Pay Dirt is Slate’s money advice column. Have a question? Send it to Athena and Elizabeth here. (It’s anonymous!)
Dear Pay Dirt,
Recently, my husband inherited $500,000 in chunks. We paid off over $40,000 in credit card and loan debt as well as our mortgage. We had $189,000 left on our mortgage and the house is worth over $500,000 as is. The thing is, the house is in shambles. The only reason it’s worth that much is because it’s a highly sought-after area. We got lucky because we bought it during the recession with his dad’s help. My in-laws did the minimum to financially help their kids and that’s fine. I never expected anything. After years of trauma from having basically no money and living off of credit, we have zero desire to do stupid things with the money, like buy a new car (we own the ones we have now), go on vacation, or buy a new house. We are doing upgrades on our current house right now. The wiring has to be upgraded (it was aluminum wiring), the siding is rotting, and we’re doing the government-funded green upgrades and putting an addition on our house. It’s been our dream since buying the house.
Is this a dumb decision? I made a point of getting financial advisors who put money in the stock market. They also got us set up with Roth IRAs and college funds for our kids. We just got the final $250,000 check last week. I am so worried about running out of money. Yes, we work, but are a small business. I don’t know if I’m trying to convince myself that upgrading the house is smart because it adds to our biggest asset or if I’m being foolish with the money. Having to lie to our kids about why we haven’t gone grocery shopping is not a life either of us ever wants to live again.
—New Tax Bracket
Dear New Tax Bracket,
One of the great things about upgrading your home is that, as you mention, it will most likely add value to your property. You’re focusing on mainly necessary fixes: rotten siding, upgrading the wiring, etc. Adding value to your property makes it easier to get top dollar if you ever decide to sell.
That aside, your home is also your sanctuary, and you deserve to feel safe and comfortable. This means investing in that addition you’ve always wanted, making sure all upgrades are taken care of, and adding creature comforts such as plants, candles, and things that make you happy. Next time, when you’re feeling overwhelmed by the idea of spending money on your home, close your eyes and imagine how much better you’re going to feel once it’s done. Think about walking into your home once all your projects are completed. Remember this feeling when you start to get anxious.
Trauma around our finances can leave lasting impressions, especially food insecurity, so I get the urgency you feel in regard to not going back. I think the next step for you to help manage your anxious feeling would be to set up monthly check-ins with your financial advisor. It may seem excessive, but your advisor can walk you through how much money you currently have and how much you can realistically afford to spend while saving for retirement and your children’s education. This can give you that regular reassurance that you’re on the right track, even if it may not feel like it. You may also want to look into therapy to help you heal after these particularly difficult years.
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Dear Pay Dirt,
I always see a lot of advice about setting financial goals. It sounds great in theory—having concrete things the money you’re saving is working toward! But I’m always stumped on how people decide what their goals should be. For context, I’m a 20-something-year-old living on my own with no kids. I’ve been saving a big chunk of my salary every month for the past few years now, (think about half of each paycheck) but with no real hard and fast goal in mind. I’m not saving for vacations, because when I want to go on one I just book it. I would like to purchase a home one day but that seems to be in the nebulous future because I want to move around a bit more before choosing a place to buy and purchasing a home seems very difficult to do right now. So right now it feels like I’m saving just to save for “one day.” Is that fine? How do people decide what to save their money for when they don’t have a ton of responsibilities looming over them?
Dear Unfocused saver,
Saving money for “one day” may not seem like a lot but it actually is. Being in your 20s is a time of transition in so many different ways so it makes sense to not know what you want to save for just yet. While I love financial goals, it’s OK to not have very specific ones right away.
I love the idea of saving for “one day” so that you are eventually ready to take advantage of what life brings you. Maybe you do find a house with a great deal you love while trying out new neighborhoods. There might be an emergency or a big expense you weren’t planning on. Life can also surprise you: You might want to take an epic sabbatical, or suddenly have a desire to go to school. So, continue saving in your “one-day” account. Because eventually, you’ll finally realize what you’ve been saving for all along.
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Dear Pay Dirt,
I’m finishing graduate school this month and have a job lined up with the federal government making around $65,000 with possible salary bumps at six and 18 months. While not a huge salary, this will be significantly more than I’ve ever made in my life (I’m 33), so I’m trying now to plan how to manage it most efficiently. My specific question is about prioritizing financial goals.
I have about $5,000 in credit card debt and no investments or an emergency fund. I have some “medium-term” goals as well (down payment on a house in the next few years, taking a nice vacation at some point, etc.). My instinct is that the emergency fund is the most pressing, but the credit card interest is high, and I know I’m getting a pretty late start with long-term investments/retirement savings. My student loan payments will be manageable (I’m not prioritizing paying that off beyond staying in good standing on it because the interest is low, and I expect to either qualify for public service forgiveness or later move to a much higher-paying job in the private sector). Should I try to work on these goals simultaneously? Start with one until I meet some threshold, then move on to the next? Based on the rate I think I can reasonably expect to save (at least at first), if I wait until I have the recommended three to six months’ expenses emergency fund, it will be over two years before I even touch the other goals, which seems untenable.
—Wanting to Get It Right
Dear Wanting to Get It Right,
Congrats on the great starting salary. The average entry position in the U.S. pays about $40,153 per year, so you’re quite ahead of your peers. It makes sense that you are a little overwhelmed by the goals and opportunities your new income has opened up to you. But your thinking is in the right place.
I always strongly suggest building an emergency fund first to help keep yourself from climbing further into debt, but you mention your credit cards have high-interest rates. Then there’s the fact that you have a retirement fund you need to start working on as soon as possible. So, for your situation, I would recommend you work on these goals simultaneously. After paying for all your expenses, divide any extra funds into four groups: retirement, debt, emergency fund, and fun.
First, look into your company’s retirement plan. You should be taking advantage of those pre-taxed funds. Set a recurring amount to be taken out of every paycheck to invest in your retirement. Always check to see if there is a match your company offers and how long it will take to be fully vested, if applicable. Put 30 percent of those extra funds here.
Next, set up automatic transfers to your credit card and savings account. If you already have an automatic transfer set up for your credit card payments, add more money, or pay the principal with another 30 percent of your funds. You’ll fund your emergency savings account with an additional 30 percent, just like your retirement and debt.
Then enjoy the remaining 10 percent you have left over. It’s important to be realistic when setting your goals. Of course, there will be activities and events you want to attend that will come up. With this 10 percent, you can travel, replace old items, and spend time with friends. Giving yourself money toward fun will help you stay on track and not feel deprived, which happens to a lot of people when they’re starting out.
I’m a man in my 30s and have been married to my wife for six years. During that time, we have had a very painful journey in trying to have a child. Our first daughter was stillborn and our second lived for only six hours before also passing away. My wife then had a miscarriage during the third pregnancy. She decided she wanted to stop trying to have a biological child and explore other options someday. This was last year, and since then she’s developed a bizarre habit that worries me.