Pay Dirt is Slate’s money advice column. Have a question? Send it to Athena and Elizabeth here. (It’s anonymous!)
Dear Pay Dirt,
A little less than a year ago, I received a pretty large amount of money (about $50,000). That is more than I make in one year. Now, it’s almost completely gone, and I’m not even sure where it went. I used a big chunk of it to pay off my car note and some credit card debt, and I also moved and did some traveling. But I know I’ve been living above my means. I keep using it to cover rent and monthly expenses (as well as expensive purchases) but it’s almost out. I’m extremely embarrassed that I managed to spend this much money in such a short amount of time, but I don’t know where to go from here. Everyone said I had to be careful with this money because it’s easy to spend it all on dumb stuff. And then I did spend it all.
The city I moved to is expensive, and I’m still working at my old job with my old salary. I’m trying to find a new job but am having trouble. I’m mortified that I let this happen (although in fairness, this last year has been the happiest and most stress-free year of my life, thanks in large part to this money). How do I scale back on my lifestyle and start replenishing my rapidly diminishing savings account?
If you make under $50,000 annually and then received that as a cash windfall, it makes sense why you would have felt flushed with money and spent it. I’m not saying it’s OK, but receiving that much cash in one swoop would probably make the best of us make it rain for a year. It seemed like a huge amount at the time and now you’ve learned how easy it was to liquidate it. Also, you weren’t completely irresponsible with it. You paid off your car note, moved to what sounds like a new city, and paid off some credit card debt. Chalk this up to a lesson learned and see what you can do now to lessen the bleeding.
Is your career sector a hard one to break into? It’s an employee market right now so if you are having a hard time finding the right fit, ask someone to take a look at your résumé. Brush off your LinkedIn profile and see how you can connect with those in your industry on a more personal level. If you haven’t yet, consider finding a job in the gig economy to help out for now. You can always stop once you find a new job or you might even decide to keep that extra gig to hit your financial goals faster.
Next, check where you can cut expenses. How were you living before you received your windfall? Can you get a roommate or find a cheaper way to commute to work? Are there any discounts you aren’t taking advantage of through your employer? Truebill is a great app that helps you keep track of your spending as well as helps you cut back on subscriptions you no longer need. Once you monitor your spending, you’ll get more of an idea of where your money goes so you know what areas you need to cut back in. You’ve got this!
Dear Pay Dirt,
Due mostly to the generosity of gifts from relatives, and investing from a young age, I am in the position to buy a house all cash in the next year or so. I have $900,000 in savings for this house, about $80,000 in general savings, $330,000 in my brokerage account, $73,000 in my IRA, and no debt. I work in an underpaid field and make around $70,000, and don’t anticipate ever making much more than that while my partner makes about double that amount. My brother recently told me that his plan to buy a house is to pay all cash to have the advantages through that process, and then get a mortgage afterward as investing your money would outperform the return on the house.
While I can understand not having all your liquidity tied up in a house, with a low salary, I was looking forward to not having a monthly payment to make. Additionally, up to this point, all my savings and investing have been driven to this major (and really only current or anticipated) big financial goal so it feels a little strange to have the means to accomplish it outright and choose not to. My main question is, what is the play here? Do I commit to paying a mortgage for 30 years? If there’s another windfall in the future, does it go to the mortgage or more investments? What is the tipping point where there is enough in the bank/the market that the house gets paid off?
—Hypothetical House Dilemma
Go with your gut. If your entire financial end game has been purchasing a home in cash so that you have no mortgage, purchase your home in cash. You already have a significant amount of assets that have been invested in different avenues so adding a home will leave you with a well-balanced portfolio. And you don’t need to take out a mortgage to invest in the market as your brother is suggesting.
We’re currently in a competitive housing market which may or may not cool off. So right now, it’s a sellers’ market, and being a cash buyer will allow you to stand out among the rest. Buyers often make bids on homes without finding out how they’re financing first, or back out once they realize they cannot get as big as a loan as they previously thought. Sellers know you’re less likely to back out because financing is not an issue.
You’ll also be saving thousands of dollars in interest over the lifetime of a loan, and without having to pay for a mortgage or rent, you’ll have a ton of excess cash to continue to save and invest. There are a ton of pros when purchasing a house in cash so follow your instincts and feel free to buy that dream home.
Dear Pay Dirt,
I’m in my mid-30s and my single father died shortly before the pandemic and left me some of his rental properties as well as his former primary residence. I sold one which has given me enough cash to ride out the COVID wave of job instability (I’ve only ever worked in retail so job stability was never really on the table). His and my intention was always that I should keep these properties as investments and let them grow. To anyone that hears this, it sounds great! I have a couple of rental properties with passive income. But my problem is I think I want to go to graduate school and these properties are worth a lot more on paper than they are in real life. I did a “mock” FAFSA and my estimated financial contribution was essentially the total cost of a three-year degree which I simply can’t afford without selling all of them. Up until my dad died, I never made much money and wasn’t able to contribute to any retirement savings plans—I literally had about $600 to my name when he died. People keep telling me to go back to school but the idea of liquidating everything my dad worked so hard to build only to hopefully get a new, better-paying job at this age is terrifying.
—Sounds Great From Afar
Dear Sounds Great,
I have a sincere love-hate relationship with the FAFSA. For many people, it’s extremely hard to qualify for aid because the bar for income is set so low. I made $28,000 per year as an independent adult and didn’t qualify for any loans at a university. It sucks and, in my opinion, it’s set up against a lot of people to encourage student loan debt.
I share that because I don’t want you to feel discouraged, especially since your dad’s real estate empire is what is keeping you afloat right now. You also shouldn’t feel that grad school is your only option moving forward.
Do not sell any of the properties and instead, look for other ways to finance a graduate degree. Contact the university directly to see what financial aid they offer graduate students in your field. They may offer fellowships or scholarships. They may also know of private organizations that could provide private financing. Look to see if any part-time employees offer tuition assistance as part of a benefits package. You can also attend school part-time so tuition may be more manageable with your cash flow situation. There are definitely ways for you to achieve your dreams and keep your dad’s inheritance. Good luck!
Dear Pay Dirt,
My current job compensation includes a base salary, a very small percentage of the business I bring in, and profit-sharing. The idea is that as the company grows, profits increase and my piece of the pie gets bigger. So, along with several of my coworkers, I’m a part-owner. The people directly benefitting from this model are my bosses, who each bring home about 10 times per month what I do in profits. If I get $2,000, they’re bringing home $20,000.
But one of my clients is actively head hunting me. I know passive income is an important part of building wealth and am reluctant to leave profit-sharing behind for only a salary. The comp at both jobs would be similar and my career path would likely be very different if I made this move. It’s an emerging industry that’s not going anywhere—think renewable energy versus what I do now (general consulting). I know my compensation will steadily increase over the years where I am, and there’s a ton of flexibility. A new job brings new, different, and interesting opportunities. I am torn. What are the things I should consider when switching jobs?
—Working For the Man
Dear Working For the Man,
I think you’ve thought a lot about this and it’s hard to make a decision because, in the end, you have two paths to take. Each path is different and each could revolve around a substantial payout. At this time in your life, I’m wondering what you value more.
I love the idea of flexibility—for personal reasons—but I’m also a firm believer that everyone should be able to have it. Life can change in the blink of an eye and you may need to alter your work schedule to fit a situation that came up. I’m worried, however, that your stake in the company may not be enough for you to eventually bring home the profit you crave or deserve. I think it’s unfair that you’re getting $2,000 and your bosses are pocketing $20,000. As you said, in the long run staying in this position may line your bosses’ pockets more than it does yours.
Challenging yourself on a new career path could also open new avenues and ways to grow. Growth in your career is very important because your experience is what you’ll need to negotiate your salary in the future. You can always have a talk with your boss about your current compensation and what they can do to meet you in the middle. If you’re bringing a lot of money in, they aren’t going to want to let you go. If they come back empty-handed, it’s time to jump ship.
My child is at that age where the entire class is often invited to birthday parties. As the family logistician (aka “Mom”), I usually handle the RSVPs and figure out who’s going to do the driving. We sometimes get invites that specify “no gifts” (and do so when we are hosting) but when there isn’t a clear message about presents and there are up to 30 kids potentially attending, I typically have my little one make a card for the guest of honor. My husband is of the opinion that unless told otherwise, we should bring a gift. I’m not so sure…