2019 is ending in a few days. I'm going to take a moment and reflect on my finances this past year. I've always cared about finances, but 2019 is when I REALLY cared and started to rethink my financial goals. In the second half of 2019, I made quite a few major financial moves. I'll share with you what lessons I learned this past year, especially in the area of investing. Hopefully it will help you as well.
I've shared a little bit about how I started to manage my finances in the very first Finance Friday. Financial education is so important and it's a shame that many schools do not have it as part of the curriculum. A common complaint I hear from my students is, "Why can't school teach us about things like investing and taxes?" It's something that many people have to figure out on their own. I was fortunate enough to start picking it up on my own after I developed a short-lived eBay addiction in college. I was also lucky that I started learning before I fell into any credit card debt.
The Chang parents would tell me to not talk to others about my finances, but I find it healthy to discuss it with people and learn from each other. And to be honest, I'm a public school teacher so my salary is public information.
FIRST HALF OF 2019 - MISTAKES & LESSONS
During the first half of 2019, my financial strategy was the same as it has been the last few years: putting money into a high-yield savings account, investing some money into the stock market through Robinhood, and putting some money into my traditional 403b. If you're interested in Robinhood, you can click the link above for my referral code and we'll both get a free share of a random stock. Robinhood is a commission-free investing platform.
During the past few years, I made certain major purchases such as a new car and also made some "unwise" financial moves.
THE CAR & STUDENT LOANS & RELATIONSHIPS
I purchased a new car because Mama Chang the World's car was getting in on its years - a 2000 Toyota RAV4. I used it in college and shortly after college. I moved back home after college since my corporate job at the time was in the area. In 2012, my parents purchased a home and it became necessary to purchase a third vehicle. I purchased a 2012 Scion xB and used it up until May 2018. In August 2016, I moved up to San Jose for my current teaching position and I took the Scion xB with me. I had just gotten tenure at the end of my second year and I thought, "Hey. Let me get a new car to commemorate it and Mama Chang the World can use my Scion xB." I did some research for a week and decided I wanted a Subaru Forrester, specifically the 2018 model since that's the year I earned tenure. I haggled and used programs such as Costco Auto Program and NEA Auto Buying Program. If you're an NEA member, I highly suggest you use your member benefits. I ended up saving $2000 with the latter; Costco's just wasn't competitive enough. That $2000 I saved was more than my year's worth of union dues! Now I drive the Subaru Forrester and Mama Chang has a paid-off Scion xB with under 50,000 miles. This wasn't a financial mistake. It was just a major purchase. I put a $15,000 down payment and got 0% APR and negotiated to a 5-year term. Currently I'm paying $218.53/month. The financial mistake would've probably been why I put such a huge down payment instead of investing it. Psychologically, I like to see a lower monthly payment. It fits better with my own monthly budgeting.
Lesson Learned: Do your research on cars, shop around, and haggle. Use car buying programs to your advantage.
I am on the Public Service Loan Forgiveness Program (PSLF) and I made the mistake of putting in $10,000 to pay down the principal right after my first year in the classroom. I looked at my outstanding balance at the time and thought that paying down some of the balance will help me. Looking back, it was a mistake. I should've invested that money instead since I am trying to get the most out of the PSLF.
Lesson Learned: If you're on PSLF or some kind of loan forgiveness program, calculate the long-term costs
This may sound vindictive, but it's not. I was in a relationship up until around February/March 2019. There were many reasons why the relationship didn't work out, but in relation to the topic we didn't have the same financial mindset and goals. I'm pragmatic when it comes to money; she wasn't. Some of our dates were pretty expensive. She had grandeur ideas about the engagement ring and wedding. She wanted a large diamond for an engagement ring. I personally think diamonds are a scam. We are both educators...on an educator's salary... For the wedding, I wanted to keep it simple and realistic within a budget. One of the last arguments we had was when I mentioned that I hope our future wedding would fit into our budget. She took it as a "budget wedding" and we argued over it. The relationship fell apart shortly. Again, I'm not vindictive. She's a great and kind-hearted person and I learned a lot from her and the relationship. We just weren't a compatible match. Everybody has their own way to spend their money. We just weren't on the same page. I'm sure she will find someone who will make her happy. I just wasn't that person.
Lesson Learned: Have a partner who has similar (financial) values as you. A lot of relationships end over money. We all probably have those friends and family members whose relationships ended because of financial problems.
SECOND HALF OF 2019 - TURNING LESSONS INTO ACTION
I learned a lot from the relationship and it was a major catalyst that got me rethinking my finances. Our financial goals did not align. I was the saver in the relationship. After the relationship ended, I started thinking about my own financial future. Faced the the grim reality of Social Security and retirement, I decided to focus a lot more on investing with my seniors than I did previous year. While teaching them about investing, I also reflected on my own saving and investing habits. These are some shifts I did:
1. KEEP EMERGENCY FUNDS IN A HIGH-YIELD SAVINGS ACCOUNT
I've always kept my emergency funds in a savings account. However, the rates weren't always the greatest. Our inflation rate hovers between 1.7% to 2.1%. Basically, we lose money when we keep our money in a savings account. If that's the case, we should do our due diligence and find a savings account that will protect our assets from inflation as much as possible. I did some research and you can find it here. Currently, I keep my savings with Ally Bank, which has a savings rate of 1.7% as of December 2019. I'm barely keeping up with inflation.
2. LOWERED EMERGENCY FUND FROM 6 MONTHS TO 3 MONTHS
The general rule of thumb is to keep anywhere from 3-6 months' worth of living expenses for a rainy day fund. I've been teaching my students that they should ideally keep 6 months' worth. I'm pretty good with my finances and I'm pretty sure I don't need that much money. Honestly, teaching is a pretty solid and stable career unless you do something weird or inappropriate. If I do need money quick, I can liquidate my other assets in a short time, like selling my stocks. It might take a week or two, but I can manage. I decided that I can invest my money better elsewhere so I reduced my emergency fund from 6 months to 3 months' worth of expenses. All the extra money will be used for investing.
3. DIVERTED SAVINGS TO A BROKERAGE ACCOUNT
Since my savings account is barely matching the inflation rate at times, I decided to put my money where it can grow. I've been diverting my funds into a brokerage account with Vanguard. A brokerage account is an account that lets you purchase investments. You open one either with an investment company or a brokerage firm. I chose to go with Vanguard because of its reputation. Fidelity is another reputable company. If an emergency happens and you really need the cash, you can sell off your investments and transfer it back into your accounts. You can figure out the capital taxes later. It's an emergency after all.
I am currently pursuing a fairly aggressive strategy - 50% in Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) and 50% in Vanguard Real Estate Index Fund Admiral Shares (VGSLX). In simple terms, I'm tying up my money in stocks and real estate. The latter are in something called REITs (Real Estate Investment Trust). Instead of investing in companies, the funds are used to invest in a wide range of real estate properties. Since I live in the Bay Area, I cannot afford real estate so this is the closest I can come so far in investing in property.
There's all kinds of investment strategies out there. I decided to pursue something aggressive to grow my assets as much as possible. It's only been about a month and my portfolio has already seen a 2.54% growth.
If you're not sure of what to do, there are robo advisors such as Betterment and WealthFront that will automate it for you based on your preferences. However, there is a small fee you have to pay for that.
4. INCREASED MY 403B CONTRIBUTIONS
Previously, I only contributed about $2000 per year to my 403b. I delayed my 403b by about 2 years because I didn't have time to do my research. When I finally started it, it just took me 20 minutes. I lost out on 2 years of growth because I didn't "have time." I decided to up my contribution to $500 per paycheck, or $5000 per year. Luckily this increase of contribution still fits into my monthly budget and it may lower my tax burden.
If you need help with researching and choosing a 403b, check out this site.
5. OPENED AND MAXED OUT MY ROTH IRA
Since the year is ending, I finally opened a Roth IRA (also with Vanguard). If you qualify and you have money you can save, I highly recommend starting a Roth IRA and max it out if you can. This is money that's post tax you're investing with. That means all the growth will be tax-free! That should be music to your ears. Everybody hates taxes from left to right.
For the 2019 tax year, your maximum contribution is $6,000, or $7,000 if you're age 50 or older. I'm playing some catch up and maxed mine out for 2019 right before 2020.
At the moment, my Roth IRA is invested 100% into the Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX).
6. PAID OFF MY SOME OF MY LOANS
I recently paid off my TEACH Grant, which I had to convert to a loan because I do not teach at a school that qualifies for forgiveness. Instead of restarting my PSLF counter, I decided to pay it off. I shared previously that my two TEACH Grants came out to $5,582, but had accumulated $1,448.37 in interest! In just 4 years, my interest was equal to almost 26% of the principal! It is absolutely freaking ridiculous. I'm not sure where I'll be in 10 years so I decided to pay off those loans instead of doing another 2 years for PSLF.
So far, my financial situation is looking pretty positive. I will be making more financial moves in 2020. I'm also looking at starting some side hustles on the side to help offset some costs such as maintaining this site and my curriculum development. I'll share those with you later.
What kind of financial moves do you plan to make for 2020?
I'm Jayson, a high school social science teacher with a strong passion for social justice and public education issues.