A Thousand Words Volume 6: Mitchell the Money Mentor
Hello! and welcome to my next A Thousand Words. This volume titled, Mitchell the Money Mentor. Mitchell and I met when i began RA-ing my sophomore year of school. He was my floor buddy along with Casey who you may remember from the first A Thousand Words. As Mitchell and I both became SRA, Senior Resident Assistants, part of our duties were studying Dave Ramsey’s Foundations in Finance under the supervision of our superior. I took a few lessons moving forward as I struggled to complete college. Mitchell, however, really dove in and learned financial literacy. He still uses lessons learned from our initial studies today and that is why he is my Money Mentor. Now that it is around that time when loans are starting to come out and money is being thrown around for the perfect post grad gifts, we felt it appropriate to do a general overview of financial literacy. The categories we talk about are Savings, Budgets, Debt, Consumer Awareness, and Investments. So buckle up, this is a bit of a read, but I promise there is at least one thing you can take away from this. We start with savings.
Chattanooga, TN 2017
SAVINGS:
Me: Why is it good to have a savings?
Mitchell: Having a savings is so important because it prevents financial issues and provides such a peace of mind and comfort in every day life. If you have savings you don’t have to worry about what would happen if your car suddenly needs a pricey repair (how would you pay for it, how would you get to work to earn the money to pay for it, etc). It also helps prevent going into debt for simple things which ends up saving you more money in the long run. And the peace of mind it provides depending on what you have saved makes it so much easier to feel comfortable in being who you are and advocating for what is needed in your job.
Me: What is a good starter savings goal?
Mitchell: I think the best starter savings goal is going to depend on the person. I recommend the end goal being 6 months of expenses (for some people that might be 6 months of pay, for others it might be somewhat less). If you’re one of those people who is ok with slow progress on a goal then set the final goal and track your progress every month or two. If you can’t handle that then go for something easier like $100 or $500 dollars and keep adding from there until you get to the larger number. The important thing is to not use that money unless you have to! Otherwise it’s not savings.
Dave Ramsey suggest starting with an $1000 emergency fund. Emergencies can range from car issues like Mitchell mentioned before, or it could be medical, like in my case this year. As far as the six months of emergency money, I want to emphasize that this should include things necessary to live and prevent further disruption of finances (car payment, car insurance, rent, internet, loans, minimum credit card payments).
Me: Outside of emergencies, what other things do you set aside money for?
Mitchell: Other than emergencies I set money aside for a car (avoiding a car payment when I need a new car in the future), for travel (a little every month adds up to some fun trips every year or two), and a house (bigger down payment will save more in the future when I finally buy a house).
Me:As a post grad, what should you prioritize as your top three things to delegate money into your savings for?
Mitchell: I think that is very dependent on the person. I’d say look at what you need (actually need not want) in life, and see what you need to save for. Do you need a new more reliable car now that you might have a longer commute? Or do you need to have a bigger emergency fund now that you have more expenses? I would also say its ok to have a smaller savings rate post grad to pay off student loans and other debts quicker. Still having some savings is important, but a smaller savings goal to avoid paying so much in interest.
Me: One savings account or multiple savings account?
Mitchell: If you know you are the type of person who will transfer money out of savings into your checking to buy something that savings money isn’t for then make sure your savings is in a different bank and not linked to your checking (makes it much harder to do so on impulse). I prefer multiple savings accounts so I can easily see how much is in each account. I can take a quick peek and see I have X dollars saved for travel and know what I can afford for a trip.
Is that Casey and Lauren from your first blog? Why yes it is. #squad
BUDGETS:
Me: Why is it good to have a budget?
Mitchell: Having a budget lets you know how much you can spend, and it helps you realize how much you do spend. When I set myself to only have a certain amount of money on eating out, I am much more conscious of saying yes to a bite out to eat. It ends up saving me a ton of money!
Me: What resources do you recommend for creating a budget?
Mitchell: There are tons of templates online, and some of them even give the average percent of budget people spend on rent/mortgage and utilities to see where you should probably fall in line with your current salary. I use GoogleSheets because it tracks everything, automatically does the math with formulas, and I can easily view it on my phone or any computer to see what I’m working with anywhere.
Me: What are your budgeting basics?
Mitchell: I take my monthly paycheck and subtract my budgets from there. I start with the musts (rent, bills, etc.) and then I look at what is left. I have to divide what is left in a realistic manner so as to allow myself the ability to save, but to also make sure I’m still enjoying my life. If you set your budget for ramen every meal and no entertainment you’re going to fail because you will hate that. You have to let yourself spend money.
Another note from your friendly amateur financier, budgeting a savings goal into each paycheck makes its much easier to save.
Me: Have you ever tried the Envelope System?
Mitchell: I have not because I hate having cash. If it works for you, then do it. Budgets and finance is all about what works best for you.
For those who don’t know what the Envelope System is a system in which “...you use cash for different categories of your budget, and you keep that cash tucked away in envelopes. You can see exactly how much money you have left in a budget category just by taking a quick peek in your envelope.” This is highly effective for those who are disciplined.
Me: What tools do you use to help stay within your budget?
Mitchell: I use GoogleSheets to track all of my expenses. I have formulas set up to automatically remove the money from my budget so I can constantly see what I have left in each budget. I log all of my expenses at the end of every day. I also make sure to shop around and wait on larger purchases. Sometimes waiting a day or two helps me realize I don’t need it right now, or it isn’t worth the cost.
For you young folks there are plenty of apps that can help you manage your money. You can find a link to those here: https://www.investopedia.com/personal-finance/personal-finance-apps/
Mitchell after he moved on to bigger and better things
DEBT:
Me: For those not so post grads ( I am talking about you Columbus State peeps), What are some proactive ways of minimizing student loan debt?
Mitchell: Put every dollar you can towards your debt, and pay off the highest interest loans first. Once a loan is paid off put the money from those payments right into another loan. You should always pay more than the minimum when you can. Also look to see if your work or public employment status allows for a loan forgiveness program (where the state or company will pay off your loan if you work for them for X amount of years).
Me: Now that we have graduated and have accumulated loans, how do we deal with it?
Mitchell: To be fully upfront, I’m fortunate enough to not have any loans, so I have never had to deal with it. The easiest way to deal with it is to get ahead of it (sadly might be too late if you’ve already graduated) but take out as few loans as you can, and don’t blow the refund check money. If its too late and you have a lot of debt, you’ve got to really look at where to cut back. A coffee a day, name brand to off brand for some products, brown bag lunches, or a side hustle for the weekends/evenings. Whatever you can do to raise more money and pay off as much of the loans as quick as possible. It really needs to become a priority.
Me: How about credit card debt? How do we mediate that?
Mitchell: If you have large amounts there are definitely companies out there that can help get your amount owed lowered. If it’s a manageable amount treat it the same as student loans. Pay it off as fast as you can. If you can’t manage the responsibilities of credit cards then cut them up and don’t use them. You should never use a credit card to buy something that you cannot afford to pay off at the end of the month.
The general rule is that you are not suppose to have more than 30 percent of the credit limit on your card. I like to say you probaly shouldn’t have more on your card than you can payback in two paycheck (within a month). Honestly anything that goes on my credit card is a recurring payment (Netflix, Spotify, monthly massage appointments) that could easily come out of one of my checking accounts, but for the sake of building credit goes onto a credit card
Me: So according to Dave Ramsey, one of the worst mistakes that a new graduate makes is buying a new car. I made this “mistake”. What are your thoughts?
Mitchell: I think so many people graduate, get a nice paying job, and go buy a brand new car because they want the life their life to look a certain way. I always advocate to buy used, and you know this because I probably screamed it at you 10 times. Buying a used car that is just a couple years old cuts the cost almost in half, and they often come with just as good of warranties. I think the important thing is if you can’t afford to cash buy a car, and you have a car that currently works (or you don’t need a car) don’t buy one.
If you’re wondering why I blatantly ignored the wise wisdom of my mentor then let me clarify. Quite simply I live with my parents. Meaning I don’t have the typical expenses that most college graduates would have, meaning, I generally have more money to spend. On top of that, without getting into details, I saved 40% of my cars total value including fees and taxes for my down payment. I made sure that my credit score was in the “very good” range to prevent high interest rates, and I made sure that I had six months of car payments and insurance already in the savings account. Remember, its about minimizing debt and insuring a financially secure future. If you’re not thinking about that when purchasing a vehicle, don’t buy a vehicle.
Me: What is the best way to pay off debt?
Mitchell: The best way is to not get into debt. Obviously that’s not always an option though, especially with education costs. But avoiding putting yourself into more debt, and applying any extra penny you can to the debt will make it go away faster. Make minimum payments on everything, and apply all your extra money to the highest interest rate. Once that debt is paid, move all that money to the next highest and so on. Once you get it all paid off you’ll be amazed at how much extra money you have that can go towards savings and some extra splurges here and there.
More Chattanooga Shenanigans
CONSUMER AWARENESS:
The best way to save money is not to spend it, but when you do have to spend money, you have to shop smart.
Me: How does one shop smart when it comes to… Clothing
Mitchell: Shop at resale shops and tag sales, and just pop that sucker in the washer (maybe twice if it has a particularly hard to remove scent). I also look at discount stores where there are new but cheaper items. Never pay full price for anything, clearance racks, sales, and coupons!
Expert shopper Briana here. I want to preference this with the fact that I work in a business casual environment. I rarely, as in 5% of the time, spend more than $7 on a single item of clothing. That is a top or a bottom. I may stretch that to $15 for a dress or jumpsuit. And $25 for a pair of shoes. If you’re wondering how? Its simple, I buy in bulk and during the off season. Meaning that when Forever21 has an extra 50% clearance sale during the winter, I will typically buy all of my summer clothes then. This leads to buying sessions of eight outfits at a time for about $100. Money for clothes has also been put away in my savings for a few months for such events.
Me: …Groceries?
Mitchell: Look at the weekly ads and build your grocery list off of that. If chicken is on a really good sale I’m going to buy some to freeze for later and my food will be mostly chicken dishes that week. Also move away from prepared foods (its cheaper to buy whole carrots and peel and chop them yourself then to buy the “baby carrots”).
Me: …Other life things?
Mitchell: Its all about shopping around. Also don’t be afraid to ask for discounts or a cheaper price. My father once got a discount at a hotel because he asked if he could get a “good looks” discount. The lady laughed thought it was funny and hit a couple buttons to give a discount. Generally if you are nice and ask, people find ways to help you save a little.
Me: How do you cut cost at home?
Mitchell: Cut subscription services if you don’t use them, or find friends to share the costs with. Do you truly need Netflix, Hulu, HBOGo, and AmazonPrime? The answer is no. Choose one of the services or find friends to share the services and divide the costs. Always call and ask for a lower rate with internet and cell phone providers, many of them have certain discounts they can give or will give you new customer pricing if you call and ask and say you’re considering leaving. Also the simple turn lights off, turn water off, those type of things help too.
Bowling, June 2018
CREDIT, INSURANCE, INVESTMENTS:
Me: Why should people know their credit scores?
Mitchell: Your credit score can be used by renters, banks, potential employers and others to see how reliable and responsible you are. Ultimately if you have late payments, missing payments, and are not responsible you will have a lower score. Knowing your score and what causes it can help you raise your score.
Something I recently found out is that insurance companies also look at credit scores to determine how to rate you. If you are nearing 26 this is important because a lot of insurance companies will drop you from your parents plan when you turn 26.
Me: Where can one find their credit score?
Mitchell: There are many companies that provide the score for free, just google it. I use Discover because I bank and have a credit card with them, but there are other companies that offer it as well. You also have a legal right to a full credit report (does not include scores) from each of the 3 credit bureaus once a year.
The three credit bureaus are Equifax, Experian and TransUnion,
Me: What kind of insurance does a post-grad adult need?
Mitchell: That will depend on your situation. If you have dependents you would need some basic life insurance (life insurance isn’t for people to get rich quick if you die, it is to cover the costs of your death and help provide some income for your dependents). I don’t have any dependents, and I have enough saved to cover my costs that I do not need life insurance. Medical/Dental/Vision is all going to depend on the person too. If you know you have lots of prescriptions and need to go to the doctor regularly, you should get a plan that is more expensive each month but has lower copays or premiums to meet. If you’re like me and go to the doctor maybe once a year, and don’t need any regular prescriptions, then it is probably a better idea to get a cheaper plan (but you will have to pay more when you do go to the doctor). Vision insurance is probably overpriced, you can see how much an exam and glasses/contacts cost with/without insurance and make the best decision for yourself there. I choose not to because I can get an eye exam and glasses for under $100, and my vision insurance would have cost more than $100 a year.
Me: Which type of insurance is appropriate for what car types?
Mitchell: Depends on what the state minimum is and what you are comfortable risking. All insurance is a gamble. If your car never gets damaged then you paid all that money for nothing. If you total your brand new car and only got the minimum coverage you have no car and no money. The easiest answer is to look at what you can afford to replace (how much you have in an emergency fund for a car) and make a decision from there. I have enough saved to buy a cheap car, so I don’t have lots of options added because if I had to I could buy a cheap used car for the time being or pay for repairs out of pocket. If I didn’t have that saved then I would spend a little more each month to have better coverage. (Savings really does save you money!!)
Me: When should one start investing in their retirement?
Mitchell: Yesterday, or last week, or last year! Retirement is all about compounding interest, so the sooner the better. Take full advantage of any employer match programs. My current employer will match a certain percentage, so I automatically have that percentage put in because it literally doubles my money instantly. You’ll never find an investment like that! Play with some compounding interest calculators to see the difference a dollar a month makes over the course of 50 years.
Me: What are the types of retirement plans and what do they mean?
Mitchell: The main two terms are Roth and Traditional. Roth means you pay taxes on the money you put in the account right now (at your current tax rate) and traditional means you don’t pay taxes on the money now but you pay taxes when you withdraw the money in retirement. Basically you have to decide when you think your tax rate will be higher. If you think it will be higher when you retire then pay the taxes now, if you think it will be lower when you retire pay them then.
There are also tons of other types, 401k, 403b, IRA, etc. these are all somewhat similar, changes in who manages it or how it’s allocated, but you just need to look into what each one is investing in to make sure it’s at the risk level you want. Typically the further away from retirement you are the riskier your investments are (chance for higher reward and low chance of screwing up your retirement a few years away).
Me: What other ventures should a post grad be investing in?
Mitchell: Invest in yourself and your life experiences. Travel to experience new things, take classes or do hobbies. Saving is important, but sitting at home alone every day to avoid spending money is a sad way to save, and won’t bring you happiness. It’s important to have a balance between fun now, and the ability for lots of fun later.
Me: Any other advice and words of wisdom?
Mitchell: Talk openly with your friends or family about finances. It helps other people provide advice and insight, and you might realize all of your friends are in similar situations. Or some people may have side hustles or ideas that are really working for them. My methods work really well for me, but won’t work for everyone, so finding what works for you is the most important.
With that I have to add this, it is important to remember that not everyone has the same circumstance as you. I live at home for free, but none of my friends do. Some friends had people who helped pay for their schooling resulting in no loans. I want to emphasize that money shaming your friends is not cool. Some people can afford to go out every weekend, and some have to pay bills. If your friend says they can’t do something because of finances, don’t be a dick. You never know when that could be you.
If there was a conclusion, it would be this, the best way to be financially literate is to learn how to manage your money. I hope that something here has motivated you as a reader to take a step to really think about your finances. Dave Ramsey has been mentioned a lot. He has a lot of tips and guides to help manage and delegate your money. You can find these tips here: https://www.daveramsey.com/
And as always if you have any questions or you want Mitchell and I to do a deep dive into one of the topic above, comment below,
Thanks for reading and until next time! :)
Also, be on the lookout for some special things coming.