Reader Mail: I Saved A Lot of Money. Now What?

OK, I am a young professional with a good job that I got in 2008 after graduating college. Since my hiring, I’ve managed to put away about $12,000 into a savings account, and a few months ago my parents gifted me another $20,000 because they gave up on me ever having a wedding.

So that leaves me with $32,000 in a savings account. I also have a checking account with a balance of $14,000 (more savings I’ve put away from my job) that I use to cover my monthly expenses so basically the $32,000 is just sitting there. It makes like $2 in interest every statement or something.

But here’s the deal, I have NO plan for this money. I already have a 401(k) with a match that I contribute the max to. My car is old and I should probably get a new one, I don’t have a Roth IRA, I don’t want or have a house, and I like my job but would be open to taking another awesome job if one opened up. I have no debt at all.

What would you do with that money and those circumstances?

P.S.: It might help to know that by nature I’m frugal and prefer to live beneath my means. — Anonymous

Mike: So Logan, I am totally proud of this person

Logan: I’m totally shocked and awed by this person. Like: way to save. But also: Maybe you should live a little? Like, what has she been doing with herself (or himself)?

Mike: Okay, I think I need to say it again. I am so proud of this person! Person! I want to give you a hug!

Logan: Okay, high five person. Well done. 

Mike: Also, Logan, remember just because this person is saving, doesn’t mean this person is not living a full life. I think I’ve explained that pretty well this week. But! I will agree that after this person does things like open a Roth IRA (I think I’ve been a broken record on that one), or a traditional IRA if this person earns more than $105,000, which is really possible considering all the savings, I do want this person to do a little nice thing for themselves. Go on vacation! You deserve it!

Logan: Yes. I just want to make sure this person is living in the Now as much as in the Future. Also: I want to know how s/he saved that much money. We don’t know how much s/he makes. It might be tons. Also: I’m very interested in “preferring to live below my means.” How does that work? And why would someone prefer that?

Does Not Compute.

Mike: Well, it means this person isn’t living paycheck to paycheck, which is the trap a lot of people fall into. It means choosing to live in a normal size apartment instead of one with a swimming pool, and a gym, and a doorman who can accept your packages for you. I think what happens to a lot of people when they go from earning a little bit of money to a lot of money is this thing called “lifestyle creep.” Which means, they upgrade everything in their life. Goodbye, old car! Hello, BMW! See ya, apartment with no amenities! I am guessing you would be the sort of person who would totally upgrade everything in your life if you started earning a lot more money. The problem with that is that although you are earning more, you’re really not saving any more, you’re just spending more.

Logan: You’re right. You’re right. This person is great. I’m not sure I have anything to say to him or her though. Like, I think we live on different planets.

Mike: Oh, I think we can bet on that. But I think we’re all living on our own respective planets when it comes to our money. Like “Le Petit Prince.” I’m certainly not on that same planet, because I don’t think I’m as frugal.

Logan: Let’s talk about that, because I’m not sure that’s something that your Internet Fan Base knows about. Like, Internet: Did you know Mike Dang once spent $200 on cheese for a dinner party?

Mike: Haha. It was $150, yes, and it was for my one big party of the year where I invite my friends over and tell them I love them and give them cheeeeeeeeese to eat. I could afford that though! And I am happy to splurge every now and then because you have to remind yourself that life doesn’t always mean being a miser and watching the dollars in your account grow. You have to remind yourself to live a little. And I want this person to live a little if they are up for it.

Logan: Me, too! I think this person should go live a little in some other country. Maybe Paraguay?

Mike: I mean, if they really wanted to go all out, they could contribute $5,000 into an IRA, and then contribute the $17,000 max into a 401(k), but I don’t think that’s necessary—unless it’s something this person wants to do. They’d still have money leftover to live a little.

Also, before this person goes to Paraguay, I definitely think they deserve a new car

Logan: Well, if they want. Cars are a boring thing to spend all your money on. Get like, a 2000 Honda Civic and call it a day. I bought a new car once, not so fun!

Mike: Yes, cars are depreciating assets, meaning they go down in value significantly every day you drive it. I’m guessing this frugal person will get a used car anyway! Also, I think it’s pretty insane that this person has $14,000 in his or her checking account. You should have enough to pay the bills, and the rest should go into savings so it can accrue the interest! Get some of that money into a CD (certificate of deposit) or a high yield savings account.

Logan: Okay. So like, dream scenario, this person should take a couple thousand and trade in his or her crappy car for something reliable. And maybe put like, IDK, $10,000 in one of those fancy retirement accounts you were talking about. And then spend the rest on Paraguay.

Or Paris.
Or Portugal.
Or Poland.
Really anywhere that starts with a P.
Other Portland.
Papua New Guinea.

Mike: I just want this person to be happy, really. I mean, not everyone likes to travel. If going to the ice cream parlor and getting a sundae is what makes this person happy, then that’s what this person should do. I mean, I am proud of this person, and I want him or her to do the thing that he or she loves.

Logan: Me, too. And if that thing involves taking us both on a trip to Paraguay, or buying us ice cream, well, all the better. Sharing is caring. As they say.

Mike: Haha. Yeah, the good thing about having money is that you can be generous with it if you want. Or you can be a Scrooge if that makes you happy! It’s your money. Hey. Can we talk about this person’s parents giving him or her $20,000 because they were like, “Well, guess you won’t ever be getting married!” I mean!

Logan: Ha, yeah that’s crazy. And also like “giving up” when s/he is like what … 25? 26? But I mean, good for them for saving all that money. That was really nice. Even if it was for something stupid like a wedding.

Mike: I know! So I just Googled it. The average cost of a wedding in 2011 grew to $27,000, according to TheKnot. I mean go for it, if you have the means, but come on.

Logan: The Wedding Industrial Complex is totally ridiculous. I mean, super fun. But ridiculous. I’d rather go to Paraguay.

Mike: Me too. Let’s get fake married in Paraguay.

Logan: On this person’s dime. Sold. Person! We solved your problem! Okay bye!

Mike: Person, one last time: High five!


Photo: Flickr/Arcadius


48 Comments / Post A Comment

What would you do if a person you loved had this much cheddar (well almost this much, more like $30k total) in a checking account? More specifically, what would you hit him over the head with?

Myrtle (#116)

I agree with taking that 14K out of checking. yow! Put it to work! But instead of “spending” that money, I have another suggestion, and that is Put it to Work.
My credit union (you’re not still using a “bank,” pls say you’re not) wrote me a loan for which the collateral is my own money. I borrowed 2k because I had 2k in the bank. We moved that to its own account, then funded my savings account 2k. A credit union can do this for you for very little money; a regular bank’s fees are too high. Then I have an automatic payment set up to pay the “loan” back. Every month’s payment frees up available money in the secured account, and, Raises My Credit Score.
This is my new favorite thing. I’ve no use for a credit card- I also like enjoy below my means. Which means if I want to buy myself an exceptional $20 steak at the butcher shop, I do it.

Myrtle (#116)

PS I think the loan’s cost to me is under $50. So worth it to raise my credit score.

RosemaryF (#345)

I…I am fascinated by his parents giving him/her money they had saved for a wedding. If my parents (who love the hell out of me and are generous to the point of secretly paying off my undergrad loans before I realized it) had a savings account for my wedding that didn’t happen, they would use the money for trips for themselves, not as a “here you go” for me.

I…I have a suspicion this person comes from money, but in a non-showy midwest kind of way.

RosemaryF (#345)

@RosemaryF I am also apparently developing a comment-stutter.

melis (#42)

@RosemaryF What I’m having trouble figuring out is the timeline. Assuming this letter writer graduated college around the age of 22/23, she’s in her what, late twenties? That seems fairly early for her parents to have assumed she’ll never wed, right? (I MEAN MARRY OR DON’T MARRY AS YOU SEE FIT, LETTER WRITER I HAVE LITERALLY ZERO DOGS IN THIS FIGHT)

automaticdoor (#145)

@melis It’s super early! I’m a Young who graduated from college a year behind this person and if my parents told me a year from now (so, when I’m 26, because I was 22 when I graduated) that they were giving up on me ever getting married, I’d be really pissed. I mean, I wouldn’t turn down the money, because I am a Poor Young, but I would be super pissed off. 26ish? Really?

@RosemaryF A girl I kind of know (friend of a friend) was given something like $20k by her parents for her wedding when she got engaged. If I found out that my parents were hiding $20k for my wedding when I went into debt for college, I would shit a brick, for serious. (I told my parents this, they laughed a lot. Good parents.)

Titania (#489)

@RosemaryF I vividly remember my father coming home from work one night when I was in high school, and announcing that he had just met with his financial advisor, who had asked him if he wanted to start setting aside money for my wedding. The incredulous tone with which he recounted this conversation, as if perhaps his advisor had suggested saving for a trip to the moon, left me with very little doubt as to his decision. Farewell, theoretical huge chunk of money.

Tracy (#491)

@melis this is the LW – sorry it never occurred to me to explain more deeply; my parents didn’t give up on me getting married because of my age but because I’m with a partner of the same gender.

automaticdoor (#145)

@LW Oh man, now I’m even more offended, LW! I mean, unless you don’t want a wedding or something or you live in a country where being gay is a crime punishable by death so you’re deeply closeted. Otherwise, now I’m spitting angry, as my mom would say.

automaticdoor (#145)

@automaticdoor Clarification– I’m an equal-opportunity dater, as I like to call myself, and if my parents gave up on me because I was in a relationship with a girl I would be furious. This one hits under the belt for me.

NoReally (#45)

Oh my freaking god, to even suggest that someone who has saved a couple thousand dollars a year might need a reality check on not living a joyless life is taking the Grasshopper act to the point of ridiculous. This is what grown up people do. When you have income, you save some of it. This is not extreme behavior. This is garden variety common sense.

@NoReally I know. I feel like I’m taking crazy pills with some of the things I’ve read on this site.

colbeagle (#486)

@NoReally Seriously. The concern-trolling over how this poor person clearly has no idea how to live or have fun is pretty gross.

Mike Dang (#2)

@colbeagle Whoa there. We never say this person is living a “joyless life.” In fact, when Logan first mentions that this person needs to live a little, I say, “Also, Logan, remember just because this person is saving, doesn’t mean this person is not living a full life. I think I’ve explained that pretty well this week.”

Also, I am high-fiving and hugging this person for putting themselves on the right track. Yes, it’s common sense for people to save, but the the reality is that a lot of people aren’t doing this and it’s looking increasing more likely that they’ll have to work past the age of 65.

Titania (#489)

@Mike Dang I definitely didn’t read it as concern trolling, I think it’s just the natural dissonance of having someone like Logan in a position of offering advice on what people should do with their money. It’s sort of like having a conversation about evolution and inviting a creationist–yeah, sure, they’ve got a viewpoint, but no one with half a brain would seriously entertain anything they say. Not that I don’t love hearing from Logan–great writer!–but I would assume that the sort of people inclined to read a site about managing money are probably, in general, better than your average bear with money, no?

colbeagle (#486)

@Titania Yeah, it’s the advice column thing that got me all bothered, I think. I know the site as a whole is trying to include different viewpoints, but in an entry specifically filed under ‘advice’ where someone asks a perfectly reasonable question about what to do with their perfectly reasonable savings, it’s a little jarring to have “Maybe you should live a little? Like, what has she been doing with herself (or himself)?” right up front. I know you browbeat her back from that, but still.

Mike Dang (#2)

@Titania Yeah, I totally get that. We’re more a site about “talking openly about money” and less a “personal finance” site in the traditional sense, the reason being that there are already a ton (a TON) of really great personal finance sites out there that are full of really smart people who will tell you how you should be managing your money, and we don’t need to be another site that offers that same information. I do bring a little bit of that, but the truth is, there are a lot of people like Logan who are trying to figure out how to get their act together and they feel intimidated by those sites, so they don’t read them. We’ve gotten lots of great comments and emails from people who identify with Logan, and who are now finding themselves reading a site about money for the first time, and who are now inspired to get their act together. That’s exactly what we’re going for, and if we can get more people to think about money who hadn’t considered visiting a “money” site before, we’re doing our jobs.

@colbeagle And thank you for clarifying—I think that’s only fair.

lalaland (#437)

@NoReally I think Mike’s been great in the conversation. Really, it all boils down to what will make that person happy, and judging from his/her history, it’s not spending money.

Logan, on the other hand, is hilarious and yet physically stresses me out. And it is also evidenced from her advice that she…kind of is who she is? Like if she had a large chunk of money…she’d probably blow it in a week, and this is partially why she’s never had a large chunk of money (sorry Logan, I hate making presumptions about people over the Internet whom I’ve never met…but I’m doing it right now. Eesh).

To sum: Logan & Mike, you guys are giving advice and it is true to whom each of you are. Whether it is good advice or not, well, this is the INTERNET guys. C’mon.

Megano! (#124)

$150 on cheese = totallly reasonable expenditure. And I say this as someone who is lactose intolerant.

Katzen-party (#219)

IRA, 401K, travel, sundaes, a car to replace your crummy one–all excellent ideas! But might I suggest giving to charity? You definitely don’t have to go crazy with it, but if I had the spare money that this LW has (and kudos to them, btw!), I would definitely be excited to be giving at least a little of it out to worthy causes. If you are already doing this, LW, good for you! And if you don’t want to, hey, it’s your life and your money!

DillyBean (#483)

@Katzen-party Yes! My husband’s grandma died and left us a bunch of money. We decided to put a quarter towards charity, a quarter towards fun things (some of which included household necessities, which were fun for us), and saved the remaining half. The money we spent on charities was incredibly rewarding. It made me so happy.

@Katzen-party Concur. One of the most exciting parts about saving money in my twenties was realizing I could start making donations to causes I cared about. Like the Avenue Q song says, giving funds away helps you feel generous, politically involved, and like maybe a Good Person, which is something that, otherwise, money can’t buy.

@Katzen-party Ditto. I’m not saying go all Peter Singer, but if I had money and a situation like that, I would love to donate more! I hate to be Debby Downer, but kids around the world die every day from extremely cheap-to-prevent diseases like dysentery. Healthy, adoptable animals are put down in shelters in vast swaths of America every day due to lack of funds. People are denied basic human rights all around the globe. Not this person’s fault, but he/she/ze can help. So I support this person investing, buying a house, traveling, eating more ice cream, whatever, and I also hope- since he/she/ze asked- there’s a cause they would enjoy supporting.

Megano! (#124)

Also holy shitballs, $27,000 for a wedding? People realize that lavish weddings were only for nobility, right? Maybe the occasional filthy rich merchant class. EMBRACE YOUR PROLENESS PEASANTS! mPut on your best dress and have your family potluck it! Unless you are actually rich/nobility.

@Megan Patterson@facebook YES PLEASE. $27k seems absolutely insane. ALL THAT YOU NEED IS TO ACTUALLY BE MARRIED BY THE END OF THE DAY. I think a marriage license costs something like $14 here? Good to go.

sony_b (#225)

My parents gave my 10k when my little sister got married, just to keep things even. Seriously – my dad actually said something along the lines of well…you might not get married until 2010 or something, and who knows what 2010 dollars will be related to now. 2012. Still not married.

In this person’s shoes I would plan for replacing the car, and then I’d break up a big chunk of those savings into a CD ladder. My personal goal is to get a ladder set up with 12 12-month CDs each with one month of living expenses. So the money’s always accessible, it’s growing a little bit as rates go up and down, but if I lose my job I’ve got a steady stream of “income”.

sony_b (#225)

@sony_b I should state, I am NOWHERE near achieving this goal. But it’s my goal. :)

themegnapkin (#444)

@sony_b Not aimed at you, but what’s with the love for CDs? I don’t understand tying up your money for ~1 year at a time in exchange for a minimally better interest rate. Seriously, the interest rate on a 1-year CD is just barely over 1%, while I earn 0.80% on my ING savings account.

highjump (#39)

@sony_b I love CD ladders so hard, but am not yet flush enough to have one. But someday I will have one and each rung will be a month’s rent.
@themegnapkin Yes, it would be more attractive if CD rates were still at 2005 levels, but it is still better than checking/savings. I think they’re a good idea because of the stream of income idea discussed above, it imposes some self control.

sony_b (#225)

@themegnapkin You’re right – at the moment they do suck, and the next couple of years aren’t going to be great for CDs either. But the things I do like about them are:

1. Automated rollover at whatever the prevailing rate is – so even though they are low now, they will go up again when rates do, and once the initial setup is done I don’t have to think about it.

2. It’s just enough of a PITA to get out of a CD early that I would be unlikely to do it outside of a true emergency, but knowing that enough money to get me through the month will be coming available every month for the next year would be a huge comfort when I get laid off again.

I’m in tech. I’ll get laid off again. :) I definitely don’t advocate doing something like this with all of your savings forever and ever amen, but as a relatively conservative investment as part of a bigger strategy with riskier components, it makes sense to me.

mishaps (#65)

Person, you should also consider putting some of this money in a non-IRA mutual fund, or funds. It’s a long-term strategy, but I like the fact that I have investments that I can access before I am a Really Old.

But yes! Go on a vacation! You don’t even have to go to an exotic locale. Go to surf camp. Go to a spa. Go to the French Laundry! Choose a sum of money ($3K?) to spend on yourself, and a great experience, and go do that.

kellyography (#250)

Dudes, the cost of an NYC wedding is now over $70,000, according to that same article on The Knot. Messed up.

Meanwhile, I am approximately the same age as this person, and have saved quite a bit, as well (with no help from my family), but still have a ton in student loans. Is it more prudent to pay off the student loans now, or put that money To Work as it were, and put it in a bunch of places (IRA/CDs/whatever), while paying off the student loans in smaller increments over a longer period of time?

@kellyography It depends on whether you can make more off of interest by “Working It” than what you’re paying in interest. I think the general rule of thumb is to pay debts off first since the interest on loans is more than the interest on savings.

I think it’s a good idea to consider your credit score. I have a bad credit history, but all my student loans are in good standing. I plan to continue to only pay the minimum each month until my score improves. Otherwise the only active accounts on my credit report will be bad ones. Or is that a terrible idea too? Help.

@kellyography Pay off the loans. Besides the fact that they likely have higher interest rates than other investments at this point, being debt-free gives you the freedom to make more choices about your life. Deciding to travel the world for a year or stay home with a baby is a lot easier when you don’t have as many bills coming in every month.

rural 14 (#485)

Checking account or savings account or IRA makes no difference. What is a 5 and 10 year life plan? The money is to facilitate living; short term empty desire fulfillment, like a car, is short sighted and ethically weak. Even if the plan is not to have a plan / “I don’t know”, building a little cushion allows much more flexibility in the near and further future. The best financial planning is the hoary Dickensian* one – “Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.” Happiness isn’t a result of savings or cars but of freedom and in this context, freedom from financial fears. I left the conventional job market in my 30s, and haven’t looked back except to think about how I could have done it sooner. (less stuff / less car etc).

rural 14 (#485)

@rural 14
* perhaps I should have used “Hoary Dickensian” as my commenter name.

themegnapkin (#444)

@rural 14 how did you do it – leave the conventional job market? What do you do now? I’m soooooo interested in hearing from people who have made this work!

themegnapkin (#444)

@rural 14 if you don’t feel like sharing with the world, could you maybe email me at themegnapkin -at- yahoo -dot- com?

rural 14 (#485)

How did I do it? A few things – I worked in a very old line carriage trade industry, that was (and is) a bit complacent about it’s product offerings; so all I needed to do was come up with a slightly better idea…not reinvent the category, like the iphone, but just make something a bit more intelligent. I did that and sold the heck out of it, while at the same time saving 20 – 30% of my income every year for a few years. My product was then licensed by a big consortium of companies (and then they mothballed it – that’s another topic) – but it gave me a [small]revenue stream for a few years, which allowed me to put some down payments on a few properties which I was able to renovate and rent out. With the banked payroll, I also had reasonable success investing, after trying out lots of different strategies; at my micro level there is no way to crush the market, one can only stay a little bit ahead or at least even with it / minimizing risk. It’s rigged, so I figure I’ve done OK re that.

Now I freelance in completely different industries, when a troubleshooter is needed / + the income from rentals (a difficult and thorny business) + keeping expenses very low, but enjoying life = how I did it.

I live the way (I assume) a sybaratic graduate student does; when we travel it’s low budget; all clothing is used / cars are over 12 years old and we don’t use them very much / much entertaining, but all at home / when visiting NYC lots of time walking, not much time in bars.

I have a lot of friends in their 20s and 30s, and I’ve helped them map out strategies so that they can be a little bit financially independent in the way I am. Far better quality of life; not such a great quality or quantity of fancy stuff from the au courant shops or bars though.

It’s pretty simple, and the humorously not taking his own advice Micawber quote is accurate. And what’s nice is when one is young it scales way down.

Also, bust out of your student loans – be a good actor – meet with those loan companies in person, and renegotiate. I’ve done this with some of my aforementioned younger friends, and it is possible. F those loan companies; truly preying on the innocent and naive.

emmy (#324)

Why isn’t anyone talking about stocks or other investments? I really don’t know what I’m talking about when it comes to this, but my first thought was: buy some Apple shares! Maybe you guys could do an article about that, because I feel like the stock market is the only way to make serious money off of your money, right? My savings account’s interest rate is like .8%, and I haven’t seen any CDs that seemed great either.

But if I were this person, I would use some of the money for the very expensive hobbies I’d take up if I were rich: horseback riding, scuba diving, vintage clothes collecting… you know, the usual.

highjump (#39)

@emmy An IRA is just a way to buy stocks (or bonds, or keep cash) tax-deferred. LW can still buy Apple shares and then retire on those sweet, sweet dividends.

Horseback riding! Yes. I would definitely buy a horsey and some killer riding boots if I had that kind of cash.

nerd alert (#436)

I did this same thing! I worked at a job that paid 30k a year after graduating undergrad, and squirreled away 27k over 3 and a half years. I lived super cheap, and I’ve never been much of a spender- but I took some trips and had some fund. And then I blew most of that money on grad school.

lalaland (#437)

To the letter writer: As a person who has a relatively low-maintenance lifestyle, aside from a crippling shoe habit, and also some money saved but NO plans, I dunno…what do YOU want to do with it?

The thing is, you don’t really have to do anything with it if you don’t want to – if you don’t like trips/don’t want a car/etc. etc. Sock it away in some stocks/bonds, start an IRA (although caveat emptor, I started an IRA with my signing bonus in 2008 and OH MY GOD IT IS BASICALLY ALL GONE effing Fidelity), and maybe if you really really really feel the need, treat yourself to something nice that you enjoy (wine? shoes? a vacation? shoes?).

barnhouse (#202)

Rats! I am coming to this so late! I want the person to rethink having a house. Even Marc Faber and Warren Buffett are saying that real estate is the great place to put money because all other investments are lame right now. You say you are frugal then WHY would you pay unnecessary money in rent when you could be building equity, and property values are on the floor and you are responsible and have a job. You can totally buy a house in a half-decent neighborhood in many parts of the country with this down payment. It’s worth it!!!

I AM FROM PARAGUAY! and I am studying accounting and economics in the States so I know what I am talking about. Listen to me here, this is funny because Mike and Logan were joking about living in Paraguay. But if you want to increase your wealth, I recommend you moving to Paraguay. Here are the reasons why: Money seeks higher return, not even with the best CD’s or stocks portfolios would you get the same ROI as the interest rates for saving accounts here in Paraguay. My parents have money in saving accounts that generates an average of 15% annual percentage yield. DID YOU HEAR THAT? 15%, that is higher than any type of investments in the US. So, lets say that you put those 32k in a savings account, it will generate about $4,800 and that IS NOT EVEN TAX HERE IN PARAGUAY!! The cost of living is very low here in Paraguay. I don’t know what you do, but you can probably can find a good job in Paraguay, save more, lets say by 35 you can manage to save $100k, which I think by the way you are saving is doable. You would be making $15k a year just out of interest.Thats better than anything else you can do in the US, where you would have to work your butt off until you are 50 or older. You can live a good life, and by good I mean drive a new car, have maids and a membership in a golf club for around 30k here in Paraguay. Ask me if you have any questions.

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