The power of working more

Meet Susie Q, a hypothetical newly-minted software-engineering grad taking her first full-time professional job for $58,000 pa, or ~$4,830 pcm.  30% of her gross pay goes to taxes and benefits, leaving her with ~$3,380 pcm to allocate.

She’s been living with roommates for four years and wants her own place, but she knows that any space of her own will already be better than what she has, so she looks for a studio that is biking distance to her new job.  She ends up in a small 500sqft space, with utilities included, for $900 pcm.

Since it’s just her, she goes out with friends on the weekends; but she knows she needs to start saving, so she’s careful and keeps her spending to $100 pcm out.  The rest of the time, she cooks at home and spends $300 pcm on groceries and craft beer.

Her cell phone with Google Voice costs her $25 pcm, and renter’s insurance takes away another $10 pcm.  Total monthly spending comes in at $1,335, leaving $2,045 for saving.  Susie’s doing pretty well for herself already!  She’s saving 60% of her take-home pay, putting her on track to retire in 12.5 years, or when she’s 35, assuming no lifestyle inflation but also no raises*.

Susie Q is a real go-getter, and she proves herself immediately to her company by working 80 hours a week to help complete a project that is behind.  It takes a month of 80-hour weeks, but she does it, and she cements her position in the company (and in her bosses’ good graces).  However, where she was originally set to make $28/hr, she actually worked that entire month for $14/hr.  The first month, she still saves $2,045; each month brings another $2,045 of savings.

Now let’s back this example up and assume that Susie Q got a job through a contracting agency instead of going full-time at a specific employer.  She starts with the same $28/hr, and she ends up on the same project at the same company.  She works the same 80-hour weeks for her first month, but now, since she’s hourly, she actually gets paid for those bonus hours.  Instead of bringing home $3,380 that first month, she doubles her pay and brings home $6,760**.  So now she’s able to save double and sock away $4,090, right?

Actually, it’s even better than that.  She saves $5,425 that first month – $1,335 more than just double!  This is because all of her expenses – the whole $1,335 she spends to keep herself housed, fed, and entertained – are already covered for the month, so that extra sum goes straight into savings.

In a salaried position, Susie would have to work 2.65 months to get the same level of savings as working two-months-in-one-month as a contractor.  This is because each month requires her to pay living expenses before she can start saving.

Now, I’m certainly not a fan of 80-hour weeks (and have never worked one myself), but working extra hours in an hourly position (or working a second job or having some other side hustle) seems like a good way to get ahead***.  That’s why I think I’ll look into switching to a contract position sometime later this year, once we’re settled.  Working extra hours now takes more than just those hours off the time until I can retire, and keeping me at work will make sure I don’t have too much time to spend money on restaurants and entertainment.

 

* Basically, assuming that her costs and her salary keep pace with inflation.

** Actually, she brings home a bit less, because graduated taxes.

*** As long as you don’t get burnt out.  I don’t recommend targeting 80-hour weeks as your standard week unless you know you can handle it and it’s only for a short period of time.

January Stats

Today is my birthday, and I announced on Facebook my intention to be debt free by the time I turn 40.  This post will be my starting point for that progress.

Interest Rate Remaining Base Payment Extra Payments
Student Loans 3.76% $23,830.96 $180.74 $0.00
Mortgage 3.50% $314,662.64 $2,259.03 $0.00
Total $338,493.60 $2,439.77 $0.00

Haven’t made any extra payments because we’ll need all the money we’ve got for moving (this coming weekend!) and for taxes coming up. Taxes should settle around the time we finish the major renovation, and finishing the renovation should free up some other money as well.

As an aside, you can see that the interest rates on our debt are pretty low.  The mortgage interest rate is fixed, but the student loan interest rate is variable, so it will rise as rates rise.  There are many people who would recommend investing any extra money rather than paying these debts off more quickly, as the expected returns of the market would outweigh the expected returns (= interest rates) of paying down these debts.

However, in terms of quality of life, having higher monthly expenditures* adds stress.  If I require $5,600 pcm to cover my spending, I need a fair bit of income.  If I drop my spending to $3,200 pcm**, it’s now easier to cover.  If I keep my high-paying job, I can save more; if I switch to part time or to a lower-paying job, I can still cover my spending.  If I lose my job, replacing enough of my income to cover expenditures isn’t as difficult.  This eases money stress (one of my current major stressors) and thus improves quality of life.

That being said, once we free up some money, I do intend to start putting some more into investments.  We’re currently only putting 6% (+6% match) into my 401K, and I want to put more of our little green employees to work.

 

* I use the word “expenditures” rather than “expenses” to indicate that I have control over what I’m spending.  An expense is something that has to be paid; a lot of what we spend, though, is pretty optional.

** This is a rough estimate of our monthly spending sans debt service.  Expect it to go down in the next few months as our weekly expenses go down and we empty our storage container / cancel our storage contract.

The problem with money

Money is hard.

I am very privileged, and very lucky.  I’ve not always been able to go out to restaurants whenever I’d like, or go on large, fancy vacations whenever I’d like, but I’ve certainly done enough of these things.  I’ve also, whenever I’ve needed something big, like a car, or a bed, or a plane ticket, been able to purchase the item without worrying too much.

That’s not to say that I didn’t worry – I always worry – but, inevitably, the expenditure would be absorbed and I would go about my business.  I’ve had very many safety nets, and I’ve always landed on my feet, despite the many poor financial decisions I’ve made.  But now that I’ve spent most of my safety nets and most of my money on a house, and now that we’re moving across the ocean and across the continent to start (mostly) over, I’m finding that, for the first time in my life, I need to be more responsible with my money.  I need to pay attention, be careful, be thoughtful.

The problem with money is that, if you ignore it, it goes away.

Right now, our expenditures match my take-home pay, meaning that there’s not much in the way of wiggle room.  As we get settled and can attack our spending again, this will change, and we’ll start pulling ahead again.  I know this to be true.  However, we still have to pay taxes, buy new bikes, and buy a used car.  These aren’t small items, and they will delay my goal of attacking our debts.  Which means that they’ll also delay my retirement.

I’ve been very lucky.  I guess, when I say that money is hard, I mean that reining in my need for ease and comfort is hard.  I think many people understand this – if you’re faced with a restriction, it’s not unusual to immediately want to ignore it and do as you please.  The next few years – decades – the rest of my life – will be a journey to replace irresponsible and unhealthy desires with the things that truly make me happy – hearth and home, family and friends.

It will be difficult – but the most worthwhile things usually are.

Meet thirty to freedom

Boy, we really started in the deep end there, but you really don’t know anything about me yet.  So, let me introduce myself to you by telling you what drives me:

A while ago, I sat down and wrote out the ten things I want to do with my time, and I keep these visible near my desk to serve as motivation for my progress toward financial independence.  I’ll present them to you here, in no particular order:

  • Sleep!  It may seem silly, but I feel my best when I’ve gotten enough rest and wake up naturally after the sun comes up.  I rarely get this luxury now, but this is key to my emotional well-being, and I intend to do it more when I’m able to arrange for it.
  • Spend time with friends and family.  Cliche, but hanging out with the people I like, eating, drinking, talking, playing games, being merry – an evening spent with friends is never an evening wasted.  I particularly love hosting dinner parties with fancy food and tasty wine, which brings me to..
  • Cooking!  By no means am I an amazing chef, but the blood and endless swearing are all worth it when I can put together a delicious meal around which friends can gather to talk the night away.  I don’t do as much cooking as I’d like, but we’re building a large and inviting kitchen in the new house, and I fully anticipate doing more as the years continue.
  • Write cookbooks.  I like the thought of sharing some of the particularly-wonderful recipes I’ve made, as well as some of the Valentine’s Day menus I’ve put together, but I’m currently working on gathering Russian family recipes, both to keep for myself and to distribute to far-flung cousins.
  • Take care of home and garden.  I am slowly learning to insource household maintenance, and this will turn into a large learning experience for me*, as the house we are buying is not new, and we already have a long list of renovation projects to complete.  I am also very interested in composting and growing my own fruits and vegetables, so expect some information sharing as I start learning to garden and drip-irrigate raised beds.
  • Read.  I used to read all day and night, but that stopped once I entered the working world.  A couple years ago, I picked up a Kindle with my slush fund, and I’ve slowly started reading again.  It’s always nice when I have (or take) time to read.  I’m a big fan of high fantasy.
  • Travel.  I’ll talk about this a bit more in a future post, but I love vacations and travel – though I’m happy to stay home for a while after all the travel we’ve been doing recently.
  • Exercise.  This is actually split out into three different items for me:  biking, running, and weight exercises.  For a little over a year, my wife and I have been getting more into biking, and I’m very excited about all facets of it.  I also ran a 5K a couple years ago, and I want to build up to run a (specific) half marathon.  I don’t currently do any weight exercises, but they’re on the list because of the health benefits; I think that adding them would add a lot to my life and increase what my body can do.. but I’ll admit that they’re the last thing on this list I actually want to do.

Not only are these the goals that motivate me, they are also the activities that I try to use to fill my time.  It’s taken a long time – I’m usually a very high-strung person focused on the things I should be doing – but I’m finally starting to become more comfortable ignoring** the things that need to get done in favor of the things that make me happy.  As they say, life is too short.***

What motivates you and makes you happiest?  Leave a comment below.

– ttf

 

* And any friends who want to learn alongside me.

** To some extent.

*** I don’t love this expression, but it gets the point across:  each person has only a certain number of minutes on this planet, so focus on the things that bring you the most happiness.