One Snarky Chica with Issues

Each Wednesday focuses on personal finance/money issues

Being somewhat well-versed in the world of personal finance, I get a lot of money questions from friends and family. They usually don’t listen to me though, so I’m not even sure why I bother. I had a friend ask me recently about where to put some money if she started saving.

My friend is 30, has worked at the same great paying job for the last 5 years and has been living with her parents rent-free the entire time. And she doesn’t have anything saved. Nothing at all! She says she doesn’t know where to put her money, and that is why she hasn’t saved. When she told me this I thought about thumping her on the head to knock some sense into her, but I was driving and she was in the back seat so I couldn’t do it.

Let’s look at some of her stupid money mistakes before we get back to her question. Now, I don’t know how much she is getting paid, but I do know that she gets nice Christmas bonuses every year (she bought a laptop with it one year) and she gets raises every year between 9 – 13%. I would guess she started out making around $30,000. Her company does a 401K match of 6% and she is vested into some sort of profit-sharing pension thing in year 6. When she moved into her parent’s house she has some student loans, some credit card debt and she bought a new car shortly after moving in (even though she didn’t need a new car). What does she do with her money? Every year when she gets her Christmas bonus she buys herself some nice electronics – a laptop, a portable dvd player, a PDA and so on. She recently told me how she has almost 1,000 DVDs. At an average cost of $15 that’s $15,000 in DVDs! And she goes shopping and buys herself something almost daily after work. It would be an understatement to say that her spending is out of control. She hasn’t saved a dime in the past 5 years. If she had saved $500 a month in a high interest savings account like ING or HSBC at 5%, she would have over $34,000, but instead she has almost 1,000 DVDs and she’s still paying on a car that keeps breaking down. But, back to her question…

She wanted to start saving and told me that she was either going to put some money into a savings account at her bank or into a 12-month CD. She asked what I would recommend. I told her to scrap the idea of the savings account at her bank that would pay her less than 1% interest on the balance. I told her she’d be better off opening a high interest savings account like ING or HSBC or Emigrant Direct where she could earn around 5% interest on her money and not have the funds locked into a CD that she couldn’t touch without a penalty fee. I also told her that she needed to start contributing to her 401K immediately since her company matched 6%.

Then she told me she didn’t trust online banks. And that she didn’t know if she really needed to do the 401K since she’d be vested in the profit-sharing pension thing next year.

That was 6 months ago.

She still hasn’t started her 401K contributions or a savings account. In fact, she is selling stuff on eBay to make the payments on her credit cards. If she had started saving 5 years ago she’d have a nice downpayment for a house. If she’d started saving 6 months ago she wouldn’t be selling stuff on eBay to make credit card minimum payments. She needs to do something now, even if it’s just collecting spare change in a jar at the end of the day.

What do I do? I have an automatic weekly transfer set up into my ING account. Extra money I get from things like online surveys, rebates, gift money all goes into savings. And if I see a penny, I pick it up. And once every few months I roll all my change, take it to the bank and then transfer that to my savings. When I get a job that has a 401K, I’ll do that too. This might not be enough, but at least it’s something. And it’s certainly more than my friend is doing.