Issue #70: Save me some pie (and $$ for the future)

November 25, 2020 // ISSUE #70

Hi y’all —

Happy almost Thanksgiving! This year has been tough, so I’m feeling extra grateful for what I have.

I’m thankful for:

my family, my friends and my health
my coworkers at Money, who help me publish this newsletter every week
my sources, who patiently answer all my dumb financial questions
subscribers like you, who read my reporting and reply with Dolla Scholla hollas
everyone who lets me keep saying “Dolla Scholla hollas”
the celebrity gossip Instagram page @deuxmoi
strawberry margaritas (just, like, in general)
the /r/PuppySmiles subreddit
One Direction’s cover of “Teenage Dirtbag”
the fact that Riverdale is coming back in January
and this particular TikTok account where a dude in a green beanie reads one sentence a day of Harry Potter and the Sorcerer’s Stone (he’s on day 217!)

I’m also thankful for my high-yield savings account, even though the interest rates suck at the moment. As you might’ve noticed from last week’s IRA issue, I’ve been trying to focus more on putting money away for the future. Now that I’ve got a system in place, I’m curious: How much of each paycheck should I be saving?

Adam Goetz, president of the MassMutual Advisors Association, told me the rule of thumb is 50-30-20. 50% of my net income should go toward living expenses, 30% should go toward discretionary spending, and 20% should go toward savings.

Notice I used the words “net income.” Goetz made a point of saying that I should take both taxes and retirement contributions out of my paycheck before dividing it up. Specifically, he urged me to contribute at least as much as my company offers to match. THEN I can follow the 50-30-20 rule.

“The bare minimum needs to be to take the free money as far as maximizing the company match on your 401(k), 403(b), IRA, what have you,” he says. “You’re leaving compensation on the table if you’re not taking advantage of that.”

When first starting out, the 20% I’m saving should go toward building up an emergency fund. Goetz, who is also a partner at Burstin & Goetz, said he typically recommends people have six months of expenses in a relatively liquid account just in case something unexpected and/or catastrophic happens.

And speaking of catastrophes, given the current economic situation, Goetz said I should endeavor to get my emergency fund to nine months.

Saving is popular but not universal. A Bank of America survey from earlier this year found that 73% of millennials — people roughly ages 24 to 41 — are putting money away for the future, with nearly 60% of them having at least $15,000 in savings. A quarter of millennials with savings have over $100,000, though that figure includes the money in retirement accounts. (The stats also don’t take debt into account, so take them with a grain of salt.)

Tania Brown, a CFP and financial coach for nonprofit SaverLife, told me that the commitment to saving is key.

“Initially, it’s consistency over numbers. What we’re doing when you’re young is creating a habit,” she adds. “I don't care if it’s $5 a week — just start.”

Brown said that when I’m beginning to save, I should have two buckets. One is my aforementioned emergency fund, which covers crises like if my car breaks down or there’s a sudden death in the family. The other is a short-term sinking fund for things I want within a year, like a new couch or a vacation to Hawaii.

In a roundabout way, having a short-term savings account can actually help me strengthen my emergency fund. Because I have money specifically earmarked for non-essential expenses, I won’t go into debt when I need to buy something, which in turn means I’ll be better equipped should an emergency occur.

Once I’ve got those squared away, I can begin saving for longer-term goals or even dreams like buying a house or changing careers. I just need to remember to stay flexible.

“Life is going to happen, and it’s OK,” Brown says, “Build enough of a foundation that when your life goes sideways, your finances don’t go with it.”

THE BOTTOM LINE

(but please don't tell me you scrolled past all of my hard work)

When I get a paycheck, I want to look at my after-tax, after-retirement-contributions income and put away roughly 20% if possible. Creating an emergency fund is important, especially during the pandemic, but I shouldn’t skimp on short-term savings, either.

From there, I may want to set up purpose-driven savings accounts.

“As many ways as you can have specific uses for accounts will give you peace of mind,” Goetz says. “It’s easier to enjoy vacation when you know you’re not tapping into your emergency fund.”

via GIPHY

RECEIPT OF THE WEEK

check out this crazy celebrity purchase

via Instagram

In a new interview, actor George Clooney confirmed that he gave $1 million each to his 14 best friends in 2013. No joke — he rented a florist’s van, drove to a place in Los Angeles, got some “giant pallets of cash,” stashed them in Tumi bags and distributed them to his pals. Just putting this out there… if you’re a multimillionaire looking to offload some cash, I will absolutely volunteer to be your BFF. Just LMK.

INTERNET GOLD

five things I'm loving online right now

1	I don’t consider myself a gamer, but the updates coming out of the new Spider-Man: Miles Morales game on the PS5 are amazing. First, we found out Miles knows American Sign Language. Now, people have discovered how to play as refrigerators, bricks and trash cans. Farmer Julez is quaking.
2	“How are you?” “I’m successful, how are you?”
3	Congratulations to porcupine parents Flora and Pierre, who recently had a baby at the Roger Williams Park Zoo in Rhode Island. The porcupette is named Nounours, and he has a funny-looking nose I’m dying to touch even though he would definitely hurt me. See pictures here.
4	Lil Nas X’s Q&A with Highsnobiety is worth scrolling through for the martian-style photoshoot. But I also love his quote when he talks about how the next generation may end up changing the world by communicating online. “It’s bound to make something shake like crazy,” he says. And I agree.
5	Would anybody like 11 feet of salami?

401(K)RITTER CONTRIBUTION

send me cute pictures of your pets, please

via Steve Glum

For the holiday week, a change-up! This is Curley, a lizard who eats grapes. Curley is what we’d call a cold-blooded saver — he always sticks to the 50-30-20 rule, even when tempted to blow it all on sunning rocks.

Wherever you are, I hope you have a safe and delicious Thanksgiving.

See you next week.

Julia

P.S. After the last issue on IRAs, Scholar Clay wrote in to remind me that there are limits on IRA deductions depending on adjusted gross income and whether I have a retirement plan at work. See details here. Scholar Kevin added that when seeking out financial advisors to chat about retirement accounts, I should be looking for fiduciaries who have my best interests at heart.

P.P.S. How much of each paycheck do you save? What are you thankful for? How many feet of salami do you think you could eat in one sitting? Drop me a line at julia.glum@money.com or @SuperJulia on Twitter.

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Issue #70: Save me some pie (and $$ for the future)

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