In You're So Money, TheStreet.com reporter Farnoosh Torabi preaches the art of living large, even on young professionals' tight budgets. Instead of forgoing nice shoes or Caribbean vacations, she recommends prioritizing those goals to make them a reality. A five-day getaway might mean skipping pricey restaurants for a few months, for example. U.S. News spoke with Torabi about scrimping on what doesn't matter so you can splurge on what does. Excerpts:
How did you think of the idea behind You're So Money?
I was 26, living in Manhattan, and working as a financial journalist. I had figured out a way to pay down debt, spend within my means, but also live a bit beyond my means, with [things like] dinners out, expensive shoes, and a Bahamas vacation. After all, it was my job, more or less, to learn and understand financial matters. I was comfortable facing money and viewed money as a vehicle to achieving my goals, rather than as a setback because I had student loans and some credit card debt once upon a time.
Meantime, my friends, largely, didn't have as much of a grip on debt and spending. I knew I wasn't any smarter than my friends. I just had exposure to money matters, unlike the average 20-something. I felt I was in a good position to give my friends advice—but also knew this book couldn't be like anything else out there. It had to be fun, engaging, and relevant. It couldn't talk down or make readers feel guilty or embarrassed about their financial issues, be it their thousands of dollars of credit card debt or wanting to spend $100 on a haircut.
Do you think it is really possible to live it up on entry-level salaries?
I do. Don't get me wrong—having more money means you can spend money on more things. But the "good life" should not be about quantity. Rather, it's about spending your time and money on the very things and events that make you feel happiest and most fulfilled.
I use the example of a young 20-something who was making very little money as a budding artist in New York City. She was sharing an apartment in Brooklyn, living very simply. Her good life meant having the opportunity to travel. By paring back on day-to-day expenditures, like meals out and cab rides, she was able to utilize her money toward a greater joy, which was taking weekend trips. In her mind, she was "living it up."
You recommend defining a "hierarchy" of needs and wants—what does that mean?
The hierarchy is all about discovering what's important to you—and what you can't live without.
Saving and paying down debt should be at the top of everyone's hierarchy of needs. After that, it's all about you and your definition of the "good life." What are your values? Where do you see yourself in the next five years or so? Questions to consider include: Do I want to go back to school? Do I want to move? Do I want to travel more? Do I want to start a business? Do I want to buy a house? Then figure out what in your immediate spending world is or is not contributing to those goals. That's how you can then develop this hierarchy—and begin spending and saving in a more self-tailored way.
What are examples of easily overlooked items that people might want to consider cutting from their budget so the money can instead go to something more meaningful to them?
It's easier to give advice once you know each person's "good life." But there are some general things to consider:
Gym memberships. The average person visits the gym just four times a month. The average gym membership is about $60 a month. You can do the math. If you can't remember the last time you hit the gym, consider canceling or getting on an a la carte system where you pay as you go.
ATM fees. I live by my debit card. I opt to use it in stores wherever I can in order to avoid the ATM, which charges me on average $2 a withdrawal. In some cases $3! If you hit the ATM once a week, that's at least $100 a year in fees. In 10 years, at a 3 percent interest rate, that $100 a year becomes close to $1,200! Or if you want, it's $100 toward last month's Visa bill...or if you're debt free—a one-hour facial at a fancy spa.
Purchased books and DVDs. The library is becoming more popular with the under-30 crowd these days. No joke! If you're a bookworm, get a free library membership and instead of spending $20 to $30 a month on a couple of books, get them free from the library. Same goes for DVDs.
Adult beverages. You can slice your dinner bill in half at the restaurant by nixing two glasses of wine.
If you want to make a toast, consider a BYOB restaurant instead. Know that, as a way to profit, restaurants and bars jack up wine bottle prices by three to four times what you'd pay in the liquor store.
How do you decide when to buy things and when to skip it? Your spending diary suggests you make economical choices.
There are some things I do very consciously. I have a little rule of thumb, which is I need to at least have one to two homemade meals every day. If I know I'm going to be eating out for dinner, I will usually eat breakfast at home, pack a lunch, or have a small bought lunch at work. It's healthier and saves a bundle. For things that aren't necessary, like shoes—although nice clothes and shoes are a part of my "good life" equation—I try not to go crazy all the time. A $7 cotton tee is just as good as a $30 one, especially if I'm just going to layer it under other tops and wash it 18 times. I consciously went to DSW for shoes, too, because I get a kick out of saving on shoes. I recently splurged $330 on a pair of Marc Jacobs shoes, but it was my New Year's gift to myself, after learning about my raise. And I totally love them!
But you also do seem to spend money on things that aren't necessarily necessities, like brunch—is that also a conscious decision, because those things make you happy?
Why work hard for your money if you can't enjoy it? I've gotten to a point in my financial life where I feel like I can splurge on some things with more freedom than when I was just starting out in New York. I'm further enough along in my career where I have a bit more discretionary income. A leisurely brunch was always something I'd have to budget for. Now I can afford it better. That said, there are definitely some weekends when I prepare breakfast. That $12 granola and yogurt bowl across the street is just $3 or $4 when prepared at home!