Wednesday, July 23, 2008

Penny-wise, pound foolish

Today marks what I hope will be a turnaround in my financial fortunes. Today, I opened a savings account.

Yes, it's true that I'm 33, with no dependents, and an annual income greater than that of the average household in the United States. And yet I have no savings, no equity, no real assets, and a massive amount of credit card debt.

Some of it I can blame on grad school and related professional hazards. Consider, for example, that in the summer of 2006 I received my last paycheque from Big Urban in May and didn't receive my first from RU until October--during which time I had to move hundreds of miles, set up house, buy a car, and occasionally eat.

But although grad school is responsible for most of my student loans, some of my consumer debt, and my virtual inability to build equity for six or seven years, I can't blame it for habits I clearly developed on my own. As soon as I graduated from college I moved to the big city, decided I needed my own place (in a pricey neighborhood), and then had to furnish that place. I made enough money that this wasn't unreasonable, but not enough that I could have the apartment and the lifestyle I wanted without continually courting overdraft fees. And what did I do after getting into thousands of dollars of consumer debt? I took out loans to go to graduate school!

After a financially disastrous first year, I actually managed to pull it together for a while. For my first four years in grad school, I lived in a tiny, cheap apartment, I didn't have a car, and I had few nearby friends; in addition to my stipend I got a job working at the university press for 12 hours a week. I paid down a fairly impressive amount of debt and even saved up a couple of thousand dollars. . . but all with the goal of moving back to the city and being able to afford movers and a rental deposit. Need I say that the rent on this new apartment--though a great deal!--was more than twice what I'd paid in Grad School City?

You see the problem. The decisions I make are never independently unreasonable, and I'm a master of small economies: I reuse tinfoil, pack a lunch every day, and know which drugstore has the best prices; I've been known to buy a single gallon of gas at a time and when I have to I can survive 10 days on $20. But when I get my paycheque I'll immediately drop $90 at Amazon (for books important to my research!) and $60 at Banana Republic (but for $180 worth of clothes--and they're wardrobe staples!). If I'm sharing hotel rooms, carpooling, and using frequent flyer miles to stretch my departmental travel budget, I congratulate myself for being "able" to attend four conferences in twelve months rather than remarking that I'm still out of pocket $800.

In short, the expression "penny-wise, pound foolish" was invented for your Flavia.

I thought things would magically turn around when I got this job. But, well, there were those four months without an income to make up for. And then I was doing a lot of conference work--and getting reimbursed months later, if at all. And then I didn't get my scheduled cost-of-living raise last September, because our faculty contracts were still being negotiated.

That raise finally arrived today, in a lump sum. In six weeks, next year's will kick in. And it has at last occurred to me that I need to take active steps to improve my financial situation rather than thinking that at some point it will take care of itself--with the next raise, or when my car is paid off, or whatever.

So I put $500 in my new savings account and will be making modest regular deposits from every paycheque. I don't intend this as a major-emergency fund--just a cushion of $1,500-2,000 for when I need to buy a plane ticket or a new set of tires. I've figured out a significant but reasonable amount I should be able to put toward my credit cards every month. (And yes, yes: they both have very low APRs and I already make substantive contributions to my retirement plan.) Hopefully, since I have no dependents and do make a decent salary, I'll be able to turn things around largely by making smarter choices and being more mindful about where my money goes.

I write none of this as a defense of my improvident ways, but I'm not sure it's an apology, either--I've loved everything I've bought and owned and done over the years. I just need to ensure a future that's equally enjoyable, and more secure.


New Kid on the Hallway said...

Heh. I think I could have written this! Money sucks (or not having it, I guess), and I do think there are expectations of a certain middle-class lifestyle that go along with being a prof that don't really match the salary or the financial hole that grad school creates.

(Which isn't to say that I haven't dug my own hole - I know plenty of people who made it through grad school with less debt than I, because they were, you know, FRUGAL. I have no one to blame but myself. But I do think there's a disjunction between prof life and prof salary [after grad school salary] that's easy to fall into.)

medieval woman said...

Like NK said, I hear ya, sister!

But it feels really good and pro-active to start a savings account, huh? I imagine it's like what a squirrel would feel like if it had actually made a *choice* to store up those acorns for winter rather than doing it by instinct. Even $50 a month feels good.

Now, I say this without having a savings acct. of my own, but TD and I are going to start one to save for a down payment on a house. Or a tree to store nuts in, take your pick...

Go you!

Mel said...

If you can set it up to automatically deposit even a small amount from each paycheck, it actually does add up to an emergency cushion pretty nicely. Confession: having read this advice from innumerable sources, I did this myself only a year or two ago. but was pleasantly surprised by the effects. I use an online bank which has been excellent -- easy to manage and you don't really notice not having the deposited amount since you never "had it" in your checking account in the first place.

Sisyphus said...

Oh, I so hear this ---- though coming from a family of tightwads who pay cash down on everything and love to criticize my every purchase adds another layer to all this.

I did put some of my graduation gift money into an on-line savings account (how long I will be able to leave it there I don't know). Stuff like ING Direct and HSBC have much higher rates of interest, unlike my stupid local bank which is something like .000000002 percent. (My HSBC is 3.5%) I heard somewhere that some credit unions have a 5% rate if you follow all their rules, but haven't been able to track it down.

The nice thing about a higher interest rate is that I might be able to actually make more than my bank fees someday! Knock wood. Or acorns. Something.

Flavia said...

NK: I think you're exactly right--this is a hole I dug for myself, and I know plenty of things I could have done to have exited grad school in better financial shape (like, say, having had roommates at some point. . . or not having chosen to spend almost six years of my life in a breathtakingly expensive city); part of the reason I didn't is surely that it felt important to me and my sense of myself to live a certain way.

This isn't, of course, only a problem in academia--lots of us from certain backgrounds, or with friends from certain backgrounds or with certain careers, believe that we ought to be able to do and have things that just aren't financially reasonable given our age and income level. But somehow when it's books one is spending money on, or organic produce, or charmingly shabby furnishings, we can rationalize them as "not extravagant" and indeed even necessary (in the, ahem, loosest sense of that word).

On that theme: anyone who hasn't read this essay by Meghan Daum must do so immediately. It came out just as I was starting grad school, after a couple of years of going steadily into debt in the big city--and oh, how I related. (Indeed, how I still relate.)

Flavia said...

Mel and Sis: thanks for the tips! My bank also has a miserable interest rate, but it has the advantage of being the same place where I have my checking account and a credit card--the better for fast, easy transfers. The dude at the bank was awesomely helpful, too, and gave me all kinds of other tips for saving time and money with my accounts, even those not managed by his bank.

The Bittersweet Girl said...

Once again, I've arrived late to the party so all I have to say is "Ditto!" to all the comments above. What I try to focus on in the marathon struggle to bring down my debt and achieve financial stability is: little steps matter. So, you've made what may seem like a little step but you'd be surprised how they add up. Or, so I hope.

hermance said...

Seriously, I'm really not hopping on here to plug a product. But my partner and I started using the You Need a Budget software, which is the best budgeting tool I've ever used. And it's really easy. Way better than Quicken, et al. Honestly, it's changed my financial life and given me a great deal more piece of mind about my financial situation, especially being in a dual career couple with two sets of grad student loans, etc. Having a budge that I actually want to use has really helped me curb that "but I'm buying wardrobe staples" kind of spending, because this helps me save a bit every month until I have enough to do some clothes shopping and not worry how whether I really, really do have the money to pay for it.

Bardiac said...

Good on you!

radar said...

Dear readers: GMAC Bank usually has the best on-line rates. It is equivalent to HSBC for most of its services (ING Direct may be worth the money for the way you can create new savings accounts with no can sometimes be useful). I highly recommend it.

Belle said...

Oh soooo tooo familiar. At least the debt side. I tell people: look, I don't live an extravagant lifestyle. My big 'luxury' is having only one job. Yet... there is the mountain of debt. So I've given up my only luxury.

There's just something wrong when you have a full time, tenured job in academia and can't afford to have only one job.

Evey said...

in America, we say "paycheCK"