Most people do not like to talk about money because it is a very personal topic. You may feel like you are on track with your goals, but how do you compare to other people?
Here is the financial background of Mary from Los Angeles. As a 30-year-old, she has built a net worth of $242,000 in the 5 years in her career.
Let’s see how she has done it.
Building Wealth in Her 20s
Mary has a Master’s degree and currently works as a Marketing Manager for a media company in L.A. She is 30 years old, single, and has been working in her current field for 5 years with increasing pay.
She is currently saving about 49% of her income but has the goal to increase it to 80%. This will let her invest more and eventually be able to retire by living off the interest.
While she is currently making $122,500 per year, she feels underpaid based on her skills, experience, and the high cost of living in Los Angeles. One of her goals is to increase her income to $200k so that she can save more.
Mary has been able to save a sizeable chunk of money by being frugal and saving money regularly. Even while doing this, she has been able to enjoy her life by taking 4 months off to travel, playing sports, and hanging with friends.
Income
Over the past 8 years, Mary graduated from college and joined the workforce. Her pay has increased but is still less than she would have liked.
- 22 years old: minimum wage marketing coordinator position right out of college
- 23 years old: $55,000 after switching jobs
- 24 years old: $58,000
- 25 years old: $75,000 after moving to L.A. and switching jobs
- 26 years old: $75,000
- 27 years old: $75,000
- 28 years old: $95,000 after switching jobs
- 29 years old: $95,000
- 30 years old: $122,500 plus 20% bonus after switching jobs
Not a bad salary for most people, but Los Angeles has a higher cost of living than other areas of the country. L.A.’s cost of living is 58% higher than the national average, which really adds extra burden to young adults living there.
Expenses
Here are some of the monthly expenses that Mary spends her money on.
- Rent & Insurance: $1805 for studio apartment
- Utilities: $180
- Groceries: $400
- Eating Out: $200
- Subscriptions: $2.50 for Spotify
- Transportation: $200 for public transportation
- Healthcare: $90
- Clothing: $85
- Beauty: $50
Her total monthly expenses are around $3,012.50.
Saving and Investing
Using the Smart Asset paycheck calculator, Mary is taking home around $6,716 per month, after tax.
Since she is saving everything that she doesn’t spend money on, she is able to save around $3,700 per month. This is based off her current salary and is more than she was able to save 5 years ago when she was making $50k less per year.
As for investing, she has admitted that she really has not done much investing and keeps her savings in a bank account. Her one regret is not starting to invest earlier and not branching out into other opportunities other than individual stocks.
Net Worth
Mary has the bulk of her net worth in high yield savings accounts. Here is what it looks like:
- Checking Accounts: $22,500
- Savings Accounts: $180,500
- Retirement Accounts: $38,000 in 401k
- Investments: $1,000
- Real Estate: $0
- Debt: $0
Her total net worth is $242,000.
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Financial Planning for the Future
Mary has done a great job of fighting for herself to get raises in the early part of her career. As she looks to the future, she will continue to position herself to find the highest paying jobs and move up the career ladder.
As an outsider looking in, and not being a financial advisor, my suggestion to Mary would be to not be afraid to get into investing. She can start to move small chunks of money into a few types of investments, like S&P 500 index funds and real estate investment trusts (REITs).
Personally, the $180k she has in her savings account is too much and is actually losing value over time. She could keep $30,000 for an emergency fund and still be able to invest $150,000.
The opportunity cost of NOT investing that $150,000 for 30 years with an average rate of return at 8% is $1,640,789!
Other than that, Mary is doing a great job of investing and avoiding debt to maximize her net worth. She will certainly be able to quickly grow her wealth as her income increases.
Do you have a chunk of money to invest? Here are some ideas for how to get started investing like a millionaire.
