Finance 101: Rainy Day Funds and People “Terrible With Money”

by Erin Dresch

Six years after graduating with my bachelor’s, my searching (and interim waitressing) paid off. I have finally scored a ‘real’ job. One that I love, and pays me a salary that I consider to be truly generous for being entry-level.

The problem is that after so long of not having that great job, I feel like I have a lot of catching up to do with my student loans, and ends are still not exactly meeting in a way that I would like them to. I have to say also that it’s hard working alongside people my age who have been on the career track longer and seem more financially secure. I keep finding myself in predicaments where I am down to my last $100 and there’s still a week before the next paycheck.

I live in a city, so I save a lot by biking to work when the weather is nice instead of paying for the train, I don’t go out to bars or restaurants much, and my clothing all comes from thrift stores. I’ve tried working two jobs, but that just puts me over the edge, and affects my mental health in a seriously negative manner. I want to be shifting my student loan payments and savings contributions into ‘Turbo,’ but then I just run out of money, and end up taking it back out of my savings anyway — for the record, I don’t even have enough of a safety net to last me a week right now. Is there anything else I can do? I go over my budget with a fine-tooth comb, but I feel like there’s a hole in my bank account. What am I missing as far as ways to save/not spend so much of my funds?

First, congratulations on getting a job that you enjoy. I can tell you a lot of stories about people who are financially comfortable but live in a somewhat miserable existence because they’re in a profession they don’t enjoy. Also, you’re likely in the same position as many of your peers when it comes to spending/saving. And for right now don’t worry about trying to play catch-up with your co-workers who have been working in your field longer. This isn’t a race.

I cannot stress enough how important it is to have a rainy day fund. Tucking away 3–6 months’ worth of living expenses is a big challenge, but I practically guarantee that you will eventually need it. So although it seems like an impossible task at the moment, I encourage you to stick with it. Even with the expenses of living in a city, student loans, and the like.

Can I just say you rule for going over your budget with a fine-tooth comb? Knowing what exactly you’re spending is half the battle, because you can really pinpoint what you can cut back on. But I’m getting the impression you’re not a big spender to begin with, so I wonder where the majority of your paycheck is going.

Since you live in a city, you likely spend a lot on rent. If you’re spending something like half your paycheck on rent, that’s too much. For the record: it’s recommended you spend something like (at most) 30% of your take-home pay on housing. Listen, I live in New York and know that’s crazy talk to some. Don’t shoot the messenger! If your rent is taking up too much of your budget, I think it’s time to look around. Find a place with roommates, or an apartment in another neighborhood. Obviously don’t move to a place you find unsafe or too uncomfortable. Your home is your sanctuary, but you can probably just find a cheaper one.

I would also whip out your W-2 form and make sure you’re all good with your tax withholdings. Sure, you’ll likely get it in a tax return in April, but is it really worth it for the government to hold on to your money most of the year, when it sounds like you could use it right now? Here’s a nifty calculator to help you out. And reevaluate different tax benefits through your employer (FSA accounts, travel reimbursements) that you might benefit from. A little bit of effort with paperwork goes a long way.

There are few more simple tips I want to give that may or may not apply to you that could also potentially bring down your budget. It’s cliche, but try to brew your own coffee and make your own lunch during the work week — there’s nothing quite like the satisfaction of going through the whole day without spending a penny. Cancel your cable or reduce it to a standard plan. Everyone watches TV online away. Do your own mani/pedis. Here’s some help.

I’m dating a man I love very, very much, and we’ve been seriously discussing getting married. I’m all for this idea, except for one little hitch: he’s notably terrible with money.

I’m not claiming to be any special expert or anything, but after a major family medical crisis, I was raised in a low-income household, with two parents who were good enough at stretching a dollar that I didn’t recognize that I grew up poor until I was in college. Budgets were always the No. 1 topic of conversation, we never drove new cars or wore new clothes, and we ate in restaurants only on birthdays — and never got to order sodas. Both my parents have worked multiple jobs since I can remember (my mother submitted SIX W2s for the year 2010), and I have done the same thing. I worked a full-time and a part-time job through all of college, and continue to do so today, even though my current full-time job pays more than a basic living wage.

I don’t want to paint my wonderful boyfriend in a negative light, so I’ll remind you that I love him very much and that he works in development for children’s charity. I’m also going to defend him before disparaging him, and say that he recently got both a part-time job and his first savings account. That said, he doesn’t have a reasonable grasp on his own finances.

He’s drowning in debt — he has $100K in student loan debt from just an undergrad degree, he drives a car that he knew he couldn’t afford the day he bought it, and while he did work with a consumer credit agency to try to get a handle on his credit card debt, he’s still a solid couple years away from getting that paid down (and the consumer credit agency is ruining his credit before making it better in the meantime). He has never made a budget, and was shocked when I took eight seconds to write down his take-home pay versus his expenses for a month and he realized that what should be going out is less than what’s actually coming in. While his dad is definitely a self-made man who came from very little, my boyfriend has never experienced food insecurity first hand, or known which Goodwill was the cheaper one. Even to this day, when strapped for major cash (student loans got sent to collections, car’s going to get repo’d, etc.), he calls his parents and they bail him out. I will also admit to being an enabler and paying way more than half the bills, always paying for dates, and buying all the groceries, then rationalizing it with things like, “Well, I do make more money than him,” or, “I work two jobs for the two of us to get to do fun things!” Fun things like paying his parking tickets.

I’m not going to lie, I’m SUPER jealous that he can make a purchase without looking at three different spreadsheets, or enjoy a date without analyzing what he’ll have to give up later in the month for splurging for the extra round of cocktails. However, I am also apprehensive to hitch my financial wagon to his in a permanent fashion. My question, then, is twofold: 1) If I marry this guy, what will that do to my personal financial data, like my credit score? Will getting married to someone who hasn’t made the best decisions affect the really smart ones I’ve tried to make in my adult life? 2) Is “bad with money” a total dealbreaker? Am I an idiot? Or am I just dealing with another product of the financial era of which we’ve recently witnessed the collapse?

Wowzas. First the good news. If you marry him, the credit scores will not merge together and bring yours down. Your financial history is all your own, and his past blunders will not impact your own FICO score. If y’all open up a joint checking account, that will be on both your reports, but again his past will not be added to yours. However, if you choose to buy a home one day, his lower credit score will likely mean you will pay a higher mortgage or even have trouble getting a loan.

Okay — deep breath — now let’s get into this other stuff. It seems like you’re very happy with him, but that his spending habits are a big cloud over your relationship. And it sounds like you’re doing a lot of overcompensating for it. Like paying for things, blaming his family, etc. As much as I like to think love will conquer all, many (many) marriages have gone south because of money. I don’t think it’s a dealbreaker, but I think you need to address this NOW before you go any further. This problem isn’t going to go away, and will likely cause more aggravation the longer you stay together.

If you marry this guy, you’ll make big financial decisions together. Not him making a bad one and you trying to fix it. No more fancy car for him while you have two jobs! Start addressing this stuff with him. There are people out there who are “bad with money,” but that doesn’t mean they can’t change.

Work with your guy to get to the root of the problem. In the brief description you gave me, it sounds like he always thinks his parents will get him out of jams, so maybe you need to show him that he’s an adult, and has to start taking responsibility. If this seems like too much for one lady to handle, bring in a premarital counselor. Sometimes an objective third party giving you some real talk gives you a kick to get your act together.

I have spent my entire life as a non-driver and recently got a driver’s license, in eventual preparation for moving to a big cars-are-required city next year. I have no freaking clue how one buys a car, or how much they cost to have on a regular basis. I found out that buying insurance will cost me $1400 for being a newbie, but that’s all I know. How do I budget for car usage (gas, savings for when the car breaks down)? Right now I happily live a car-free lifestyle, so other than buying the car and insurance and gas I probably won’t use it all that much, but obviously that’s going to change in the big city. And uh … how DO you buy a car? I don’t know any reliable car expert types to ask for help, all I know is stuff like “read Consumer Reports/Kelly Blue Book” and “no, you have to go to a sleazy dealership, don’t buy off Craigslist.” Dear god, I dread the dealership. Please help!

Going from being a non-driver to a driver can be a daunting task. But there’s nothing quite like hitting the open road blasting some Fleetwood Mac. Right? Anyway, obviously look at what your budget is for purchasing some wheels and go from there. The budget can be tricky, though, because there are lots of costs in play, and the worst position to find yourself in is “upside down” on your car loan. It’s essentially when what you owe on the car is more than what it’s worth. A particularly unfortunate situation if you need to get rid of the car down the road. Here’s a helpful link to get you started.

It seems like you’ve made your mind up about buying instead of leasing. But just in case, there are some pros and cons for each. Buying is good if you’re going to drive the car a lot. You own it and it’s all yours, but monthly payments to your lender will be more. Leasing is kind of like a long term rental, with the option to turn the car in at the end of the term and get a new one. If you don’t drive that much, it might be a better deal, because with a lease you have to stay under a mileage limit and you don’t tie up your money the way you do when you purchase a car.

Once you’ve found a car you want, and a price range that works you, reach out to other people who can tag along with you. And since you dread the dealership, it will be a help. I’m sure you are capable of handling it solo, but it can be intimidating and overwhelming to do this on your own. You don’t need a person with a ton of car knowledge, just someone who’s been in your shoes and who can offer you encouragement and a second opinion.

There are other hidden costs that come into play when you own a car. Stuff like interest on financing, taxes and fees, insurance premiums, fuel, maintenance, and repair. Again, here’s a nifty calulator that helps break down the costs. Of course there may be those moments you need a super-expensive repair that can never be factored in. (We’ve all seen people on the side of the road on the verge of a nervous breakdown.) But preparing as best you can will hopefully steer you in the right direction. Sorry, I had to use driving puns somewhere in this.

Previously: I Need a Puppy.

Erin Dresch is the producer of business news at NY1, a local news station in New York City. Do you have a question for her?

Photo by valdis torms, via Shutterstock