** Money Diary is about learning from stories. If children can learn for tales and fables why can’t adults. **
Lin is a single mom. She has two kids ages 10 and 16. She has sole custody of her kids. Life has never been fair or easy to her. She had her daughter when she was a senior in high school and her son six years after. She was living a comfortable life back then; her husband worked in construction and made good income. They lived in a low cost of living area with a high income. They had a moderate house, she knew all their bills were paid and lacked for nothing. They took vacations twice a year and never had to worry about their finances.
Money Diary – Past
When her son was 2 her life changed. Her husband passed away: she was distraught! She was so dependent on him: especially financially. She was 26 years old with a high school diploma no work experience with an 8 year old and a toddler. Three weeks after the funeral, she sat down the kitchen with all their bills and bank balances. They had $15,000 in the bank and total expenses of $25,000. They were living on credit cards. They had a negative net worth. Her situation was dire. She then added up all her monthly expenses: $2,500. She found a large chain coffee shop that could pay exactly $2,500 a month. She would have nothing saved at the end of the month. Something needed to change.
She also kept the cheaper paid off car and sold her husbands car. After paying off the loan on it; she profited $5,000. In theory she was now at a net zero. The money they had in their account was equal to the money they owed. Selling the car saved her a monthly payment of $350. She also did not want a difficult financial future for her kids; so she purchased term life insurance. Enough to cover both until her son was 20. It cost her $50/month but it was worth it!
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Money Diary- Present
Now her monthly expenses were $2,200. She kept 3 months of expenses (emergency fund) and paid off the rest of her debt. After a year of working overtime and tips she was able to pay off all of her debt and have the emergency fund. Better yet, her workplace offered tuition assistance. She jumped at this chance. In three years she had an associate degree. She got an accounting job at a local university. She again used the tuition assistance from the university to get her bachelors then her masters. When she was 36 she got a job that paid $100,000/year.
She never let lifestyle creep and “keeping up with the Kardashians” add to her expenses. Due to inflation some of her expenses were higher: increased to $2800 a month. She knew it was time to start saving for her retirement. She lived on one paycheck and invested the other. She invested in an index fund through vanguard called VTI. She made this process automatic. Every year her investments grew and at 62 she was able to retire with $2.4 million and a paid off house.
Financial lessons:
- Building wealth while in consumer debt is difficult.
- Student loans are not your only option to finance school
- Always budget: you need to allocate your money before it allocates itself
- It is never too late to start saving for retirement
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