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.
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?