Parents everywhere hope to raise their children to become independent and financially responsible young adults. But how do you do it? Minerva Wealth Advisory recently sat down with Rachel, a 27-year-old young professional living in New York City, to talk about her journey with money. We picked Rachel because she is a committed saver, has no credit card debt, and has a healthy relationship with money.
What are your first memories of money? There was the ice cream truck that would go around the neighborhood and I needed enough coins to buy something. If I was a quarter short, then I was out of luck. At an early age, I remember being motivated to accumulate coins. I wanted to be like Smaug, the dragon from the Hobbit, sitting on top of a giant pile of coins.
When you were in middle school and high school, did you have an allowance? During high school, my parents gave me an allowance every month that I was free to spend on books, clothes, and other incidentals. But I knew that if I ran out of money, they would not replenish it until the next month. That was the reality. There was a budget constraint that I had to live with, unlike most of my friends. It’s not that I wanted for anything. But it was made very clear to me early on that Mom and Dad were not going to pay for me to have an extravagant lifestyle.
What did you learn about money in college? I became very aware that money equals freedom. Money buys you time. Money buys you access. Money helps open doors. When I left college, I felt that I would have more freedom the more I earned and saved.
What are your savings practices today? I was making just enough to get by in my first year after college, but I was not comfortable. I had to think about everything that I bought. A few years later, when I was promoted and eligible for a bonus, I decided to live only on my base salary. My bonus would go into savings. I am religious about not spend a dime of my [after-tax] bonus. It is my way of keeping me honest. In a funny sort of way, my company has made it easy for me to save because of how I am paid. I also signed up for the 401(k) plan when I started working and contribute every year up to the matching level provided by my company. To do otherwise, I would be throwing away free money.
When did you get your first credit card? I was 24 and 2 years out of college. The reason it took me so long was that I do not like debt. For me personally, I hate the idea of owing someone something. I never want to be in debt and unable to live the lifestyle I want because I am paying off debt from the past. It never occurred to me to get a credit card. I was actively against it. But then I realized that I was giving up earning points and I was not building a credit profile. Now I use my credit card to pay for everything so I can earn as many points as possible.
Do you ever run outstanding balances? No, I never do. I am serious about that. I will not buy more than what I can afford to pay that month out of my checking account. That is the policy that I live by. The interest rates on credit card balances are also absurd. I like to see zero dollars owed on my credit card statement. I pay my balance early in the month, which I know is silly, but it makes me feel good.
Reflecting back on your relationship with money, what do you think were the important factors behind you becoming so financially responsible? Many of my friends have parents who pay their rent. Or perhaps their Mom and Dad share a credit card with them or they pay for all their clothes. That has never been my situation. My parents are as financially successful as my friends’ parents, if not more so, but they have never been willing to support me being spendthrift in any way. That was never on the table. Early on that irritated me, but now I see the method in their madness. It has made me have a very particular relationship with money, which is to say ‘protect that money’. It is an asset that you must earn, protect, and be respectful of.
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