Nici lives on the West Coast with her cat and works as a journalist. She loves her job–and her 20-year-old Mustang–but doesn’t make a lot of money. She prefers renting an apartment over owning a house, but is concerned about future rent increases and what they might do to her retirement plans. She’d like our help today assessing her financial position as well as our advice on whether or not it’s time to put her old Mustang out to pasture.
What’s a Reader Case Study?
Case Studies address financial and life dilemmas that readers of Frugalwoods send to me requesting advice. Then, we (that’d be me and YOU, dear reader) read through their situation and provide advice, encouragement, insight, and feedback in the comments section. For an example, check out the last case study. Case Studies are updated by participants (at the end of the post) several months after the Case is featured. Visit this page for links to all updated Case Studies.
The Goal Of Reader Case Studies
Reader Case Studies are intended to highlight a diverse range of financial situations, ages, ethnicities, geography, goals, careers, incomes, family composition, and more!
The Case Study series started in 2016 and, to date, there’ve been 53 Case Studies. I’ve featured folks with annual incomes ranging from $17,160 to $192,720 and net worths ranging from -$317,596 to $1.5M. I’ve featured single, married, partnered, divorced, child-filled, and child-free households. I’ve featured gay, straight, and trans people. I’ve featured cat people and dog people. I’ve featured folks from the US, Australia, Canada, England, South Africa, and France. I’ve featured folks with PhDs and folks with high school diplomas. I’ve featured people in their early 20’s and people in their late 60’s. I’ve featured folks who live on farms and folks who live in New York City.
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I probably don’t need to say the following because you folks are the kindest, most polite commenters on the internet, but please note that Frugalwoods is a judgement-free zone where we endeavor to help one another, not condemn. There’s no room for rudeness here–the goal is to create a supportive environment where we all acknowledge that we’re human, we’re flawed, but we choose to be here together, workshopping our money and our lives with positive, proactive suggestions and ideas.
A disclaimer that I am not a trained financial professional and I encourage people not to make serious financial decisions based solely on what one person on the internet advises. I encourage everyone to do their own research to determine the best course of action for their finances. I am not a financial advisor and I am not your financial advisor.
With that I’ll let Nici, today’s Case Study subject, take it from here!
Hello! I’m Nici, a 37-year-old journalist with a master’s degree. I’ve always lived in the western part of the US, but a few years ago I traded pine trees for palm trees. Budgeting was always part of my life, but moving to a city with a higher cost of living got me to really track my spending. I live in an apartment with my cat and have no desire to own a house. I love that I can give the maintenance crew permission to enter my apartment and then whatever issue is “magically” fixed. My career has sent me to different states, so renting also allows me the freedom to move at any time.
When I’m not working, I like to travel (my goal is to visit all 50 states) and go to concerts. Unfortunately I don’t have enough vacation time or money to do those things as often as I’d like. If I’m still with my current employer in 2022, I’ll gain an extra week of vacation, but my salary will be about the same (salaries were frozen for 2020 and raises are typically 2-3%).
My life is pretty easy breezy. I love what I do and living in my new city has been a fun adventure. A lot of times I don’t really feel like I’m an adult compared to others my age since I don’t have their responsibilities of kids and a mortgage. But honestly, I love it! I can pick up and go anywhere! My cat even travels well.
While I can’t imagine having any other job, I have to admit it doesn’t pay very well. Media jobs are also being cut with semi-regularity so there is a bit of worry that I won’t be able to continue on this path for my entire career. I don’t plan to retire early, but I’d like to be in a position where I could take early retirement (or a forced layoff) in my late 50s and not have to look for a new job.
Additionally, my employer has a very strict “code of ethics” that makes it difficult for me to take a second job (or even volunteer somewhere) because of potential conflicts of interest.
If I was married, I’d even have to disclose my partner’s job. As an example, here’s a link to another media organization’s conflict of interest policies (note: this is not my employer, but the rules are similar).
Where Nici Wants To Be in 10 Years:
- No debt! Once the student loan is paid off, I will increase my 401(k) contribution.
- In 20 years, I want enough saved to be able to retire if forced to.
- A bit related to finances, I’d love to have a two-bedroom apartment so guests have a place to stay instead of having someone sleep on the pull-out couch or get a hotel room.
- Hopefully I’ll have visited all 50 states by then!
- I do contemplate a move into management, but I truly love what I do now.
- So far, the company I’m working for has been great. We haven’t had nearly the cuts of other media companies during this pandemic. Fingers crossed!
|Nici’s base net income||$2,834||Deductions: 7% 401(k), medical insurance and HSA, taxes|
|Nici’s average extra net income||$355||*I take as much OT and holiday pay as I can, but this amount could vary in the future|
|Item||Outstanding loan balance||Interest Rate||Loan Period/Payoff Terms/ monthly required payment|
|SoFi student loan||$17,862||4.60%||7 years remaining; Minimum payment is $221/month; I pay an extra $50|
|Item||Amount||Notes||Interest/type of securities held||Name of bank/brokerage|
|401(k)||$37,076||I contribute 7% for the full employer match||VFFVX|
|Checking Account||$4,832||no fees||Chase|
|Brokerage Account||$4,551||no fees||VTI, IVV, SPLG||TD Ameritrade|
|EE Bonds||$3,500||Gifts from grandparents maturing over the next 15 years; value listed is the current approximate||varies based on purchase date|
|Health Savings Account||$1,584||Can invest starting at $2,000||Optum|
|Roth IRA||$1,431||no fees||SCHB||Schwab|
|Savings Account||$878||no fees||.65% (ouch, that went down a lot)||Capital One|
|Vehicle make, model, year||Valued at||Mileage||Paid off?|
|2000 Ford Mustang||$1,400||168,500||Yes!|
|Car Maintenance, Repairs, Registration||$395|
|Student Loan repayment||$271||$221 is the minimum; I can’t wait to not have this debt|
|Groceries||$122||Includes household supplies and non-food cat supplies. See note below on how this is so low.|
|Entertainment||$92||Primarily concerts (I used 2019 average)|
|Internet||$57||I call every year to get a rate reduction; I think this is really $87|
|Car Insurance||$48||Through GEICO|
|Travel||$47||Family lives in another state and I have a goal to visit all 50 states (2019 average)|
|Cat||$42||Food and vet visits (she has ear issues)|
|Personal Care (Hair/Facials)||$39||My skin started having issues when I moved|
|Cell Phone||$35||Cricket used to have a great rewards program that got my bill down to $10. For work I need either AT&T or Verizon networks.|
|Renter’s Insurance||$12||Required by apartment complex; through GEICO|
|Healthcare||$12||Reimbursable from HSA|
|Patreon||$10||Gets me an extra episode per month from my favorite podcast|
A note on how my grocery bill is only $122:
Since I can’t have an actual part-time job, I make use of the time that would go into a second job to scour ads for deals. Here’s an example of a great deal on toothpaste for this week.
When a deal requires the purchase of too much for me to use alone, I either split with a friend or donate to a shelter. I stack as many discounts as possible and go to multiple stores (a perk of the big city is that I have six major chains within three miles of my apartment).
I don’t eat much meat, but I always look for mark downs (when meat is going to expire soon) that go along with a store sale.
There’s also a store here that allows “buy one get one free” coupons to make both items free when the store also has the B1G1 sale.
I’m also able to keep costs low by drinking tap water or tea most of the time.
|Card Name||Rewards Type?||Bank/card company|
|Chase Freedom||Cash Back||Chase|
|Citi DoubleCash||Cash Back||Citi|
|Hilton Honors||Travel||American Express|
|Expedia Voyager||Travel||Citi – Fee is $95, but has $100 annual airline credit|
*All cards are paid in full every month. These are affiliate links.
Nici’s Questions For You:
1) When does it start becoming unrealistic to keep repairing a car?
I drive a 20-year-old Mustang (purchased used, of course) that I absolutely love, but the maintenance and repairs add up to a car payment. I found a 2013 Mustang (the year may change, but the model never will!) for $14,500 and insurance at about $70 a month. Registration would also increase since it’s based on the value of the vehicle.
Knowing that even a newer used car would have maintenance and at least the occasional repair keeps me thinking that it’s worth hanging onto my car (which the coworker-recommended independent mechanic I go to assures me is in great condition), but I’m also pretty emotionally tied to the car as it’s what I bought shortly after getting my first job out of college.
2) How should I plan for rent increases in retirement?
I don’t want the responsibility of home ownership, but renting means I have no way of knowing what I’m going to pay the next time my lease renews. Of course, I could always move if the increase is too much, but that’s a hassle. I also might eventually need care and wouldn’t have home equity to pay for assisted living.
3) What should I be doing with the EE Bonds from my grandparents?
As each one has matured, I’ve used the money to pay down my student loan. Is this the best course of action? Should I reinvest the money somewhere? Or maybe put it toward buying a newer car? One consideration with that is my FICO is over 815, so I should get a great interest rate if I needed a vehicle loan.
Mrs. Frugalwoods’ Recommendations
Nici is doing a tremendous job of making it work on a small salary in a high cost of living location. She has truly done astonishingly well and should feel proud! The challenge is that I don’t think it’s going to be sustainable for the long term.
The Bottom Line is Income
Nici is doing everything right. Her expenses are low, she’s paying down her student loan debt, and she’s investing for retirement. She lives the lifestyle she wants and she loves her job. She’s clear-eyed about her preference for renting, her desire to travel, and her enjoyment of her cat and car. The only thing wrong with this entire picture is her income. I HATE it when this is the case because Nici has taken all the steps necessary to be financially secure and happy in her chosen profession.
The absolute bottom line is that she just doesn’t make enough money. She’s a highly skilled mid-career professional making peanuts. As a great respecter of journalism, I hate this. I want Nici to make ten times what she does. I want her investigating the crap out of things and reporting in a way that makes us a better-informed citizenry. Journalism is the Fourth Estate and I want it to pay more!
While she’s able to make it work month to month, my concerns for Nici are as follows:
- A major crisis or emergency could wipe out her liquid assets of $5,710. At her current monthly expense rate of $2,845, her emergency fund would cover just over two months.
- Future rent increases and the inability of her salary to keep pace with these increases. If her salary was increasing annually, I’d be less concerned, but her mention of salary freezes and nominal annual raises have me concerned.
There are a few different options for addressing this situation:
- Consider moving to a lower cost of living location.
- That being said, Nici’s expenses aren’t that high. Plus, she enjoys living in the city!
- The vast majority of people who make it work in higher cost of living locations on low(er) salaries often have one of three things:
- A live-in partner with whom they share expenses. That’s how Mr. FW and I scraped by in our early years in the city. I remember his salary alone BARELY covered the rent and how relieved we were when I moved into his one-bedroom basement apartment. A doubled salary would undoubtedly help here, but we can’t magic a salary-earning parter into existence, nor does Nici necessarily want one. One of the most poignant explorations of this situation is Elizabeth Warren’s book, The Two Income Trap.
- The other strategy is to live with a bunch of roommates in a sub-par apartment, which is what I did when I lived in NYC. Nici doesn’t want to do that, no one over the age of 25 wants to do that.
- Have a trust fund/financial help from family. I never had that, but I want folks to be cognizant it’s usually not “magic” that people are able to hack it in the city on a low salary.
- Consider a career change to something more lucrative.
- I hate to even say these words because Nici loves her job and her work is important to our democracy. But, if her current profession can’t pay her a living wage, she may need to look elsewhere. Depending on her specific skill-set, she might explore something like corporate PR.
- Or, she might be able to make more money as a full-time freelancer. She’d lose the security of her salary, her health insurance, and 401k match, but she’d be able to take as many jobs as she wants. I get the sense she feels constrained by not being able to freelance right now and I wonder if it’s something she’s considered?
- If she has any interest in full-time freelancing, I suggest she poll her network for what rates she could command per article and how abundant the work is right now. Depending on the types of outlets she’s had a byline in, she might be able to parlay her experience into a higher price per word. She’d need to calculate what her healthcare costs would be through the ACA and consider opening a solo 401k/SEP IRA, but working for yourself is feasible, if a bit more administratively frustrating than having a traditional employer.
Ok, let’s talk cars! I feel like the Grim Reaper today and I hate to rain on Nici’s beloved car, but unfortunately, her car is costing her a ton of money. She’s paying $496 every month ($395 in maintence, repairs, and registration + $53 in gas + $48 in car insurance), bringing her annual car expenses to $5,952, which is a sixth of her annual take-home pay. I hear Nici’s love of this car, and of Mustangs, but I don’t see a way for her to continue paying this much to maintain an old car or to drop $14,500 on a newer model. There’s just nowhere for that money to come from.
To be honest, if this is a financial question, she should sell the Mustang and look into buying something small and reliable with better gas mileage, such as a 2010 Toyota Corolla/Camry/Prius or Honda Civic/Fit/Accord. I understand that these cars are not sexy or particularly fun to drive, but, having owned both a Camry and a Prius I can say they’re reliable, inexpensive, have good gas mileage and good maintenance/repair records.
This is another of Nici’s questions that I unfortunately don’t have a great answer for. Basically, where rent increases are concerned, you hope for your income to increase commensurately. The challenge of a high cost of living area is that rent increases are usually all but guaranteed and will eventually catch up with you.
Something for Nici to explore is the possibility of subsidized housing. Her income may be low enough to qualify her for subsidies or the eligibility to enter a lottery for a subsidized apartment. The other option could be a first-time-homebuyer program that either waives the downpayment or requires far less than the standard 20% down.
As these bonds mature, Nici should consider keeping the money as an emergency fund. While paying off her student loan is important, she also needs to build up a larger cash reserve. I’m less concerned about the student loan than her small emergency fund. The priority should (almost) always be ensuring you don’t go deeper into debt, which is what could happen without a solid emergency fund.
Her student loan–while it is debt–has a pretty low interest rate of 4.6%. If she had to incur credit card debt to, for example, pay her rent and utilities in the event of a job loss, the interest rate would most likely be north of 15%. Ensuring she doesn’t ever need to take on credit card debt takes precedence over paying off the relatively modest 4.6% student loan.
Additionally, since it sounds like she’ll need to buy another car at some point in the near future, this money might go towards that. I personally wouldn’t tie it up in accelerating student loan repayments.
Are admirable!!!! She’s done a fabulous job of spending very little and is a frugal model to us all. Her grocery hacks alone are worthy of front-page news! If she wants to, there are a few areas where she could save a teensy bit more. The reason to save more would be to build up a more robust emergency fund and save for a new-to-her used car.
I have no beef with Nici’s current spending. She spends WAY less than me, she’s crystal clear on her priorities, and she’s a certified frugal maven. However. It all circles back to her income and the margin between her income and expenses. If her income remains the same, she may need to make deeper cuts to her already impressive budget.
Here are some ideas for how she could save more every month:
|Item||Current Amount||Mrs. FW’s Notes||Possible New Amount|
|Rent||$1,390||Fixed; no change||$1,390|
|Car Maintenance, Repairs, Registration||$395||Discussed above; I’ll leave as is for now, but I recommend reduction||$395|
|Student Loan repayment||$271||I would actually stop accelerating re-payment and would just pay the minimum.||$221|
|Electricity||$93||Any opportunities to reduce this?||$93|
|Entertainment||$92||Discretionary; could be eliminated||$0|
|Dining out||$62||Discretionary; could be eliminated||$0|
|Internet||$57||Nicely done on calling to get a rate reduction!!!||$57|
|Car Insurance||$48||Discussed above||$48|
|Travel||$47||Discretionary; could be eliminated||$0|
|Cat||$42||Fixed; no change||$42|
|Clothing/Makeup||$41||Discretionary; could be eliminated||$0|
|Personal Care (Hair/Facials)||$39||Discretionary; could be eliminated||$0|
|Cell Phone||$35||I suggest investigating other MVNO options. There are plenty that re-sell AT&T and Verizon. I personally use Ting, which re-sells Verizon, and I pay circa $14.79/month (affiliate link).
Also, if she’s using her phone for work, would they reimburse her? Worth asking if she hasn’t already.
|Gifts||$18||Discretionary; could be eliminated||$0|
|Renter’s Insurance||$12||Fixed; no change||$12|
|Healthcare||$12||Fixed; no change||$12|
|Patreon||$10||Discretionary; could be eliminated||$0|
|Hulu||$6||Discretionary; could be eliminated||$0|
|Current Monthly subtotal:||$2,845||Possible New Monthly subtotal:||$2,460|
|Current Annual total:||$34,140||Possible New Annual total:||$29,520|
With the above, she’d be on track to save an additional $385 per month ($4,620 per year); plus any savings she’d accrue from driving a different car. She might consider these savings for the short term while she builds up her emergency fund and saves up to buy a car.
I hate that I had to strip out all the fun stuff from her budget and I’m not an advocate for miserable deprivation. However, I really really really don’t want Nici to find herself in a precarious or untenable financial situation down the road.
I want to emphasize again how well Nici is doing. She created a life she loves on a small(ish) salary in a high cost of living city. Everything we discuss today is in the shadow of her excellent financial decisions up to this point. Kudos to Nici!
- The ceiling Nici will continually bump against is her salary. She is doing all the things right in terms of keeping her expenses low, investing for retirement, and paying off her student loan. But, she will never make tremendous headway on her current salary. This is fine, but it is a trade-off. If she wants, Nici should consider exploring other jobs/careers that might afford her a bit more financial breathing room.
- The major concern here are possible future rent increases that’ll outstrip her salary.
- If it were me, I would sell the Mustang and buy a reliable, boring, fuel-efficient small car, such as a 2010 Toyota or Honda. Of course, this is easy for me to say because I don’t have the emotional connection to Nici’s car. This won’t be an easy decision, but from a financial perspective, it’s a slam dunk.
- As the bonds mature, I suggest Nici keep that money in cash for her emergency fund and her buying-a-used-car fund.
- Consider reducing her expenses–as outlined above–for at least the short term to allow her to build up her emergency fund and the cash to buy a used car.
Ok Frugalwoods nation, what advice would you give to Nici? We’ll both reply to comments, so please feel free to ask any clarifying questions!
Would you like your own case study to appear here on Frugalwoods? Email me (firstname.lastname@example.org) your brief story and we’ll talk.