How a Vice President Who Follows the 50/30/20 Rule Does Money

Photo credit: JFXie, CC BY 2.0.

Beatrice (not her real name) is a 40-year-old vice president in Minnesota.

So, Beatrice, how much are you making?

I’ll be making about $125,000 this year. $117,000 from my main job, the rest from freelance writing and some consulting. I finally got a cost of living raise this year, so that helps.

Nice! Is your consulting work related to your primary job? Or do you have a second area of expertise?

Consulting is related to my primary job — I work in higher ed and I do some college counseling on the side. I mostly do it pro-bono, but I have one or two paid clients as well. The freelancing is writing that is unrelated to my higher ed work. Sometimes I write for this really cool website called The Billfold, maybe you’ve heard of it? 🙂

HAHAHAHA MAYBE.

How much did that cost-of-living raise help? How does your income compare to your expenses?

The cost of living increase was pretty small, just over 2 percent. Working in higher ed means that actual raises are pretty rare and I can go years without seeing a cost-of-living bump, so I treat them as a nice bonus but I don’t count on them in terms of future budget planning.

In terms of our income-to-expenses, I try to stick to the 50/30/20 model from Elizabeth Warren. [Editor’s note: That’s 50 percent of your paycheck towards needs, 30 towards wants, and 20 towards savings/debt repayment.] We (I have a husband and two kids at home) don’t carry credit card debt, so that helps with the expenses — and we don’t have a super fancy lifestyle. I do have a lot of student loan debt, so when that gets paid off, that will do more for our financial life than any cost of living increase ever could.

I bet. How much student loan debt do you have left?

As of the beginning of the month, $60,945. I track it on my monthly spending sheet so I can actually see the balance go down and not be as discouraged at how long it is taking! I’m excited to get down in the $50K range before the end of the year!

I’m excited for you!

I have mixed feelings about my student loans, to be honest. On the one hand, debt doesn’t feel great but on the other, I 100 percent wouldn’t have my current job/salary without my grad degrees.

How does your monthly spending sheet work? Is that what you use to stay on target, make sure you can pay off your credit cards in full every month, etc.?

So, longish answer:

I started the monthly spending sheet (which is just a Word document with tables) when I was in deep credit card debt (owed like $25,000, had an annual salary at the time of $30,000 — yikes). I basically have four boxes: one that tracks fixed expenses (I update it with how much I paid, once I’ve paid it, so it also helps me keep track to make sure all the bills are paid), one that tracks liquid savings (as of the 1st of the month), one that tracks debt that is getting paid off (used to include credit cards now is just student loans) and then one that tracks variable spending (eating out, groceries, etc.).

I took about a year break from tracking variable spending because we were in a good groove of putting extra into savings every month, so I felt like that was a proxy that showed our spending was in an okay place. We’ve recently had a few expensive months and had to dip into savings, so I’m tracking variable expenses again as a way to get us back on track.

Before this recent break, I spent years tracking every variable expense. I can tell you exactly what the first year of each of my children’s lives actually cost — which some of my friends find terrifying.

OOOOOOH TELL US. It is SPOOKY MONEY MONTH after all.

My son was $6,985 and my daughter was $3,867 — that includes childcare, clothing, medical, diapers, etc. My daughter was cheaper because my husband had shifted to being primarily a stay-at-home parent.

That doesn’t actually seem that bad. I’ve heard stories about $10K births WITH insurance.

I’ve definitely lucked out with good insurance. My total price tag for my son’s hospital stay was $275 and my work at the time reimbursed me $175 of that.

I don’t think people find the amount as terrifying as they do the fact that I know what it is. I tend to get A LOT of strong reactions to the fact that I track spending so closely. So many people say “ugh I really don’t want to know” when it comes to seeing where their money goes. And I get that, but I know that my financial life didn’t change until I really started being honest with myself about my money.

Sounds like there’s a story there.

Yes! I grew up very poor with parents who had unstable jobs. We were on food stamps, didn’t have health insurance, all of that. When I went to college, I had ZERO idea of how to handle money. I didn’t know what a credit score was, didn’t know how investing worked, and didn’t have any money. I got a credit card when I was 18 and by the time I graduated at 21, I was in a lot of debt. Then I bought myself a new car as a graduation present with an 8 percent interest rate on the loan. I thought that was a good rate since it wasn’t double digits!

I thought I was handling my money okay because I paid my bills on time every month, but I also went deeper into debt every month. I had multiple credit cards and the car loan and the first set of student loans and I never actually did the math to figure out how much total debt I was in. Then, one night I did. All together, I was in over $50,000 of debt. I literally cried so hard that I threw up.

I decided that was it. No more. I was going to get my financial shit together. And I did. It took about four years to get the credit cards paid off (working 2-3 jobs, which is a habit I can’t seem to shake). I spent years trying to learn about money and eventually I ended up teaching some financial literacy classes at the local community college. (Financial literacy classes don’t really work, but that is a whole other topic.)

I’m super passionate about talking about money and I share my story about my debt a lot because I think the cultural taboo around talking about money actively hurts poor people.

Me too.

Why do you think financial literacy classes don’t work? And did you think that before or after you taught them?

I thought they were great when I first started teaching them. But a lot of the curriculum out there at that time had a “know better, do better” approach: if people understand what a budget is, they’ll make one! If you tell people about investing, they’ll do it! But a lot of it was premised on the idea that people make rational choices around finances… which they often don’t. I also think there has been a shift lately towards trying to understand how poverty, especially generational poverty, has profound lasting effects on how people handle money — and that wasn’t part of the curriculum at all.

I think we need to have more of a behavioral economics approach with a good understanding of how shame impacts people rather than just a “here’s a worksheet, make a budget” approach that most places use.

Very true. In many cases the budgeting method doesn’t even work if you don’t have enough money to budget, and that compounds the shame, etc.

Right!

I’m thinking of that budget McDonalds put out, for example, which advised workers not to waste money on gum but also didn’t include a line item for heat.

I think the whole “latte factor” financial advice is bullshit. The McDonald’s thing is just another version of that.

So how do you manage your expenses, then? Do you think at all about cutting back on the small stuff? Or do you focus entirely on big wins/big picture?

At this stage, I’m pretty big picture. At the end of every month, I want to see that my overall debt level (mortgage and student loans) has gone down and that my liquid savings has gone up.

I know that our fixed monthly expenses are less than 50 percent of my net monthly income, so I think that gives us some breathing room on the smaller stuff. Not being house-poor is a big financial win, though sometimes I do wish I had a bigger house. But we don’t move because I’m committed to keeping that expense below 25 percent of our income per month.

That’s a smart move.

I think the cost of housing is such a significant issue. I think you can have $5 coffee without too much guilt or angst if you’ve committed to keeping your biggest expenses manageable. Which is why I’m a 50/30/20 plan fan.

Okay, but let’s go back to that “budgeting doesn’t work if you don’t have enough money” thing. What do you do if 50/30/20 doesn’t work for you? Rent is way higher than 25 percent for a lot of people, for example (which is one of the reasons why I left Seattle).

I think in those cases, you have to look critically at structural things, if that makes sense. Let’s assume that everyone has the same financial goal: to end every month the same or better from a financial perspective than the month before. To do that you have to have income that exceeds your expenses. If you don’t you have to make a choice — increase the income or decrease the expenses.

And that sounds so simple, I know. But to really do that means sometimes making really hard choices, like moving somewhere else — which my husband and I did to increase our income!

I look at people I know who are struggling with money and I think a lot of them are in that struggle because they unwilling or unable to be really honest about what their financial situation is like. They know they have debt but they can’t tell you where the money goes.

What’s interesting for me is that my husband and I rarely disagree about money, expect when it comes to wanting to do something like a big trip. My default setting is “work more to get more money” and his is “cut back to save the money for it.”

I feel like I should also take a minute to acknowledge my privilege here: I have a secure job, good insurance, and a GREAT retirement plan, so I don’t have some of the economic insecurities that some folks have.

For sure. But you didn’t start with that privilege. Did you specifically look for a job in a secure industry/with good insurance/etc.?

No, I wasn’t that smart!

My mom didn’t graduate from high school and I was the first person to finish college in my family. I originally wanted to be a teacher because I’d always liked school and that seemed like something girls who were good at school did. I never thought I’d be a boss or in a leadership role.

I’ve always, always, always wanted to feel financially secure though and I think that has really driven my career choices.

It seems like it’s driven both your career choices and your overall financial decisions, especially after your turning point moment when you realized how much debt you were in. Which means I’m going to give you a variation of our typical final question: if someone else feels like they’re at a similar financial turning point, what advice would you give them?

Great question! I think I would say to be willing to become radically honest with yourself about your money situation. Know all your numbers: your debt to income ratio, where you spend your money, how much you have in savings, your credit score. Commit to tracking that stuff every month and think about getting a second job if you can. Ask yourself every month: Am I better off at the end of this month than I was at the end of last month? If not, why?

That’s essentially what I’ve been doing for years — so I can confirm this advice works!

If you want to be part of a future Doing Money interview, email nicole@thebillfold.com.

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