I’m 29, and I’ve been working in the service industry for the past ten years. At first, waitressing helped pay my bills when I was in college. Then it supplemented my lousy salary as a teacher after I graduated. After I burned out in my teaching job, I became a full-time waitress. I’ve been barely scraping by for the past decade. Until last month, the only thing I had to my name was about $30,000 in student loans.
But now, for the first time ever, I’m making decent money. I’m a senior manager at a pretty big restaurant franchise that pays me $55,000, health insurance, and retirement benefits. It feels crazy, like someone made a mistake. Obviously, it’s not a glamorous job, and my life looks pretty different from what I envisioned, but this is the most stable I’ve ever been. It feels too good to be true.
I’m not sure how to manage this money or my very real anxiety that it’s all going to disappear soon. I still live in a shitty apartment with two roommates. Technically, I can afford to get my own place now, but should I wait and save up more first? It also feels weird to save for retirement when I have never saved money, period. Part of me thinks I should hoard these paychecks until the economy crashes or someone figures out I shouldn’t be making this much and I’m back to minimum wage. What should I do? Where should I start?
Congratulations on your new job! This may not be how you thought your career would look, but it sounds like you’re good at what you do, and I’m glad you’re being recognized and compensated for it.
Still, I understand the confusion that comes with making a comfortable amount of money for the first time. I hit a similar point when I was 31, and it was a huge relief to check my bank balance without dreading what the number would be. But I also felt a new pressure to be doing more — saving more, planning more, and making up for the previous years when I hadn’t saved or planned. Ironically, having more money made me more nervous and vigilant about it.
These are not bad problems to have, of course. The author Ramit Sethi would describe this as an action phase: a moment of reckoning that catalyzes you to take stock and make important changes in your life. This process can be uncomfortable and overwhelming, but don’t let it paralyze you. You’ve spent your whole adult life using money to meet your most immediate needs, and now you have to learn a whole new way of thinking bigger and further ahead. It’s a transition from being reactive to being proactive, and it’s going to take a little while for you to wrap your mind around it. Be patient.
The good news is that there are some very concrete steps you can take to organize your money and feel more secure, both in the short and long term. Here’s where to start.
1. Don’t change your spending yet. Jump-start your emergency fund instead.
“Step one, when you start making more money, is don’t spend like you’re making more money,” says Manisha Thakor, a certified financial adviser and founder of MoneyZen, a financial consultancy. “Keep living with your two roommates. Don’t adjust your lifestyle yet.” Remember: The biggest luxury that money can buy is less financial anxiety. And that takes savings.
Not to be a downer, but your fear that this could all disappear is a rational one, adds Thakor. “Uncertainty is the new normal for everyone in this economy. The best antidote to that anxiety — because we can’t eliminate the risk that something could happen to our jobs — is to create a safety net.” She recommends aiming for a $2,000 emergency fund to start. Put it in a separate savings account where you can’t easily access it. If you do need to tap into it for a true emergency, top it back up as quickly as you can.
Ultimately, the gold standard for an emergency fund is three to six months’ worth of living expenses. You can keep working toward that eventually, but $2,000 will cover the most typical unexpected expenses, according to a report from Pew Research Center. Establishing that minimum savings will give you a cushion and offer some psychological comfort as well.
2. Contribute to your company’s retirement plan.
A corporate retirement plan is a great benefit, and you should take advantage of it. If there’s any sort of matching program, that’s even better — it’s in your interest to contribute to the fullest extent (free money). Otherwise, aim to contribute at least 5 percent of your paychecks for now, says Thakor.
It might seem like a stretch to be saving for your retirement in your 20s, while you still have student loans and lots of other competing needs. But the earlier you invest this money, the more it will grow over time due to compound interest. Thakor recommends investing it in a target date fund, probably one pegged to the year 2055. (You can read more about this process here.) Think of this as another important part of your safety net, just with a longer horizon.
3. Automate your debt payments.
You mentioned your student loans. Once you have to start paying them again, you should set up your payments so that they are automatically taken out of your account every month. This allows you to think about them as little as possible.
4. Make a budget for fun.
Yes, your immediate priority is to save. But you’ll also want to do some more emotional work around what you value spending money on, now that you can afford to be more intentional about it. Do you want to live in your own apartment? Or maybe you don’t mind having roommates, and would rather pay less in rent so that you can spend more on traveling or hobbies or whatever. Take your time to think about these things.
Then, give yourself permission to put money toward them. “I would set aside a dollar amount from each paycheck that goes toward fun,” says Thakor. “It’s important to learn how to enjoy your money too.” It might sound counterintuitive, but learning to spend responsibly is a skill unto itself and an important part of your financial picture.
Personally, giving myself an “allowance” to spend on fun things was the most helpful trick for getting over my own financial anxiety. It allowed me to look forward to what I was spending it on instead of fretting about whether it cost too much. It’s a freeing feeling, and a calming one.
The Cut’s financial advice columnist Charlotte Cowles answers readers’ personal questions about personal finance. Email your money conundrums to email@example.com