Failure to borrow again for any reason is one of the main factors affecting Diania Merriamapproach to managing her finances during the coronavirus pandemic.
“I just saved money,” says Merriam, the founder EconoMe Conference, which is focused on achieving financial independence. “Money is emotional, and I think that I am now in a place where I feel very insecure.”
She is far from alone: 51% of Americans said that they are at least a little worried about their financial situation, according to a recent survey by NextAdvisor more than 2500 adults. And the three main causes of concern were debt, lack of savings, and loss of work or income.
While Merriam has remained busy – her main source of income is the licensing of a brand management company – she continues to learn from what she learned when she paid about $ 30,000 on an aggressive schedule in just 11 months, when she was 28 years old. Despite being almost four years without debt, her approach is still: “Get ready for the worst and hope for the best.”
Here are three ways this past experience has shaped the 33-year-old’s approach to the current recession.
1. Adding more to her “emergency fund”
Merriam’s path to debt relief began in September 2015, when she joined a group of like-minded people with similar goals.
Another group member shared an article Mr. Money Mustache, a personal finance blog created by Peter Adeni. As Merriam recalls, the article focuses on why it is important to treat your duty as an emergency. “I read the entire blog, I became obsessed with it,” she recalls.
“I like to say that Mr. Money Ush was a refreshing blow to the face,” laughs Merriam. Armed with more personal financial information than ever before, she decided to pay off her debt as quickly as possible.
She began saving 60% of her after-tax salary when her salary was less than $ 100,000 and she lived in New York. She cut costs, redirected all her savings to paying off this debt and found creative ways to communicate on the budget — including attending clothing exchanges, holding “gourmet” dinner parties, asking friends to discount $ 30 and share the cost of the Internet. service with neighbors.
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“Many people think that frugality is a deprivation or that you have to make many sacrifices,” she says. “For me it was much more useful.”
By August 2016, or just 11 months later, Merriam had made her last student loan and credit card debt payments, which had grown to $ 30,000 in the years since college.
Today she is a homeowner living in Cincinnati, and Merriam continues to save 60% of her salary. Earlier this year, part of this money went to the first EconoMe conference she held in March, and now she is dedicating her savings to what she calls her “emergency fund.”
While many experts recommend a rainy day fund that can cover costs from 3 to 6 months, Merriam found that as soon as she had no debts, she felt more financially secure with more money.
“I always wanted a year to cover the costs, and now I want even more,” Merriam explains. “I want to protect myself from the bad things that happen and be open to new opportunities.”
While Merriam’s goals may seem stretched, even saving $ 1,000 can be achieved in one year, if you allocate about $ 38 for each salary. And she says that the monthly expenses that you have in your emergency fund “are not a direct answer for everyone” – what suits you will depend more on the degree of risk with which you feel comfortable and the amount money that can help you. feel safe.
“There is nothing wrong with a really high level of savings,” says Merriam.
2. Maximizing 401 (k) installments early
Like many other Americans, Merriam felt the consequences of the coronavirus decline in a very specific way: her employer stopped matching contributions with 401 (k) plans for the remainder of 2020. This is not unusual; in the midst of the Great Recession, 18.5% of companies offering a pension plan suspended or reduced it, according to a 2009 report from the Council of America’s Sponsors Council.
However, the lack of her employer eligibility did not stop Merriam from contributing to her retirement accounts, which include 401 (k) offered by her employer, a health savings account (HSA) linked to her high deductible health insurance plan, and Ira.
This year, Merriam plans to maximize contributions to all of the above accounts, and in recent months makes an even greater contribution, so she can quickly reach these limits. For a person of her age, these restrictions are currently: $ 19,500 for 401 (k), $ 3,500 for HSA and $ 6,000 for IRA.
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“Looking at this from the worst case scenario, for example, if I soon lost my job, lowering my taxable income by increasing my 401 (k) contributions seemed like the right step,” she says.
By actively adding even more money to his 401 (k) plan, Merriam will receive more money than she does. could potentially click as a secondary emergency fund. And if things continue well, she is preparing for a safe retirement even earlier than she is over 60.
3. Developing relationships with money
When Merriam had debt, one of the strategies she used was to keep track of every dollar, down to the penny she spent. At the same time, she stopped considering money as a means to buy things and began to consider them as a way to get the freedom to do what she wanted.
“My debt was pretty pointless, it really accumulated from pointless consumption,” says Merriam. “My 20 were determined by financial illiteracy.”
However, paying off these credit cards and student loan obligations did not only erase Merriam’s debts. “It completely changed my relationship with money,” she says. “This opened up a world of possibilities that I could not imagine.”
A year after being released from debt, Merriam took a two-month unpaid leave from work to take a trip to El Camino de Santiago, a 500-mile crossing through northern Spain. She asked her landlord about subleasing her apartment, and when this request was rejected, Merriam realized: “If I am going to move anyway, why not force myself to try something new?”
Along the way, Merriam became a supporter of the movement “FIRE” – or “financial independence, early retire.” The overconservation habits that she had learned while paying off debts meant that her life during the pandemic was not so different.
From her point of view, Merriam believes that many Americans enjoyed a slower pace of life during the pandemic, just as she did when she introduced spending restrictions on debt repayments. Likewise, she hopes that other people will understand that pursuing the FIRE dream does not mean that you hate your job, but rather that you are focused on creating a security system if something bad happens or an opportunity arises.
Video by Stephen Parkhurst
While Merriam says she is within 7 or 8 years of financial independence, she is open to adjusting what it means for sure. In the future, she hopes to devote more time to expanding EconoMe so she can tell young people about personal finances.
“I have no idea what my 20-year-olds would be,” says Merriam. However, she does not regret the $ 30,000 loan, because ultimately this led to an “amazing experience” that allows her to share lessons with others. “If I didn’t have that kind of experience, I don’t think I would also be grateful for where I am today.”
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