Budget Rehab: How to Optimize Your Savings Goals When You've Already Paid Off All Your Debt

11:02Elizabeth Ayoola:Now, just to make your budget easy to follow for listeners, we're going to use the 50-30-20 framework to go through your numbers. So your after-tax monthly income is about$4 ,700. Let's first look at your must-haves or your needs.

11:17Sean Pyles:Manny, it looks like your needs are taking up about 30 % of your budget. And with a 50-30-20 framework, that should be typically around 50%. So you have a good amount of wiggle room with your debt and savings and wants there. And a big part of this is because your rent looks to be pretty affordable. I'm seeing just around$1 ,000. So tell us about your living situation. And do you rent or are you a homeowner? I rent. I live, of course, near my work. So I get to walk to work as well, which is really nice. But we've also seen apartments going up. So that's something I'm wary of because I really am worried that that could easily be in a heavy increase in a year or two.

11:55Sean Pyles:Okay. And I'm also seeing that your car insurance is pretty low and you don't have a car payment. So you've paid off your car, I imagine. Yeah, actually, last fall, I went 12 weeks without a car because I was trying to see if I could make it work. But unfortunately, Columbus, Ohio is not far enough along for public transit to be adequate enough, which I really hate. I bit the bullet and I bought a used car and I was debating all the options of, oh, if I get a low interest rate, I'm technically earning more than inflation. And I decided just to buy it straight out. And I don't drive a lot. I drive to see family in Cincinnati and, you know, maybe occasionally across the state here and there.

12:38Sean Pyles:But really, that's it. Because again, I walk to work and I can take the bus downtown. And so I don't need a car, really. Big parts of how your life is set up allow you to save a lot of money. You're not living in a dorm anymore, but you have what I would consider very affordable rent. You don't have a car payment. You're able to walk to work. It sounds like you make your lunch and bring it in. All of these things are adding up and helping you have this need score that is well under 50 percent. Yes. OK. And then one thing that really stood out to me is that I'm seeing you're spending$175 a month on food.

13:13Sean Pyles:That is very conservative. So are you eating lots of rice and beans or how are you managing that? Because I'm spending for myself and my husband, we're spending around$100 ish each week on our grocery pickup. I think this is where, again, my upbringing really comes into play. I had a big family. There were six of us. And so if you make a pot of chili, you're feeding all these people. And I'm really good at making a large soup or roast and then just freezing it and eating it throughout the week or the next week. But my average is about 175. But I think on this spreadsheet, you'll notice that my restaurant, which I put over, I think, on the side just because I wanted to note it, is like$400.

13:56Sean Pyles:I also do make a decent amount of money. So I allow myself to go out to eat at restaurants with friends and my girlfriend. Good.

14:04Elizabeth Ayoola:Now let's move on, Manny, to your savings. The fun part. You have a relatively high savings rate here. Your savings score is over 51%, almost 52%. Congratulations. Can you tell us about how much you are contributing to your retirement accounts at the moment?

14:22Sean Pyles:The nice thing about working for OSU is we have a system called OPERS, which is like the state retirement fund. And so it's a really great program. And OSU will put 14 percent in it and I'll put 10 percent in, which is just a phenomenal match. And so I put that in every month because there's I'd be silly not to.

14:40Elizabeth Ayoola:OK. And then what other types of savings are you doing? I know that you mentioned earlier that you have quite a chunky amount saved for rainy days.

14:48Sean Pyles:I have a high yield savings account and I put instantly 20 % of my paycheck into that so I don't have to see it. When I first started saving, one of the first things I did was make a 12-step ladder. Every month I had a CD that expires on the month with$1 ,000. That way if I ever, I don't know, you know, worst case scenario, I have$1 ,000. And that took forever to set up because to save$1 ,000 and then have it on the right month where I could say, you know, push this aside and put it in the CD, that was really hard. But now those are all set up. And so now I just really have the high yield savings.

15:23Sean Pyles:And then recently I opened a, I don't even know the term for it, but it's a house saving account, which gives me about like a 6.7 % interest rate from a credit union. Now I have to buy a house within five years, but that's a good goal, I think. Say more about this account. It's a house account that said specifically buy this credit union for the purpose of eventually you buying a house. I am not familiar with this. It's through the local credit union here in Columbus. And I don't know if it's a, I think it's a state program. Yeah, it's 6.7 % interest. And it's one of those weird things because like how heavily can they mandate that you buy a house?

15:59Sean Pyles:You know, I don't know. I don't know what happens to your money if I don't buy a house. and maybe I should look more into it. That'd be good to find out. Yeah. Now you're in a higher interest and hopefully I can buy a house soon. That's a great goal. So how many accounts do you have total for your savings? It seems like you're doing what I love, which is a savings, sinking fund, savings bucket strategy. I often hear you and Elizabeth talk about this and how she pokes fun about you. And I'm like, oh, that's me.

16:24Elizabeth Ayoola:I saw.

16:25Sean Pyles:We're on the right side of things, Manny. Don't worry about it.

16:27Elizabeth Ayoola:Oh, please.

16:28Sean Pyles:I think I have 19 accounts, give or take. Whoa. No.

16:32Elizabeth Ayoola:Wait, Sean, how many do you have again?

16:34Sean Pyles:I mean, in terms of checking accounts right now, I'm using eight currently. So fewer than I was using before.

16:41Elizabeth Ayoola:Manny beat you. Manny, how do you manage all these accounts?

16:44Sean Pyles:Twelve of them, again, are CDs that I don't even look at anymore after I set them up. And so the other seven are really just... So in reality, I'd argue I only have seven, you know, but... Okay. Yeah, that seems fair. More reasonable.

16:56Elizabeth Ayoola:Something else I noticed is that you have so much cash. So when you wrote to us and sent us your numbers, it seems like you have over$36 ,000 in cash and almost 50K total in assets at the age of 26. Again, well done. And then I'm just wondering, Manny, what is your motivation to save so aggressively? And then when will you feel safe? Like, when will you be like, OK, you know what? I feel secure with how much emergency savings I have. I have enough cash. What's going to get you there?

17:24Sean Pyles:I think that's a really good question, too. And so I'm familiar with the fire folks. I don't know if that's my goal. I love working, you know, but I think that's also the problem with what with my budgeting is because I you know, I am on track to save for a house. I'm on track to potentially start a business in a couple of years. These are goals that I have. But at the same time, you know, if magically tomorrow I got a hundred thousand dollar raise, which I'm not going to. I don't know what I do with it, you know, which is a really great problem to have. But I also want to be so cost net of that because, you know, I don't want to waste my money by any means.

17:58Sean Pyles:I do work hard and I want this to be, I want that to reflect my goals, but I think I'm running out of goals. You're young still. So, you know, you are understanding what your adult life is really looking like and what you want to spend your time doing. Have you spent time thinking about that and how you might want to have your life structured, say five, 10 years down the road? It looks like you're planning to buy a home within five years because of this home savings account. What else do you want from your life? I have several friends that are in the entrepreneur realm. And again, I work at a public university.

18:34Sean Pyles:I really enjoy my work and it's really safe at the end of the day. I get insurance. I get a paycheck. You don't get that when you start a business. And if I were to take that leap, I think I'd want a lot in savings to make sure that, you know, so many businesses fail. There's no guarantee there. I don't think I'd want that without having something to fall back on.

18:53Elizabeth Ayoola:That's smart. What is your motivation to start a business? And have you thought about the type of business you'd like to start? Because some people start a business because they just want to earn extra income. Some people start it because they have a passion project or they're trying to make the world better. What's your driver?

19:06Sean Pyles:To have a different stream of income. So ideally, I'd be able to do my own job too, but that'd be nearly impossible without hiring someone else, I think. But then a day two, if I ever do get to retire young, I want to use my money for something good. I want to start a non-profit. I want to make endowments. And I just want to make sure I can live a decent life while doing that. And if I can't, then I'll just continue working.

19:29Elizabeth Ayoola:I do have a question, though, for you, Manny, so that we can kind of tee up your budget and then go into your goals. Your WANT score is, again, very impressive at just 19%. That's how much of your budget that you're spending on WANTs. What exactly do you spend your money on, I guess, that has nothing to do with your savings goals, that brings you joy, that is maybe a little irresponsible, that is fun? What do you spend on?

19:52Sean Pyles:I really love doing carpentry work. My grandfather was a carpenter. And so when I need new furniture, I like to build it, which is never cheaper than buying furniture. I really indulge in artwork and buying local artwork as well as making artwork. I'm an amateur photographer, so I like to take photos and then print them out. And those are so expensive too. I don't have a lot of material stuff that I really need. I'm really happy. So I like to spend money on my friends. And like you said at the beginning, you know, take them out to dinner. I think that I wish I did that more, I suppose. Yeah. Yeah.

20:31Sean Pyles:I mean, Elizabeth, you described the 19 % want score as I think you said impressive. I found it maybe a little worrisome because I see that and I'm thinking, oh, is Manny not spending enough on things that bring them joy or that could expand what they're doing in their life? So if you could branch out, you mentioned taking your friends out to eat. What else do you think you would spend money on to bring more fulfillment to your life besides saving? I suppose I haven't really thought about that. I really like making things last. And maybe that's again my upbringing. My curtains in my bedroom do not match my bedspread.

21:07Sean Pyles:And I'm a little OCD and I'm like, oh, I would love these to match. But I'm always like, well, they work. And same with a lot of my clothes. Sometimes I'm like, oh, this is getting a little dingy, but it still works and it's still fine. But unless I rip that shirt up, I'm not going to buy a new shirt yet. And I think that is one of my mindsets where I could probably improve on that a lot. Well, we're going to take a quick break. And after that, we'll be back with more of this conversation around what to do with your$1 ,000, Manny. So everyone, stay with us. We'll be right back.

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23:04Sean Pyles:Today's episode is sponsored by Shopify. I remember years ago when I started the Smart Money podcast, I had no idea if it was going to be a success. Now, years later, the show is, if I can say, a huge success. And I'm so glad that I believed in myself when I launched this podcast. Now, I do know I was right in believing in myself launching this show, despite all of my fears and hesitations. But it also helps when you have a partner like Shopify on your side to help.

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24:22Sean Pyles:Okay, we're back and we're going to dive into the core of your question, Manny, which is around what to do with this extra$1 ,000 in your budget. Do you have an initial idea of where it might be best directed? So I've had a few conversations with a few of my friends that are a little bit older, not by much, only about four or five years. But at least they have an idea with savings, I suppose. But we've talked about a health savings account and 529. I don't even know if I'm going to have children or if that's even my future, but I know that'd be a really great use of those funds to set them up on generational wealth.

24:56Sean Pyles:I could also just really increase the amount that I'm putting towards the house and my future business are maybe a mix of all of these things. That's where I kind of just had a loss, I suppose. Yeah. I want to talk more about your house fund. How much are you putting in there on a regular basis? And what is your potential timeline for actually buying a house since you do have this account? I have a goal to put about$4 ,000 a year into it. And with that 6 % interest, it'd be a hefty little sum. And average house price, you're going to need about$20 ,000 to$30 ,000 for a down payment in this area.

25:26Sean Pyles:You could use part of this$1 ,000 to up that amount So you have a little extra cushion. Home buying is expensive. And there are all sorts of fees that you have to pay at the very end of the process, I know from experience. So it's never a bad idea to have a little extra there, especially since you will then be moving into this house and furnishing it. As much as you would want to build everything yourself, you might just want to get some things quickly to fill out the space. Something I haven't heard you talk about is travel. Do you travel much? I do. Every month I put$400 into a travel account.

25:57Sean Pyles:I love going to one international trip a year. And then, you know, I have three sisters, of course, and one lives in California, two live in California, sorry, one lives in New Jersey. And so going anywhere is always like$40. And the nice thing is I can always stay with them. But it's really hard to go anywhere in the US because they're always like, oh, come visit me.

26:13Elizabeth Ayoola:Do you ever feel guilty when you spend money on things like this, Manny, on just enjoying yourself?

26:18Sean Pyles:I think so. You know, I hate going over my budget. I've thought about creating like a shopping fund because I think if I had, you know, a thousand dollars in a shopping fund that I, you know, once a year, I then just use that as my money to spend on myself. Otherwise, I think I probably would feel guilty. The word guilt has come up a lot in this conversation, and I get the impression that you carry a scarcity mindset around your finances with you from your upbringing. And I'm wondering, back to Elizabeth's question earlier, about what it might take for you to feel more secure and more relaxed around your finances so you can enjoy spending it a little more.

26:57Sean Pyles:I know the structure provides a lot of security, and that's part of why you have everything so laid out and detailed the way you do. So would maybe having a fund money account help? Or, again, it might help you to think about what would be a specific number. And once you're there, you can say, OK, I can maybe stop clenching my teeth and lower my shoulders and feel a little better about my finances. I think it'd probably be three times my living expenses, which would be about$100 ,000.

27:24Elizabeth Ayoola:In cash, you mean?

27:25Sean Pyles:Yeah, yeah.

27:26Elizabeth Ayoola:Or invested or anywhere?

27:27Sean Pyles:Well, yeah, I think, yeah, just net worth, I suppose, then. In investments and not just cash. Yeah, it could be a mix of both, I think. My worry is that you could actually be saving too much in cash and you would be doing that at the expense of the growth opportunity of investing. So that's always a fine balance, too.

27:44Elizabeth Ayoola:Just to expand on that, Manny, have you thought about what your retirement number is? So I know you said that you would like three times of your income. Why did you choose that number? Why will three times your income make you feel secure? And does that have anything to do with going towards your retirement savings?

28:00Sean Pyles:In my mind, if I have three times my expenses, worst come, you know, I don't have a job for three years, I'd be fine. But at the same time, when it comes to retirement, for the longest time I was told, you know, you need a million dollars to retire. And I've done the math, you know, without any compounding interest and all that, the amount I'm saving per month, I'd be 81 years old, I think. And I'm saving a great amount, but I'd be 81. to just get a million dollars without any interest, without any growth.

28:28Elizabeth Ayoola:But why did you say without interest? Why not compounding?

28:31Sean Pyles:The formulas that take, you know, compounding interest into account, I can't easily do without a lot more time allocated towards this. But what I will say, you know, I think with compounding interest, I could be, I think it's like 46 or something like that, which would be really cool. And I'll say you need to factor in compounding interest when you're doing these calculations. NerdWallet has an excellent retirement calculator that can give you an accurate picture of how your retirement investments can grow over time. You can change the rate of return. You can maybe choose 6%, which is what a lot of investors are thinking would be a solid expected return in future years.

29:04Sean Pyles:So please play with that so you can get, I would say, a more realistic understanding of how your savings could really grow because you're not gonna have to work until you're 80 with your current savings rate with compound interest. I hope not.

29:16Elizabeth Ayoola:And then I just wanna daydream with you a little bit, Manny. This is one of my favorite things to do. What does financial security or financial independence look like for you? Let's say you have enough. OK, you have enough based on whatever the numbers are. How are you spending your time? How do you feel? Talk me through that.

29:33Sean Pyles:The work I would do, it'd probably still be in the same realm, but I don't know if I'd work 40 hours a week. You know, I think I'd be a consultant and I'd just get to work when I want to, I suppose. Like I said, I love to cook. I love to write. I love to read. I think I'd spend more time living, you know, and I think that'd be really vital to me.

29:51Elizabeth Ayoola:Now let's take it back to the present. This thousand dollars that you want to spend, let's say that you are not allowed to spend it on saving. Not saying that you shouldn't. Very responsible of you to want to. What would you spend the money on?

30:03Sean Pyles:I think I'd get a new closet. I think I deserve that. And I think I'd probably buy my mom something really nice.

30:09Elizabeth Ayoola:That's kind. You're a giver and there's nothing wrong with that. One of your goals we can quickly talk through, and I was curious about this because you said you wanted to potentially contribute to a health savings account. Do you have any money in a health savings account at the moment?

30:24Sean Pyles:I do not. And my health insurance costs are relatively low. I'm also relatively healthy, so I appreciate all of these things. There may be a day when I have to get a surgery of some sort, and I'd rather that come out of a health savings account, I assume, than my own investments. With high deductible health care plans, that's your key to HSAs. Unfortunately, given our tax structure, you can't use an HSA unless you have a high deductible health care plan. So you might want to look into whether you are on one of those plans because, again, that opens the door to using this type of account. Otherwise, when you look at your benefits going into next year, you might want to explore if that's an option for you.

31:02Sean Pyles:I think that's a great point. Like I said, I'm only 26. I just got off my parents' insurance. So that's a whole new world to me, unfortunately.

31:09Elizabeth Ayoola:Well, if you are eligible for a high deductible health care plan, as you're already thinking, I feel like, Manny, you could educate us on what to do with our finances because you're so well read on the topic. But I'm sure you've done some reading into health savings accounts. And they can be such a great way to invest for the future because we, including me and you, are relatively young and healthy now. But we don't know where our health is going to be in the future. So it can be always nice to pad away extra dollars for health care costs. I came across Fidelity's annual retiree health care cost estimate, and it found that 65-year-olds retiring in 2025 could expect to spend an average of$172 ,500 in health care and medical expenses.

31:50Elizabeth Ayoola:And obviously, once we retire, that number is likely to be higher. So the good thing about health savings accounts is that you can invest that money and it can grow for many years to come, and then you have those triple tax benefits. So just because you're 26, as you're already thinking, it doesn't mean it's too early to start. So maybe, depending on what you decide to do with that money, you could max out that HSA for the year. That would be$4 ,400 as a single person that you can contribute to that account. And then guess what? You still have some dollars left over that can go towards one of your other goals.

32:20Sean Pyles:Okay. So, Manny, we've talked through a few different options around how you could spend this money. What are your current thoughts if you had to choose maybe one to three different areas to allocate this$1 ,000? I would like to amp up my, you know, like a car maintenance account just because I did buy a used car that will probably need some more work in the future. And I think a shopping fund would really do me well. Even though I have the money allocated in my monthly budget to go shopping, I don't. So I think it'd be really, really healthy for me to do that.

32:52Elizabeth Ayoola:How you spend your money is related to your personal value. So that looks different for everyone. I know some people, yeah, who don't care much for material things and they don't buy them. Right. And they would rather spend their money on travel or like you said, a hobby. So there's nothing wrong with how you spend your money. It's just about making sure it aligns with your personal values.

33:09Sean Pyles:I agree with that. Well, Manny, I would encourage you to spend some time thinking about how you could maybe have some unstructured money to enjoy and what you might do with that. Maybe it is more meals out with your friends or taking your girlfriend on a nice date or buying something for your mom. Just to push yourself a little bit to break your habits and realize that you have tremendous security from everything you've described so far and you're on a really good path. And from what I have learned about you in this conversation, it seems like you're just the type to keep building your security.

33:38Sean Pyles:and I think you can find ways to loosen up and just appreciate all that you're working is so hard to build.

33:44Elizabeth Ayoola:Do you feel like you're doing a good job, Manny?

33:46Sean Pyles:Some days. I think comparison is the thief of joy. I hope I can do the best I can here and I just try to take it one day at a time. I need to think more about what does the end goal look like because I want to at least be working towards something. Yeah, I don't know. I honestly don't, I don't know.

34:02Elizabeth Ayoola:Well, I'm here to tell you, you are doing a good job and if you're into all these kinds of things, A little exercise I did that really helped me give myself more pats on the back and spend a little more is journaling. Journaling about my money values, about my experiences around money. There are so many really good books out there around financial values. And I'm not saying you have any, but for people who have financial trauma, I had a little bit of it I had to work through. That really, really helped me to have a bit of a looser relationship with money. Because I used to feel terrible when I spent money and I would feel like I'm not doing enough.

34:35Elizabeth Ayoola:And I would constantly look for more jobs and overwork myself so that I could save more money. But looking at how far I had come from to where I was now, like you said, comparison is a thief of joy. And I'd be like, well, I could save more. This person has more. But what do I have now? And, you know, what have I achieved and how can I celebrate where I am on this journey? And also remembering, Manny, you know, I could walk outside and get hit by a car or a truck tomorrow. Crossing my fingers and knocking wood that I don't. But what will all my saving matter if, you know, I die tomorrow and I didn't enjoy any of it?

35:03Elizabeth Ayoola:So finding that balance, that balance is going to look different for everyone, is definitely key. But I'm here to tell you you're doing a great job and I'm proud of you.

35:11Sean Pyles:You really are. Thank you both. Please keep us posted on where you land with this and how your finances pan out over time. We love continuing to hear from our listeners too. And thank you for coming on. My pleasure. And that's all we have for this episode. If you're struggling to figure out your budgeting system, read our article on how to choose one in the episode description. NerdWallet also has a budgeting app that you can test run if you haven't already.

35:32Elizabeth Ayoola:All right, Manny, we would love you to read us out.

35:35Sean Pyles:To have the nerds answer your money questions, call or text us your questions on the nerd hotline at 901-730-6373. That's 901-730-N-E-R-D. You can also email us at podcast at nerdwallet.com.

35:51Elizabeth Ayoola:Follow Smart Money on your favorite podcast app. That includes Spotify, Apple Podcasts, and iHeartRadio to automatically download new episodes.

35:59Sean Pyles:And here's our brief disclaimer. We are not your financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances.

36:10Elizabeth Ayoola:This episode was produced by Tess Vigland, Hilary Georgie, help with editing, Nick Karisimi, and Eve Krogman, Helmar Audio and Video Production. A big, big, big thank you to NerdWallet's editors for all their help.

36:22Sean Pyles:And with that said, until next time, turn to the nerds.