure savings for a moderate income earner with (reasonable) fear of risk would be appreciated!
First of all, I hope you're doing well; not only physically, but emotionally healthy, too! I truly hope that you don't relapse and you win this battle! Your trip is Israel is well-deserved and I hope you have a wonderful time.
Quite frankly, I think you're doing very well for yourself. It's one thing to be a 20-something trying to make it, but you're dealing with a boatload of medical expenses that you had no idea that you would ever deal with. Regarding adoption, I'm not sure how, but my mom's friend adopted her son for free (excluding legal forms). I'm assuming that she found the mom before going through the agency or something. Who knows?
Opening a Roth IRA is good because you can take it out at anytime and you won't have to pay taxes on it (since you're paying taxes on it right now). If my memory serves me correctly, the annual limit is $5,500.
Really, REALLY research the buyout on that car. Often the lease buyouts are VERY expensive. It might be worth 10K but the buyout may be a LOT more than that.
I would sit down with a financial planner and have them work through your options but I think mutual funds that are not tied to any kind of 401K/403B/IRA are the way to go. Roths limit how much you can put in each year and how/when you can take those funds out. Find some low risk funds that are at least keeping pace with inflation and put your money there for your emergency funds. You should also buy as much life insurance through work as you can possibly get because you can't get any private life insurance for many years. If you have a buy up option on your disability, take advantage of that as well. It's possible, maybe, that the broker that works with your HR department can get you some additional disability because of the group plan but that's pretty iffy but ASK. You can buy up to probably 95% of your salary with the combo of the group and individual plans if you are eligible. Generally you have to qualify for the additional coverage and if you were just buying it flat out you would not qualify, but sometimes with a group plan the underwriting isn't as strict...still a long shot though.
I think your main focus is to get your savings up to at least a year. I would put everything I can (except your retirement funds) into your savings until you have at least a year...and I'd even stretch that to include health insurance premiums just in case..for a year.
Do you have an HSA qualified health plan at work? If so, I'd switch to that unless the numbers are really off. The tax savings will help with your overall savings as well--and usually those plans are the most cost effective for high users. This obviously can't happen until your open enrollment period though.
Do NOT feel guilty about your trips. Go, have fun, don't worry, stick every $5 bill you get into an envelope between now and the trip and that is your spending money!
Install some motion sensing light switches in your apartment
You're doing great considering what you've been through!!
I would not use an IRA to save for a house. If you take money out of an IRA before age 59.5, you will owe not only whatever regular taxes are due, but also a 10% penalty. There is an exception to the penalty for first time home buyers, but it only allows you and/or your spouse to withdraw $10,000 each.
So, I'm not against IRA's just not using it as the first option for house savings. I would use it for retirement savings while in your case knowing the money can be withdrawn penalty free for certain medical expenses and/or medical insurance. All the specifics can be found at irs.gov.
I agree mutual stock fund is the best option to grow your money.
Also, agree you should max any group life insurance you have access to.
Re the car, yes check what its really going to cost on the other hand if you are going to have a car payment it may be six of one half a dozen of the other. Will you be paying interest? If so, some of your savings might be more appropriately diverted to paying that debt down faster. As soon as its paid off, that money becomes savings to pay cash for the next car.
Kudo's on getting your employer to buy your Masters. I hope you are not overloading yourself and while its great to have goals and plans too many at one time can become overwhelming and confusing. Prioritize and chip away at each goal in its own time. Also, think about cutting those take out costs to save money but more importantly to maintain your health through better eating.
You probably are already doing so, but I would also research or ask here what to do to repair credit. At a minimum, you should be charging something and paying it off each month to reestablish.
My work covers 2x my income in life insurance and I have purchased an additional 30K. I was scheduled for my checkup with the life insurance people to purchase more coverage when I got diagnosed. D'oh! But now I'm only paying $1 a month for $130K of coverage which isn't too bad!
I also have a HSA that I use for expected expenditures plus a few hundred extra that I can always put toward buying new glasses and/or contacts. I'm actually using up the last of last year's HSA tomorrow for just that! It's a tricky balance because I don't want to lose money, but also - if the **** hits the fan - I would go WAY over. I schedule my scans for right before the enrollment period so I have a better sense of what I should budget.
The 10K is the number quoted by the leasing maturity center, so now it's just a matter of finding the best deal for financing. I leased my car through a dealership that my friend's family owns and they have been great at helping me through all the various car stuff over the years (I had never really driven before I leased this car!). They're on the lookout for a similar used car that is less expensive as an alternative. I wish I had been able to buy a used car initially but I was so scared and desperate that I did what seemed like the easiest at the time - and the low monthly payment was certainly a godsend when my pay was lower and being eaten away by medical bills.
I haven't met with a financial planner since my transfer and big raise - every few months my work has some financial planners come in from a handful of institutions, so I will set that up when they next come around.
And thanks for the reminder that taking a vacation isn't a bad thing! In the past 4 years, I spent 1 week at an all-expenses paid "cancer camp" rockclimbing in upstate NY that only cost me the tank of gas I would have had to buy for my commute anyway - and I could only wrap my head around that because I actually MADE money once I factored in not buying food for the week. I have plenty of vacation time at work (and always keep a minimum of whatever can be rolled over at the end of the year in case I leave because that will be cashed out) and have no real reason to feel guilty, but I still do!
Do you have a Health Savings Account or a Flexible Spending Account. If it is an HSA-you never lose that money so you can roll it over from year to year to pay for medical expenses as needed. If it is an FSA, yes, you do need to be careful about how much you put in there. Max you can put into an FSA is $2500. HSA in 2013 was $3300 for a single person. The HSA you would have opened your own bank account for, the FSA you just submit claims through your company or a 3rd party processor.
You probably are already doing so, but I would also research or ask here what to do to repair credit. At a minimum, you should be charging something and paying it off each month to reestablish.
My big credit issues stem from my hospital incorrectly billing me - and to the wrong address to boot - so I did not know it had happened until after it went to collections. It's been 2 1/2 years since I ended treatment and my hospital STILL sometimes indicates that my address is 3 apartments ago. The same thing happened with a store credit card that I opened - I quite honestly forgot that I had done it and, due to a move, did not get the bill. It went to collections and I had to pay twice what was initially owed. I also missed payments because I was so sick that I forgot to pay on time and for whatever reason took awhile to set up automatic bill pay.
It sounds silly to say that "I forgot", but I was doing it 100% on my own, had more bills than one can imagine flying in and out of my house, and was suffering (and still am!) from cognitive impairment from chemo. If I had been someone's elderly parent, I likely would have needed someone else to handle my finances, but my parents refused (not that I particularly trusted them) and I had no one else.
I haven't missed a payment in 2 years, paid off the last of my credit card debt a year ago, and now actually charge pretty much everything so that I can track what I spend easily in Mint and get points. I pay my card off in full every month. My credit is slowly getting better, but now it's a matter of time before my past errors age off of my record.
Don't feel guilty about taking a vacation. That's crazy talk lol. Balance is good for you and your health.
I also would not beat myself up over the car. Everyone makes financial errors, bad choices, foolish choices, etc. Live and learn; fix it up the best way that makes sense for you. Sometimes the most stress free choice is the best choice even if it doesn't make the most financial sense. I pay for convenience all the time and make no apologies for doing so.
In your free time, which it doesn't sound like you have a lot of, you might want to research other places to find short term disability at group rates. Long ago I had a policy through National Org for Women that paid a daily amount for 90 days. It was dirt cheap, required no physical nor asked any medical questions.
you have been very ill. hardly a fair fight. the techniques that i used to get where i am at were for someone reasonably healthy and fit. i do not have a quick easy answer for you.
except to tell you i admire your courage.
i wonder if the obama care program can provide some sort of assistance to you. i wonder if writing your congressmen about this could help.
My big credit issues stem from my hospital incorrectly billing me - and to the wrong address to boot - so I did not know it had happened until after it went to collections. It's been 2 1/2 years since I ended treatment and my hospital STILL sometimes indicates that my address is 3 apartments ago. The same thing happened with a store credit card that I opened - I quite honestly forgot that I had done it and, due to a move, did not get the bill. It went to collections and I had to pay twice what was initially owed. I also missed payments because I was so sick that I forgot to pay on time and for whatever reason took awhile to set up automatic bill pay.
It sounds silly to say that "I forgot", but I was doing it 100% on my own, had more bills than one can imagine flying in and out of my house, and was suffering (and still am!) from cognitive impairment from chemo. If I had been someone's elderly parent, I likely would have needed someone else to handle my finances, but my parents refused (not that I particularly trusted them) and I had no one else.
I haven't missed a payment in 2 years, paid off the last of my credit card debt a year ago, and now actually charge pretty much everything so that I can track what I spend easily in Mint and get points. I pay my card off in full every month. My credit is slowly getting better, but now it's a matter of time before my past errors age off of my record.
Sounds like you are doing all the right things.
I don't know how you managed alone; I know from going through treatment with my father, its an exhausting ordeal. My sister and I both frequently said to each other "How do people do this if there's no one to help them?"
If you cant rely on your family, devoting some time to developing a new family from friends you can count on may be as important as your savings goals.
Its tough when bad things happen when you're young and least expect them. But, the silver lining can be the knowledge that you can bounce back from tough things. You sound like you are on a great track, and hopefully the future is smooth sailing for you.
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