Case Study: One Person’s Financial Journey

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Let’s together run through a scenario to see how we can take someone through the Financial Stages.  We’ll call her Jane.  Let’s assume I met with Jane because she was feeling like she just can’t get ahead with Denver’s high cost of living.  She is 30 years old and lives alone.  She has done well in keeping out of debt for the most part and is willing to keep her expenses low to make some financial progress.  Let’s walk through her scenario together and see where she is moving along the Phases over time.  She is in Phase 1 when we meet because she doesn’t really have a plan or a budget.

Phase 1 Assumptions:

$1,500 of credit card debt

$900 housing cost for renting a studio or small 1 bed

$0 invested and $1,500 in savings

Gross pay is $60,000 per year

Single, no kids

Paycheck, bi-weekly (on her w4 she marks Single and 1 for withholding):

$2,307.69 Income

$279 Fed w/h

$106.85 CO w/h

$143.08 SS tax

$33.46 Medicare Tax

$150 Health Insurance

$1,595.30 Net take-home pay

Monthly Budget

$3,190.60 Net take-home pay

$460 Giving (10% of gross)

$250 food/toiletries

$900 Housing

$150 car gas/ins

$50 minimum credit card payment

$50 cell phone

$100 slush/entertainment

$1230.60 left for priorities for excess income

Priorities for Excess Income

$2,000 additional savings for Financial Independence Fund (to bring it to $3,500, about 3 months of minimum mandatory expenses)

$1,500 payoff credit card

Next Steps – Phase 2

Jane is in Phase 2 now that she has a solid financial plan and budget developed.  It will take Jane about 3 months to save for her full Financial Independence Fund and payoff her credit card.  Let’s say I touch base with her in 3 months and she did it!  She now has savings in the bank with a fully funded Financial Independence Fund and she has no consumer debt.  Now she is in Phase 3 so we go over investing.

Phase 3 Assumptions

Jane is now feeling really good and it’s been just 3 months.  Now she has a few priorities she knows she wants to achieve.  She is going to start setting aside money for a trip to visit family twice per year.  She will find low cost flights and can stay with them so let’s assume those trips cost $750 total.  She also wants to increase her slush to $150 per month and to start setting aside $30 per month for clothing.  Jane’s work offers a retirement plan with matching up to 3% of her salary.   So to summarize:

$138.46 now being taken out of paychecks each month for retirement

$3052.14 is new monthly take-home pay

$62.50 sinking fund each month for trips

$150 slush

$30 sinking fund each month for clothing

$999.64 left for priorities for extra income each month (keep in mind she no longer has a credit card payment)

Phase 3 Investing Goals

Jane now has saved her Financial Independence Fund and she has no debt.  She has re-adjusted her budget now that she is through the first 2 Phases.  So now all she has left to do is to give and to invest.  She really likes her career and imagines she will be there for a long time.  She would like to work until she has what she thinks is a comfortable amount invested so she can take a year off to travel in about 10 years.  For her to be comfortable she thinks it would be awesome to have $200,000.  She is okay taking on investment risk and using a boring, low-cost index fund to reach her goal.  She is setting aside $138.46 per month with her employer’s plan and that is being matched by her employer.  She will then invest the $999.64 per month she has left for priorities for extra income each month.  She assumes she’ll match the historical market returns so assumes that’ll continue to be about 9% per year.  She puts this all into a compounding calculator, compounding quarterly, and estimates she’ll reach her goal of having $200,000 invested in about 8-9 years.

This is where we leave Jane’s story.  She is on a solid plan to reach her financial goals and this was all assuming she didn’t receive any pay raises or anything during this time period.  Keep in mind she is giving all along the way and she will be taking a year off work to travel in her late-30’s, or sooner.  She will leave on her trip with no debt and can re-assess when she returns what exactly she wants as her new goal.  She is going to be so budget-minded she will likely even travel inexpensively.  Chances are Jane, being such a financially savvy person, will be getting plenty of raises along the way.  Best of luck Jane, you can do it!




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