How a Government Employee in Minneapolis Does Money

Photo credit: m01229, CC BY 2.0.

Jane (not her real name) is a 32-year-old government employee in Minneapolis.

So, Jane, how much are you making?

I make about $72,000 per year and my husband makes $90,000, so a total of about $162,000.

How does that compare to your expenses?

A huge amount of our paychecks is taken out before we see it (retirement, automatic savings, health care, union dues). We budget on spending about $4,500/month.

But then there’s monthly savings on top of that.

Does your monthly savings come out of the $4,500, or is that what’s left over?

The $4,500 is what’s left over.

I’m putting in $700/mo to my 457/deferred comp on top of that. We had been saving $1,200/mo towards our emergency fund. I have $450/mo towards an IRA.

A lot of these numbers are going to start shifting, now that we’ve bought a new house and our budget readjusts.

Oooh exciting! Tell us about the home-buying process!

It was exhausting! We spent the first six months of 2017 putting in offers and getting rejected. It was a very, very competitive spring market. After we lost our last offer in June, we prepared for staying in our current home for another few years. And then the financing fell through for their chosen buyer and they picked us!

We put in five offers this spring, and even sent letters to people who didn’t have their house on the market.

We had one offer where the owners said they loved our letter, and wanted us to buy their house, but our price was a little low, so could we please raise it? We did, and we still lost the house. The kicker was that the offer they picked was the same price as our final offer!

Wait wait wait do you mean you were sending letters to people saying “hey, dunno if you plan to move ever, but I LOVE YOUR HOUSE”???

Yep! We wanted to stay in our (small) neighborhood so we were looking into anything. We looked for houses that were currently rental-occupied, maybe with an out-of-state landlord, to see if maybe they wanted to cash in on the hot market and unload a long-distance landlording gig.

Oh, that’s smart. Although I’ve heard from plenty of long-distance landlords who say they like the passive income.

Yeah, none of those letters turned up leads, probably for that reason!

Okay, so back to savings. How much do you have saved? (Emergency fund, retirement, etc.)

With the sale of our prior home, we have now hit our six-month emergency fund target! So about $32,000.

Retirement… we got a later start on. We have probably $100,000 in employer-tied investments, plus IRAs somewhere under $50,000 combined.

We had been aggressively saving for the purchase of a new house, and we wiped that out completely when we closed. We will now start a similar savings fund for larger (but not house-sized) purchases.

So despite your late start, you seem to be well set, financially. Do you feel financially stable? Or do you worry about the future?

I do feel financially stable. And this is where I should say that my white privilege, upper-middle class childhood, and other factors gave me a head start from the very beginning. My husband and I have very stable jobs. We both finished grad school right after the Great Recession kicked in, so we had a rough three years. But the last five years have really leveled things out for us.

Where do you see yourself financially in the next five years?

Probably taking a big gulp as I write daycare checks.

NICE.

We’re also playing the idea of paying down the mortgage early. I’m not sure how that will play out.

I hope it all goes well for you.

On the subject of family: what financial lessons did you learn from your parents, and what lessons would you like to pass down to any future children?

My dad grew up as one of four kids led by a single mom, so he worked really hard to bring our family to middle-class status. He had some lucky breaks and made some bad decisions with money, but he never really taught me the mechanics of money. The only real message I got as a kid was: save.

I’d like to pass down the concept of savings, sure, but also hopefully teach a kid about how to set financial goals and then meet them.

How did you learn about setting financial goals? Beyond the concept of saving.

Well, it’s kind of embarrassing, but we did the Dave Ramsey class. It completely restructured how my husband and I plan for our money.

I’ve heard so many people say good things about that class! Despite what people think about the rest of the Ramsey empire, that class seems to be pretty solid. Did you get through all Seven Steps?

You know what’s crazy, after the sale of our house, and without a kid, I think we are on Step 6 right now, paying off the (brand new) mortgage. But yes, I have a hard time with Dave Ramsey as a person, but the rest really helped focus our money.

So specifically what changed? Before and after?

Since we have such a good income, my husband and I always had enough money “left over” at the end of the month so we didn’t really plan for it or feel like it needed structure.

But now we budget at least 47 line items every single month, and it really accelerated our ability to save for the house and for retirement.

Hahaha and our last interviewee wondered if 34 budget line items was excessive. Would you be willing to share a few of the line items in your list?

Oh sure. Many are recurring (charitable, Netflix) but let’s see if I can find any interesting ones.

Well, one example of why we have so many lines is because we don’t have a “car” line. We have one for gasoline, one for repairs, one for parking, and one to save for the replacement car when this one runs out.

We have one line for Costco, regardless of whether its food or socks.

We have a “Contentment” line, which basically means “food at restaurants that we deem special” which is separate from a regular “restaurant” line.

“Contentment” would be a good name for a restaurant.

Also, I like that you don’t separate food/household either. I’m already seeing the headline: “Do Big-Box Stores Cause Us to Spend More on Food and Household Goods Because We Don’t Realize How Much We’re Spending On Each?” or something like that.

I do have a line for “toiletries” and usually allocate $40 for that, but we basically only use $9 each month at Target. I think the rest truly is a Costco purchase, and no way am I pulling apart that bill to itemize!

I swear I’ll do it in 2018. I’m really curious about what I’ll learn.

On that note, what do you think you do really well, financially, and what do you wish you did better?

I am so thrilled that we budget now every month. I am terrible with numbers so we try to keep it really simple and understandable.

But the flip side of that is that since I’m terrible with numbers, I have a hard time understanding the complexities of what money can do for me/you/us. The whole concept of leveraging debt boggles my mind.

Even the process of “paying ourselves back” after selling our old house turned my brain in knots.

I understand leveraging debt mathematically, but I have a hard time understanding it emotionally. Like… WHAT IF SOMETHING HAPPENS? HOW CAN YOU TRUST THE FUTURE?

Exactly. We ended up putting 40 percent down on the new house, and I sometimes wonder what else we should have done with that money. But then I remember the less interest being paid, and I’m OK with it all!

Why did you choose 40 percent down instead of 20 percent (or some other percentage)? Did you do the math on the interest over time?

The short answer is that we wanted to lower our monthly payment as much as possible. The long answer is that we had a little over 20 percent for a down payment just in our savings. But we wanted to use the significant equity in our existing home to really put in that extra boost.

I bought the house for $156,000, and we sold it for $263,000. Instead of feeling flush with cash, we turned it around instantly with the intent of pulling down our monthly costs.

That seems smart to me. Did you seek out advice before making that decision, or come to it on your own?

We did that on our own. I really do want to keep our finances simple, so it seemed like a good way to keep our monthly expenses down.

Excellent. So, last question then: what advice do you have for Billfold readers?

Budget, budget, budget. I had no idea how much money I was spending, on food or cosmetics or anything else. I would just look at my credit card bill every month and say, “Yeah, that looks about right.” Digging into the numbers isn’t as scary as I thought it would be, and my advice is that once you start budgeting you’ll realize that you can make a lot more positive change than you realize.

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