My Sister’s Awesome Financial Decisions

I don’t talk about my family of origin a lot on this blog (for privacy reasons) but I want to suspend that policy for today’s post to brag about my sister.  My sister is 25 and not a nerd.  Like, I’m a nerd, right?  I went to a nerd high school and a nerd college and now I’m doing a PhD in engineering and I picked up an interest in PF along the way, which I obviously am nerding out on.  But my sister is, like, a normal person.  (Actually my whole family of origin is quite normal.)  But part of being normal means that she used to be not that great with money.

 

I don’t want to focus on the negative, but I’ll just paint a brief picture – and most of us have been there at one time or another.  My sister went to college for a few semesters but it didn’t work out, so she moved back in with our parents.  She had a private student loan from her time in college.  She worked at a sports bar-type restaurant for a number of years and basically didn’t seem to be getting anywhere financially.

 

my sister, me, and my mom earlier this month

my sister, me, and my mom earlier this month

Now on to the great decisions she’s made.  Some of this I can take zero credit for, like the start of her journey.  But along the way I got more vocal about PF and gave her a book or two and now she periodically asks me for advice.  I hope that I’ve been a bit of a good example and resource for her.

 

At the urging of our parents, my sister paid off her student loan aggressively.  She would put an extra $1k toward it every month or two, so frequently that the loan company scolded her!  They said her payments were supposed to be the same amount every month, even if it was above the minimum.  She ignored them and powered through.

 

After she killed the student loan I started talking with her about the possibility of moving out of our parents’ house.  It became apparent that she wouldn’t be able to budget effectively.  Her expenses were low and her savings was growing, but she couldn’t account for the disparity between those and her total income.  Because she worked as a waitress, most of her income was in cash and only a small portion was automatically deposited into her checking account.  She basically paid all her going-out expenses completely in cash and only rarely deposited any cash into her account; she was not keeping track of her spending and had no easy way to do it electronically because she was using cash so often.

 

After this problem was pointed out to her, she switched to using debit.  She deposited her cash tips frequently into her checking account and paid her expenses with her debit card whenever possible.  She opened a Mint account to help her keep track of her spending.  While she still didn’t budget, the simple fact that her spending was being tallied caused her to spend less frivolously.

 

Last fall, my sister decided she was tired of her job and started searching for a new one.  It took her several months – during which time she worked as a seasonal employee – but she finally landed a job as an administrative assistant in a doctor’s office.  I’m so proud of her for taking the leap out of her safe, familiar work environment and challenging herself with a new type of job.  She’s happy to have a 9-5 job, but she actually still works a shift or two per week at her old job in case the new one doesn’t work out (and the extra money doesn’t hurt).

 

When I saw my sister a couple weekends ago, she told me she had a lot of savings built up and didn’t know what to do with it.  She had considered buying a car, but our parents recently bought a new one and she now has one of their older ones exclusively for her use.  She said she was interested in opening a Roth IRA (which we had talked about previously) but wasn’t sure if she wanted to commit the money.

 

I told her all about the advantages of using the Roth IRA for retirement savings as well as how the money was still accessible for certain purposes without penalty.  She was still wavering about using the Roth IRA (“What if I want to take the money out in a few years?”) until we started talking about compound interest.  I started with the examples I used previously, of a low-income PhD student saving during grad school.

 

Then we opened up a compound interest calculator and plugged in what just one year of Roth IRA contributions would do over 40 years invested in the stock market.  Then we took inflation into account.  Then we looked at a few years of contributions.  My sister was mesmerized.  She immediately turned on the spot and said she wanted to put $5,500 into a Roth IRA that moment.  She was adamant.  I talked her down to $3,000 (based on her savings levels) and assured her she could continue to fund it up to $5,500 over the rest of the year.  The very next morning she opened an account with Vanguard and set up the transfer for $3,000.

 

How baller is my sister?!  She put $3,000 into a Roth IRA all at once after building up a fat stash of cash from getting a better job and tracking her spending after paying off her debt.  I think she’s doing an amazing job!  I’m still trying to convince her to move out on her own or at least pay rent to my parents, but one step at a time.  🙂

 

Have you seen “normal” people succeed with money and have you played any role?  Have you been deeply affected by compound interest calculations?  How do you think young adults living with their parents should handle their finances?

 

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31 Responses to "My Sister’s Awesome Financial Decisions"

  1. Lucas says:

    Great job sista & Emily for spreading the joy of compounding and knowledge about PF! ROTHs are a great choice for savings, especially if you are not too far up the tax bracket chain, then they start to fall below normal IRAs and 401ks in my opinion. But the ROTH is definitely more flexible in any case.

    I was going to say something dorky like “give me compound interest or death”, but seriously I have lived by compound interest calculations since high school. I have been trying to remember who/why I understood them (at some level at least) back then, but haven’t been able to trace an origin. Starting Full Time work as a programmer at age 20 has definitely been a huge benefit to where I am today as I have a couple more years of compounding then most people my age.

    I have been encouraging my family as well as much as I can. I finally got my parents to do a budget (which they had never done before), and I am working on encouraging my in-laws to take more advantage of the market (vs fearing the unknown and keeping way too much long term money in cash/CDs that is getting eaten by inflation).

    1. Emily says:

      My sister is in the perfect tax bracket for a Roth; I think it will be a good choice for her for some time. I don’t remember when I first learned of compound interest, either. I know of its power but I’m not, like, blown over by it (any more?) so it was interesting to me that she was so fascinated.

      Hmm, my parents are also in need of a budget and my in-laws in need of more market risk. 🙂 What a coincidence.

  2. That’s a great story — thanks for sharing it!
    Done by Forty recently posted..Happiness and Many Small Pleasures

  3. It is good to hear that she turned it around. I love my Roth and think it is great to have. I like the flexibility and I hope she picked a good company to use, but I am sure you gave her some tips on that.
    Grayson @ Debt Roundup recently posted..Do You DIY to Save?

    1. Emily says:

      Vanguard! She had enough saved to pass the minimum initial investment. The last time we talked about the Roth we thought she was going to have to start at another company.

  4. Jon White says:

    That’s an inspiring story about your sister Emily. It just goes to show that people’s financial situation is never permanent. Anybody can change with new information and some encouragement.
    Jon White recently posted..JW’s Financial Coaching Podcast Lesson #45-Getting your finances out of neutral and into high gear

    1. Emily says:

      Well, I think she still has a lot of flexibility – she’s young and hasn’t developed financial patterns and habits over decades the way some people have. But I’m glad she is reinforcing some good financial habits at a young age.

  5. Great job Emily’s sister!
    Savvy Financial Latina recently posted..The Happiness Advantage

  6. Ed says:

    Truly amazing! Very impressive work–keep it up! Thanks for sharing the story.

  7. Inspiring story! Everyone starts out as a normal person in the world of PF, some people just tend to grab hold of the idea a little more enthusiastically than others. 🙂 I love that you’re able to help guide your sister towards making sounds financial choices, something I’m looking forward to being able to do with my younger siblings in the future.
    Kyle @ Debt Free Diaries recently posted..Will Your Raise Your Income or Lower Your Dreams?

    1. Emily says:

      I think there are natural predilections that people have before learning about PF. My husband is natural saver, for instance. I think I’ve just tried to live a good example and be open about our decisions. It’s a bit easier to make recommendations to younger family members than older ones or strangers.

  8. That’s awesome!

    I keep thinking, my little sister isn’t a nerd, but in reality, she really is. She’s just not anywhere near as much of a nerd as I am. (She’s one of those mixed nerds… an engineer who was also a cheerleader.)
    nicoleandmaggie recently posted..Money can’t buy me love

    1. Emily says:

      Good for her for moving between worlds. 🙂

  9. Way to rock it, Emily’s sister! It doesn’t take book smarts or an obsession with numbers to spend less than you earn and put a chunk away for the future!
    Mrs. Pop @ Planting Our Pennies recently posted..An Update To A Horror Story

    1. Emily says:

      That’s something I really like about PF – it’s possible for everyone to make improvements.

    1. Emily says:

      It’s difficult! Some people want to know more and some don’t. I’m now known by my friends as the one who’s into money management and they come to me with questions sometimes.

  10. That’s awesome how she is handling the job change. Most people seem to just go, “I hate this job,” quit, and then start looking for a new one.
    Edward Antrobus recently posted..Basic Car Maintenance You Can Perform Yourself

    1. Emily says:

      Our father REALLY drilled into us to never quit a job before you have another lined up. He had a 2-year-long unemployment when we were in HS because he wanted to take a few months between jobs and the economy took a downturn just then. I’m sure none of us will repeat that mistake after witnessing that hardship.

  11. That is excellent! Congrats to your sister, it seems like she’s making good moves and is on a roll!

    As for compound interest, I definitely appreciate its power. I’d love to teach my daughter about it as she gets older.
    Tie the Money Knot recently posted..Money and Marriage No Laughing Matter To Comedienne

    1. Emily says:

      She is on a roll! It’s been building for some time.

      I wonder if compound interest would seem as amazing if you learned about it gradually and from childhood. Maybe I’m not so bowled over because I have plenty of experience with exponential functions?

  12. G$ says:

    I read your blog weekly and never usually comment, but I thought you should know that this post inspired me to send my friend an email with resources about investing in a Roth IRA. We were discussing money and finances when I discovered that she didn’t have a 401(k) plan through her part-time employers. I am an avid personal finance blog reader and very invested in my own retirement planning and savings, so I wanted to enlighten her while she is still young (23). Your post reminded me of our conversation and gave me the motivation to send her an email of encouragement to learn about investing and retirement planning – thank you for that!

    1. Emily says:

      Thanks for breaking your silence and leaving this comment! I hope your suggestions to your friend go over well. The Roth is really a great savings vehicle for young people.

  13. Woot woot, you go sister! I’m definitely the nerd of my family. The rest of my family is “normal” in a financial sense, but still pretty strange lol. I guess that’s where I “get it”.
    KK @ Student Debt Survivor recently posted..Top 10 Reasons Friends With Debt Are No Fun!

    1. Emily says:

      I’m for sure the only PF geek in my family, but my parents have their own geekiness in other arenas. I hope that PF nerdiness rubs off enough to be useful to family members – in this example it has!

  14. […] a longtime reader and first time commenter, told me that she found the story of my sister’s success inspiring: “This post inspired me to send my friend an email with resources about investing […]

  15. I love when my nerding out on finance is able to help someone else out. Seeing a family member benefit is even more rewarding. Congrats to the both of you.
    Michael @ The Student Loan Sherpa recently posted..Best of the Web: Volume 1

    1. Emily says:

      Yes, it is wonderful! I’ve become a resource for many friends on PF – just in the last couple days I’ve had two friends as questions at an intro level for instruments they are thinking of using. It’s very fun to be able to put this nerdiness to work.

  16. […] @ Evolving Personal Finance writes My Sister’s Awesome Financial Decisions – A couple years ago my sister was in debt with a crappy job and no idea where her money was […]

  17. […] @ Evolving Personal Finance writes My Sister’s Awesome Financial Decisions – A couple years ago my sister was in debt with a crappy job and no idea where her money was […]

  18. […] post is by my (Emily’s) younger sister, Michelle, who is making awesome financial decisions under my and Ramit Sethi’s tutelage (I gave her I Will Teach You to Be Rich for Christmas a few […]

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