How a Software Architect in Somerville Does Money
Stewart (not his real name) is a 35-year-old software architect in Somerville, Massachusetts.
So, Stewart, how much are you making?
My annual base salary is $164,000. I have a target bonus percentage of 20 percent, for a total target compensation of $196,800. The company that I work for has a complicated formula for figuring out how much of a bonus everyone gets that is related to overall company-wide financial goals and personal performance review.
I was curious about that. Is the target bonus percentage your own or your employer’s? Like, did you decide personally that you wanted to hit 20 percent, or did your employer say that top employees hit 20 percent?
It’s actually written into my compensation letter. The bonus structure is based on title. My title is “Senior Architect,” and so my bonus target is 20 percent. When I was an Architect, it was 15 percent, and it was lower when I was a Software Engineer and a Senior Software Engineer.
I assume that it goes even higher, because I’m not at the top of the title ladder, but people where I work don’t talk as much about salary and compensation as I wish they would.
Got it. So how does your income compare to your expenses — and do you include your bonus in your budget?
Well, right now, I have two kids in daycare. Massachusetts has the highest daycare costs in the country. I am not currently putting money into my liquid cash savings account every month. These things are all related.
I am lucky enough to not have a budget; our familial expenses fit within our salaries, my wife pays into her pension, I max out my 401(k), and everything has been working out.
If I had a budget, I would definitely not include my bonus in it. The formula is definitely too complicated to bank on.
We also get compensation in the form of stock. That is more reliable, in that the stock will have *some* value, but it’s hard to make a real plan based on it because it’s often volatile.
Tell me more about not having a budget. How do you know when you’ve overspent? How do you manage variable expenses? How do you plan for big expenses like holidays?
Right now we have about $30K in cash savings, so that provides a bit of cushion, but honestly, we basically just don’t overspend.
We don’t really do large presents, so our main large variable expenses are holidays, by which I mean vacations. We just kinda plan early to save on airfare, don’t stay anywhere particularly expensive, and we also get sick of going out so often. A big vacation cost-control method for us is getting a place with a kitchen — then we might go out for one or zero meals per day.
Nice! That makes a lot of sense, and it reminds me of traveling with my folks as a kid (though we used car coolers more than kitchens). Did you always live budget-free, or did you have more of a budget during the years when you were storing up your $30K cash cushion?
We have always been lucky enough to be budget-free. I can’t remember where I first read the advice to always pay yourself first, but I really took that to heart and direct-deposited money into the savings account every paycheck.
I love that technique. It has worked out so well for me, and I’m glad it worked out for you.
The savings cushion kind of built itself up to something like $50K, but then we took some out as part of our down payment on our house, and then it’s been holding steady around $30K. If I notice that we have some extra money in the checking account at the end of the month, I’ll shovel it over there, and the bonus money and stock money goes straight into there.
What are your financial goals for the next few years?
Well, the main one is “get my kids out of daycare.” That one I get for nothing. As they get older, the cost of care goes down, but I really want to be disciplined about starting saving again. My older daughter is going to public pre-K this year, and while the after-school program costs money, the difference is getting tacked onto the direct deposit into savings.
Can you share how much daycare costs per month?
My older daughter’s daycare is ~$1,650/mo, and my infant daughter’s daycare is ~$2,500/mo.
Yeah, that’s a huge expense.
Yes. I am not the sole breadwinner in the family, and if I were, we would definitely be on a budget.
How do you feel about your retirement savings? You mentioned that you maxed out your 401(k); do you feel like you’ll have saved enough?
Well, according to Fidelity’s website, I will! They have a graphic when you log in that’s meant to give you an idea of what you need to have saved.
TIAA had a graphic like that, although it didn’t tell me how much I should save. It just told me my predicted income in retirement and let me do the math, I guess.
Yeah, this one is a little fancier (but not much) in that it will let me see how much different my savings would be by bumping up my contribution. Right now, I have ~$300K stashed away in there, in a combination of Roth and 401(k). I have all of that money in a mix of different low-expense-rate index funds, because that’s what stuff I’ve read from The Billfold said makes sense to do.
We aren’t the only ones who say that!
Sure, but you guys are where I get most of my financial news.
Well, let’s hope our good advice pans out!
A few more questions, then: how did you develop your current saving and spending habits? Did they derive from childhood, or did you learn them as an adult?
Definitely as an adult. I did not grow up knowing about money. I had summer jobs starting at 16, and I spent basically everything I made on Magic: The Gathering and Star Trek Collectible Card Game cards (and gas). I realized that was not a sustainable financial plan once I got to college.
Oh wow. I got into MTG for about a month and then I realized how much it would cost and GOT OUT OF IT.
Yeah, you can spend *a lot* of money on it. There’s a box of cards at my parents’ house that I keep thinking is worth something but is probably not.
Well, you at least owe the box a quick search to see if there’s a Black Lotus card!
Oh, I can tell you that there is not. I did not get into it early enough to have gotten one randomly.
Is there anything you wish you did better, financially? Anything you’re trying to improve?
I really need to bring my lunch more often on days when I don’t have lunch meetings with people that are taking place outside of the office. I know that’s the most boring answer there is, but I do feel guilty about the expense, even though I know that my kids leaving daycare is going to have a much bigger impact on our savings bottom line.
We all feel like we spend too much money on food. EVERY SINGLE INTERVIEW.
Yeah, which is nuts, right? EVERYONE EATS FOOD. It’s what makes your body go! Maybe we’ve read one too many “millennials and their avocado toast need to get off my lawn” articles.
The thing that was really liberating for me was when my wife and I were talking about some small purchase, and she said “Well, is this really going to impact the bottom line? No. We should just do the thing that we want that’s a little more expensive instead of obsessing over it, because this is two orders of magnitude less than we spend on daycare.”
That is excellent advice. Which brings me to my last question: what advice do you have for Billfold readers?
I really do think the main thing that I did right financially was paying myself first, whether it was savings or 401(k). My wife and I bought our first condo using a loan from my 401(k), and if I didn’t have that money socked away, we would be completely priced out of homeownership in Somerville, which is really where we want to be long-term.
I know that it’s not always an option, but if it is, having cash on hand that you don’t already have earmarked for something else is a real relief when, say, you drive over a heel that came off of someone’s stiletto (a real thing that happened to us).
Did it pop your tire?
It didn’t pop the tire, but it did cause a slow leak that necessitated a tire replacement.
Which probably wasn’t covered by your car insurance.
Oh, definitely not.
Cash on hand, then! For the unexpected, whether it’s life goals or emergencies.
Exactly. Cash is king.
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