Today is the last working day of the month, which means it’s payday. Since I am young, in debt and live in the most expensive city in the country, my world kind of revolves around payday. It’s not that I think money makes people happy, but it certainly makes life a lot easier around here considering how much everything costs, from a box of cereal to a movie to even a bottle of soda at Duane Reade. I was having dinner last week with a new friend of mine, and she said that her parents actually sent her boxes of cereal from her hometown out of state because it was still cheaper to buy and ship then it was for her to buy the same amount right here in New York City!
Considering all that, its no wonder it has been difficult for me to pay down my debt and save anything in the meantime. Although I did receive a raise when I started my new job, and have been working on freelance jobs for a number of years, its only been recently than any of that really seemed like it was making much of a difference.
It’s difficult for me to know how much to save in any one area, because even though I know I need to pay down debt, I also know that I don’t want to go into any more debt in the meantime. I have started an Emergency Fund, which I’m slowly (very, very slowly) starting to fill. I’m actually getting a little more anxious to fill it up so I think I might bump up what I put in it, just for a few months. My job is very secure, so I’m not terribly worried, but right now I only have a couple hundred dollars and I know that really wouldn’t help if anything major needed to be purchased. I’ve read that people who are in debt should have baby emergency funds of $1,000, which to me seems reasonable. In addition to having a low-risk job, I also don’t have a car and I don’t own my home, so there won’t be any unexpected car or home repairs that I need to worry about. A thousand dollars seems do-able and I am hoping to have that amount saved by the time my debt is paid off, so then the money from my debt can just switch to my savings. Brilliant, no?
At my last job, I started a 401K as soon as I was eligible. I was 22 years old and really proud of myself that I already had a 401K. I’m not sure how much money is in it now. I have the paperwork somewhere, but I remember that it wasn’t a lot. I only had my 401K for about a year and a half before I left, and with the economy it didn’t have time to accrue very much since I was contributing the bare minimum on my salary. I’ll be able to join my new company’s 401K plan in June, and plan on signing up right away. I’ve heard that 3% of your income should go to retirement, but I’m still trying to figure out if that’s doable on my income. I am also planning on transfering my old 401K to a Roth IRA, but I don’t plan on contributing to that account until my debt is paid off. There are so many accounts to contribute to that I feel I will be too financially stretched and likely to fall back into debt if I try to do any more than that.
I have a couple of other savings accounts for specific items that I’m saving for. What I love about ING Direct is that you can have as many accounts as you want, with no minimums or fees. So I create accounts depending on what I’m saving for and then figure out how much to allocate for each one. Even though a lot of people might say its more important to pay down debt, I also think it’s important to save so that you don’t feel like you ever need to use your credit card. One of the reasons I had a hard time last year paying off my card was because I was quick to put money back on the card and then say “Oh, I’ll just pay this amount plus what I was already going to pay towards my debt…” But it’s easy to get carried away. While I don’t contribute a whole lot to those accounts, I hate the thought of depriving myself and I know that I would be so quick to go back to my credit card if I wanted to buy something and didn’t have the money. There are also some things that take a long time to save for, especially big ticket items that will need a lot of money when the time comes, like vacations and a wedding (ahem – don’t get any ideas). I’d rather start slowly now then feel pressured to save a lot in a short period of time. Too many of the debt reduction programs I read about focus on self-deprivation. I can’t do that. I can’t do that with my health either! (Hello, cupcakes!) I think of this as a happy medium. A compromise.
Next week, I’ll be sending another transfer from my checking account to my credit card (both are run through Bank of America, so I can do everything from the same online account). After that, my debt will be less than $3,000. In March 2009, my debt was $7427. Although most of the debt was paid off from the sale of my car, and sadly not much from the extra income I’ve earned, my debt is more than half of what it was. I’m determined to get it completely paid off, but the end of the year.
Who knows, maybe I’ll actually be able accomplish #78 and pay off my debt by September 28.
We’ll just have to see.