Financial Planning Archives - Lazy Man and Money

Fact Check: Money Magazine’s “I Saved $100,000 in 3.5 Years on a $54K salary”

August 31, 2018 by Lazy Man 6 Comments

A couple of days ago, I was reading the September issue of Money Magazine and found an interesting article: “I Saved $100,000 in 3.5 Years on a $54,000 Salary.”

The article in the magazine is a substantially different from the online version. It was the print version that pushed me to write this… I only looked at the online version as a means of conveying the print version. That (print) version leaves out a critical phrase of “from 2004 to 2008 before she was married” at the beginning of the article, which is extremely important context. I’ll dig more into this at the end of the article.

My mind immediately starting doing the math on saving $100,000 with a $54K salary. That seems like a huge amount especially on that salary. With the aid of a calculator, it looks like Bola Sokunbi salary was $189K over 3.5 years. If I presume a 20% tax rate, it is around $150K in take home salary. That’s an exciting savings rate of around 66%. Wow! Great job!

It would seem that she lived on the remaining 40K for 3.5 years. I really need to know more about this! Everyone’s life circumstances are different, but maybe I can learn some new frugal tips.

As I started to read the article, Money Magazine’s narrative unraveled.

Sokunbi works in New York City and commutes from Hunterdon County, N.J. BestPlaces.net has the cost of living at 134. That’s 34% more than the national average. Translation: It’s not a cheap place to live.

She has twin 4 year olds. As a father of a 4 and a 5 year old, I can say that childcare is expensive. I think it could eat up the 40K alone in 18 months, especially when considering two children… especially in a place that a high cost of living. It’s not the kind of thing that you can be frugal with… it’s almost directly paying someone else’s salary. It’s not the kind of think you’ll get a discount on… and even if you could, would you want a discount on childcare?

So the expenses seem to be high. How could Sokunbi make it work? The article mentions in passing that her husband is a doctor. I’m sure having a spouse who is a doctor doesn’t factor into the finances much… or at least that seems to be what Money Magazine thinks.

What else could be a factor? She launched a website 3 years ago that made $25,000 in the first year. That’s not in the salary number. We don’t know what it made in the next few years. According to the article, “She developed it on the side for a year…” We’ll get back to this in a bit.

Does she have more income that’s not salary? Yep, her wedding photography business brings in between $3,000 and $5,000 per wedding.

This is where I stop and stress that I’m not criticizing Sokunbi. She’s obviously working extremely hard and making a number of great financial moves.

I’m criticizing Money Magazine’s title and premise, because the $54K annual salary is extremely misleading. There’s probably another $65,000 between websites and wedding photography. I’m conservatively estimating just 10 weddings a year ($40,000) and the $25,000 from her website (presuming the income didn’t grow from the first year). So that’s around $120K before we factor in what her doctor-husband makes. If he makes $200K (probably not unusual for a doctor in that area), that’s a household income of $300K a year.

If my assumption of a household income of 300K a year is wrong, I apologize. However, the article doesn’t seem to give us a better household number to do a real income/expense analysis.

At least the article does mention that Sokunbi’s mother paid for her college so there’s no student loan debt to worry about. I didn’t see any information about student loan debt for husband, which could significant considering that he’s a doctor.

Let’s dig a little deeper, shall we?

“None of Sokunbi’s friends were saving as aggressively as she was right out of college. Some were making twice what she earned and saving nothing at all… Another tailwind was the fact that she didn’t have much time to spend money. She travelled a lot for work during the week and began a side gig as a wedding photographer on the weekends.”

I find this confusing. The article title sets a focus on the timeline of the last 3.5 years. However, this anecdote seems to go back to the time after graduating college, which the article states was 2004. In the context of the article’s title (“saved $100,000 in 3.5 years”) I thought that travelling for work and being a wedding photographer was part of the “saving $100,000” equation. It wasn’t until I thought, “Hey she had two twin 1 year olds 3.5 years ago, how does ‘traveled a lot for work during the week’ logistically work?

(That’s not to say that it couldn’t work if someone else caring for the twins, but that’s information that I would have liked to know.)

Let’s get back to the Clever Girl Finance website and her “salary.” The Money article also states:

“Two years ago, Sokunbi quit her consulting job to focus on the business full time.”

Well, that undermines the whole 3.5 years of a $54,000 salary, right? It seems like we are looking at 1.5 years of the $54,000 salary, plus whatever the undisclosed amount Clever Girl Finances has made in the last couple of years.

I feel like Money Magazine put me on a roller coaster of mystery income and expenses.

Finally a Lesson!

Yes, “Finally a lesson” is borrowing from one of my favorite cartoons Finally a Lesson about investing in real estate to earn passive income.

After writing all this up, I decided it might be best to go to the source rather than Money Magazine. Fortunately, Sokunbi has explains how she saved $100K on her website.

It seems that most of my confusion here is caused by the context of the prit article. From the source, Sokunbi, it seems the article is cover two different times. The saving of $100K in 3.5 years seems to be about 2004, after college. The stuff about today, well… that’s not relevant. Please forget about the doctor-husband, kids, and the website. Perhaps she didn’t live in NJ at the time either.

Given the true source of the information, we get new, important information (besides that Sokunbi can completely rock a white dress):

She “got a raise and a bonus every year and got promoted raising my salary by the end of the 3.5 years to ~$74,000 (which was really ~$52,000 after taxes).” It seems to be completely false that she “Saved $100,000 in 3.5 Years on a $54K salary.” Even aside from all the misleading stuff I mentioned above, the salary was not $54K for 3.5 years. In addition, the author of the Money Magazine article seems to omit the mention of a bonus. It’s not a big bonus ($1500 after taxes), but it’s “still something” in Sokunbi’s words. It buys a lot of Ramen which seems to have been her food of choice.

The next critical thing missing from Money Magazine’s article is that the money is 401K, which includes her employer’s match. That’s pre-tax money, and free money, which is important context.

Next we have:

“This was also before the last major US recession and so the money I contributed had grown because the stock market had been performing pretty well.”

That 401K had really grown due to the timing the stock market as well. It’s not “saving” in the context of “contributions”, but more of a net worth thing. I’ve been fairly sarcastic here, but if invested $15K in Facebook around $25 (a target=”new” href=”https://www.lazymanandmoney.com/ask-the-readers-is-this-trading-or-investing/”>I did buy Facebook stock at this price) and it grew to $100K, is that really “saving $100K?” I don’t think so.

There’s more:

“I lived at home for six months after graduating from college before moving into my first place which helped me really kickstart my savings because I was able to save most of my pay for those six months.”

Well this didn’t make the Money Magazine article at all, but even Sokunbi acknowledges how much it helped. This could have been part of “her mother paid for her college education” that was mentioned in the article.

And then there’s this:

“The first year of my [photography] business I earned around $10,000. The second year I earned around $30,000. Subsequent years I earned more.”

This appears to have started in her 2nd year of saving. I’ll ignore the subsequent years, because that might be outside of the 3.5 years timeline. Still, we have another $40K of income aside from salary.

Final Thoughts

There’s so much here that my head is spinning.

If we amoritize the photography business ($40K over 3.5 years) we get around $11K a year. If we take a guess about the average salary (starting at $52K) that “grew every year, plus promotions and the bonus” (my quote not hers), I’d say it’s around 62K (it topped at $72K aside from the bonus).

I think we are looking at around $70K+ income (maybe $75K) and a living-at-home situation which helped her save most of her income. Those savings could be mostly pre-tax in a 401K account that benefited greatly from a bull market.

I need to stress once again that I’m not criticizing Sokunbi. We actually have a lot in common (living at home for 6 months, saving largely in a 401K plan, side hustles including a personal finance website). I’m criticizing Money Magazine for their marketing and confusion about recent stuff (doctor husband, twins, etc.) when they should have covered the story literally a decade ago.

I want to give credit to Sokunbi for working extremely hard and making great financial decisions. At the end of the day, that’s what this article should have been about.

Two Months to Take Charge of Your Money

July 30, 2018 by Lazy Man 2 Comments

This article contains affiliate links.

Three weeks ago my son discovered Pokemon. It derailed my grand Summer of Math plan. At first I tried to ignore Pokemon, but I soon learned that wasn’t going to work.

Magikarp - Gyarados — Magikarp is a joke of a Pokemon with no powers, except the ability to evolve into Gyarados one of the most powerful Pokemon

Instead, I did the exact opposite, I embraced the phase. I evolved from Magikarp to Gyarados. I went to the library and got a this Pokemon guide/directory. My 4 and 5 year old are now teaching themselves dictionary skills as they look up various Pokemon and their abilities.

The lesson here is simple: Ignoring a problem doesn’t make it go away. Embracing it can be an opportunity to learn and grow.

Right now you are reading the money blog that I started in April, 2006. I didn’t know where the blog would go, but I knew I didn’t want to get down to my last few dollars like I did with the dot-com bust. I knew I wanted a strong Plan B (and C an D) in case software engineering jobs continued to get outsourced to foreign countries.

Today, I can look back and say there were a lot of pieces of the puzzle. I started tracking my net worth (first with a spreadsheet, then with Personal Capital. That forced me keep my spending in check as I wanted to see that number grow every month. There were other factors, the greatest being marrying well. There was a lot of good luck as well, even if some of that was just avoiding disastrous bad luck.

However, everything started with one initial spark. I saw a few blogs where people wrote about money. I decided why not give that a try? I quickly realized something that I that I had forgotten:

The best way to learn is by doing.

By pressuring myself to write about money every day, I had to some up with something to write about. Some people lose weight by making food journals. Starting a money blog is your food journal. (If you are looking for a cheap, easy place to get started, Bluehost can help you out.)

Maybe I’m living up to my Lazy moniker, but I often find that I get excited about something and then forget about it as life “happens.” After all, even though most people don’t think I work, I’m always busy with a number of things.

This is where the “two months” comes into play. In about 2 months, the biggest personal finance blogger conference is happening: Fincon 2018. That’s enough time to establish a yourself as a blogger. It’s also around the time when the initial excitement of starting a blog seems to wear off. It’s really the only place where you can meet face-to-face with more than a thousand of people who are (more or less) like you.

Prices go up at the end of the July (Tuesday midnight), so you may want to sign up for this first.

Finally, if you book the conference now, you’ll lock yourself into blogging consistently until then. It’s a little like committing to running a race. Whether, it’s a 5K, half marathon, or marathon you’ll have created a goal in the future.

I will be the first to admit that going to Fincon is not cheap. Between tickets, flight, and hotel, it can add-up quite a bit. It certainly isn’t for everyone. Personally, I’ve been to every one except for the one where I stayed home to see my son being born. This year, the whole family is going, and we’ll celebrate his 6th birthday in Orlando. Do you think we’ll find any fun things for kids down there ;-)?

As I wrote in the beginning, this article has affiliate links. Roughly 10,000 of them, give or take several thousand. That means that if you click on pretty much anything other than the Summer of Math article (or how I keep myself busy) and decide it is a good service that you’d like to try, I’ll get a little money. That includes even the free Personal Capital service. However, I honestly believe that if you track your finances, start a money blog, and network with other money bloggers, it will put you on the right path to improving your finances.

I can’t think of a single personal finance blogger who has seen their financial lives get worse since they’ve started blogging. In a dozen years, I’ve probably talked with several hundred personal finances bloggers.

I feel that’s a very strong percentage and great odds at success.

Introducing the Subway Footlong Index (SFI)

August 11, 2016 by Lazy Man 4 Comments

I was reading Retire By 40 a couple of days ago and Joe had a good article about not forgetting about inflation in retirement. After all, if you are going to “Retire by 40”, you’ve got to consider dealing with potentially 45 years (or more) of inflation. If you retire at age 65, you are looking at “only” 20 (or more years). (Yes, that’s me getting ‘mathy’ by subtracting 25.)

Inflation over 45 years is a significantly bigger deal than over 20 years.

In the article, Joe mentioned the rising prices of the lunch special at a local Chinese restaurant. In a few years, the $5.50 special became a $7 one.

That triggered a thought about my own mental inflation index, the price of Subway footlongs subs. You might remember that back in 2008, Subway launched a $5 footlong promotion. From everything I’ve read, it was fabulous successful, so successful that it became part of the regular menu.

Over time the number of subs that were available for $5 dwindled. Then they disappeared except for a monthly special. That disappeared and, in my area, has been replaced with $3 six-inch sub. The $5 footlong became $5.50. Now the cheapest footlong is $6.25.

The Subway Footlong Index (SFI) is a good way to thin slice overall inflation because Subway can’t reduce the product and still call it a footlong. (Though I supposed they could “thin slice” in a different way by making the meats thinner or smaller). It’s different than the price of a computer which always seems to be the same or a “half gallon” of ice cream that shrinks to 1.75 quarts.

Another useful thing about SFI is that most of you know what I’m referring to. Sure in San Francisco, Hawaii, or New York, the same subs might be $7, but people have probably traveled to an area with a Subway that has typical pricing.

Let’s look Subway prices and see if the SFI makes any sense with regard to traditional inflation indexes. I’m going to presume that you might have a $6 footlongs (I think I’ve still seen these). That means that prices have gone up around $1 (or $1.25 for me) in 8 years… from 2008-2016. We’ll call it between 20-25% over 8 years.

That’s around 2.7% per year compounded annually… which seems in line with other measures of inflation.

Maybe there really is something to this Subway Footlong Index? What do you think? Let me know in the comments.

Rewarding and Motivating Myself

June 14, 2016 by Lazy Man Leave a Comment

I have a problem. It’s a “first-world” problem, so I don’t expect any sympathy.

Father’s Day is just around the corner and my wife asked what I wanted. I honestly couldn’t think of much. I kind of want this Intel NUC to update our Windows Media Center that eliminates our cable box rental fees. The Dell Zino that I got 5 years ago is showing its age.

Unfortunately, Microsoft discontinued the software to make it go, so I’m reduced to experimenting putting Windows 7 on it (not easy) or putting an experimental build of WMC on Windows 10 (also not easy). I don’t want to take on the project. I just want something that works.

Other than this, the only other thing I can think of wanting is this extremely expensive television. Hey it only costs a fraction of the $25,000 that the technology cost a few years ago, so it’s a “bargain”, right?

I don’t see myself saying, “I think it’s a good idea to spend $3000 on a television.” I’m just not wired that way.

However, I realized that if I put aside a little money each month, it feels like an easier purchase. I saved specifically for it, so I can justify it.

I’ve decided I’d put aside 1% of my monthly revenue each month. So if I were to make $60,000 a year (I don’t, this is just an example), it would be around $5000 a month. When I put 1% aside, I transfer $50 to a specialized account. That would be around $600 a year saved. So it’s going to take me 5 years to save up for the television, right? Well fortunately technology becomes much cheaper over time. In a couple of years, I wouldn’t be surprised if it was $1500 and I would have saved $1200 (in this example).

I’d still be a little short, but here’s where the Father’s Day solution comes in. If my wife adds $50 here or there the gap is bridged pretty quick. It’s no big deal if it takes 30 months instead of 24.

This helps me in three ways:

Budget for a big purchase – Some people just add it to their credit card and pay a ton of interest. Those people are not likely to be the ones retiring early.
Motivate Me to Make More Money – Because I’m putting 1% away, the more money I make the faster I get to my goal. If I can grow from $5000 a month to $6000 a month, that means that I’m putting $60 aside each month. That would get me to $1440 after two years instead of $1200. I’ll reach my goal quicker and get the television quicker.
Reward Me for Doing Good Work – This is kind of big thing for me psychologically. As I mentioned in the beginning, I don’t really want a lot of things. To expand on that, there aren’t a lot of experience things I want at this time either as it’s hard to do them with the 2 and 3 year old. All work and no play make Brian a dull boy, right?

What do you do to motivate and reward yourself? Let me know in the comments.

Planning Your Long-term Financial Objectives

April 16, 2016 by Guest Poster Leave a Comment

Managing your finances prudently and watching your wealth grow is one of the most fulfilling things in life. Since the beginning of the year 2016, the price of gold keeps going up and those who invested in the precious metal years back are now smiling all the way to the banks. You need to be among those making such wise financial decisions early on and build their own sustainable financial empires.

We all want to live a happy life free from the burdens of debts and financial shocks when emergencies occur in our lives. However, to get to that point where all is smooth sailing is not by accident; you need to take deliberate steps in securing your financial freedom both now and in the future.

Need for budgeting

It all begins with your spending and saving habits which then determine how much you are able to invest, and eventually determine how wealthy you become over time. If you are interested in building long-lasting wealth you need to analyze how much you earn and how much you spend and create a personal budget that will guide your financial transactions going forward. The budget should always be for a given period of time; and should include all your foreseeable costs and certain sources of income within the period under consideration.

Having the long-term view

The long-term view of life is very important when doing your personal financial planning with an aim of being financially free at some point in time. Your long-term objectives in life will determine your financial needs which in the end will influence the channels you decide to use to generate the income to meet those expenditures. This is the reason why it is always advised that you need to start with the end in mind as you come back to date.

Say for instance you want to own a ranch where you shall retire peacefully to and be tending to your herds of cattle. You will first have to consider how many years from today you want to buy and set up operations running in the ranch. Then you will have to think of how much it will cost to buy and set up the ranch. This will then advice you on how much money you need to start saving every month and investing today in order to have enough money to buy the ranch in say 20 years down the line. Of course there are other financial calculations involved in this in order to discount the future cash flows to their present value; but in a nutshell, the planning must be done today!

Setting of milestones

Once you have the long-term objective in mind it is then very easy to break it down into smaller manageable milestones. These milestones can be in a couple of years, annual, semi-annually, quarterly and finally monthly. At the monthly level, that is where you plan on how much you are going to set aside as savings towards your goal. You then need to decide which investment vehicle will best suit your savings in order to accelerate your path towards meeting your investment goals in the long-run.

Based on your risk appetite, you may prefer investing in the financial markets using the different instruments available there or you may decide to save your money. For those who go with saving, the decision on the saving mode you choose will be determined by whether you want to earn interests and capital gains on your savings or you just want to store the value of your savings. If interested with interest incomes, fixed deposit savings accounts will come in handy. However is interested with both capital gain and shielding your wealth from depreciation as a result of currency fluctuations, you may want to consider saving your money in gold.

Choosing your investment strategy

For investment enthusiasts, there are a myriad of options out there that await you; ranging from the passive to the active investment options. Under the passive investment strategy, you will use your savings to accumulate different assets and form an asset portfolio that will be managed by a third party. Your daily presence is not required and your investment manager is responsible of making investment decisions that grow your wealth based on the terms of agreement you have with them. Investment vehicles available under this category include mutual funds and unit trusts as well as real estate investment trusts among many more. For the active investment strategy, you shall be personally involved in the day to day management of your portfolio. Investment vehicles in this category include running your own business, active participation in daily forex trading or stocks trading among others.

Whichever investment strategy and vehicle you choose, always ensure it is aligned with your long-term financial goals and it helps you in achieving your medium term milestones.