Pampered Artist Pursues Security Without Skimping
At 33, illustrator Susan Mondt has a yin-and-yang approach to her $90,000 income: passionate spending and a cold fear of too much debt or financial commitment.
“I’m an impulsive kind of person, and if I go on vacation, I think nothing about buying a new bathing suit, sunscreen, whatever. But on large purchases I’m very, very cautious,” she said. “I can drop $300 to $500 just getting ready to go on vacation, but the idea of spending $300 to $500 on a [monthly] car payment freaks me out.”
She uneasily relies on other people for financial advice and struggles between pampering herself with little luxuries and being financially responsible--saving for a car, a house and a secure retirement. Her goal is to find a way to have it all: financial acumen, healthy savings and the ability to buy what she wants when she wants it.
But having it all isn’t realistic even for someone with Mondt’s income, says Peg Downey, a fee-only certified financial planner in Silver Spring, Md.
The savvy and savings are achievable, but Mondt needs to readjust her thinking about how much money she really has to spend after taxes and basic expenses and set down some priorities in the form of a spending plan.
“Maybe it’s a growing-up kind of thing,” said Downey. “Being totally responsible is having to be a grown-up. It’s hard and sometimes we don’t want to do it, but it’s often the very thing that’s behind taking charge of our lives.”
A Desire to Make Educated Decisions
Much of Mondt’s situation is enviable. First of all, she loves her job. She works at home as a full-time employee of Hanna-Barbera, painting backgrounds for cartoons--currently the “Powerpuff Girls” and “Dexter’s Laboratory.” Her employer pays her $1,600 a week and she earns more from regular freelance jobs, including illustrations for The Times.
Last year, she figured it was time to invest in a house. But after six months of looking she couldn’t find anything affordable that she liked, and the prospect of owning a house by herself became too scary.
Instead, she says, “I became Decorator Girl.” She spent about $10,000 fixing up her one-bedroom Mid-Wilshire apartment, buying new linens and furniture, installing plush carpeting in her bedroom and adding steps and a little patio.
The year before she was “Traveling Girl,” taking trips to Mexico, Tokyo, Paris and a road tour through the southern United States. She doesn’t have a budget but guesses that every month she spends $300 to $500 on clothes, $50 to $100 on dry cleaning and at least $700 on food.
“I’ve always tried to make enough money so I wouldn’t have to be on a budget, but it’s like every month I deposit this huge chunk of money, pay all my bills and then I don’t have any money left,” she said.
“That doesn’t make sense to me. I’m not super-luxurious. I don’t wear Prada. But I like the feeling of saying, ‘Wow, that’s a really cute sweater and I’m going to buy it’. . . . I feel I make enough money that I shouldn’t have to think about things like that.”
She does have some savings--$11,000 in a money market account, $4,420 in her union’s 401(k) plan and $64,000 in a recently converted Roth IRA. But Mondt doesn’t feel like she has an investment plan. She started saving for retirement at her first job, when she was 22, only because of nagging from her boss. “He convinced me to do it, and six years later I had $32,000.”
After she left her first employer, Mondt rolled her 401(k) into an IRA, and last year converted it to a Roth IRA. That decision was also based on someone else’s advice--this time her parents’ financial advisor, who divided the money into three Oppenheimer equity mutual funds. She’s glad she changed to a Roth, even though it will cost her $20,000 over four years in extra taxes, because she won’t have to pay taxes on the money when she retires.
Most planners would agree that tax-free growth will outweigh the conversion cost, especially because Mondt is relatively young and not using any of the IRA money to pay the taxes. Whether converting a traditional IRA to a Roth IRA is ultimately the right move will mostly depend on what income tax rates are decades from now.
Despite making that courageous move, Mondt doesn’t feel in control of her money. “I have no idea about this stuff. I don’t know how to make a good decision. I want to understand what I’m doing and make personally educated decisions, not just do what people tell me.”
She had to scramble this year to come up with $5,000 to pay the first installment of the Roth IRA conversion tax, so she allowed her credit card debt to balloon to $6,000.
“I didn’t want to change my lifestyle. I still wanted to redecorate my bedroom and live the way I usually lived, so I just did it with a credit card,” she said.
She plans to pay off the card debt in the next few months and avoid an unexpected tax bill in the next three years by increasing her income tax withholding.
Otherwise, Mondt’s only regular expense is $995 a month for her apartment, which she shares with her two cats, Josie and Sadie.
Commuting costs aren’t an issue, because she has to visit her office only once a week. Still, her 1969 Camaro is falling apart, she says, and it worries her on longer drives, such as when she heads for San Diego, her hometown, to visit her parents. She could spend $3,000 to $4,000 to rebuild the Camaro’s engine, but lately, on those southbound trips, she’s taken to renting what she wants to buy--a Lincoln Town Car.
“I want it so bad,” Mondt says. “I think, ‘I made $90,000 last year. I should be able to afford this car. I could get a used one.’
“But I’ve never had a car payment before, and it’s really scary to me. And I feel weird about not having that $10,000 in the bank. It’s like my parents’ influence on me, ‘You must have money at all times.’ ”
Mondt chafes against that influence, but it’s too ingrained for her to ignore completely.
“It’s like, OK, I can get my Lincoln Town Car and go cruising to Palm Springs, but I won’t be able to afford my brand-new bikini and suntan lotion. I just feel that if I can balance my finances, there should be a way I don’t have to make that kind of trade-off.”
Alas, says Downey, “it’s always, always about trade-offs. The basis of financial planning is taking the resources you have and aligning them with your goals.”
Facing Realities a Part of Growing Up
Mondt is at a financial threshold that’s fairly common for young people who have begun handling their own finances. For starters, Downey recommends a book called “The Seven Stages of Financial Maturity” by financial planner George Kinder. The idea is that our financial awareness develops in stages, which don’t necessarily have anything to do with age.
“You might equate it to growing up, becoming an adult and having to face some harsh, unpleasant and perhaps painful realities, such as a heck of a lot of money goes to taxes, and there’s nothing you can do about it,” Downey says.
Furthermore, even though Mondt has been financially independent for more than a decade, she’s afraid of any “grown-up” commitments, such as a mortgage. “If you spend all your money and don’t save it, you’ll never get in the position of having to deal with those fears, so it’s a good defense mechanism,” Downey adds.
But Mondt has some important advantages, Downey says. Despite her impulsive spending, she’s saved a fair sum toward retirement and has a good security blanket in her $11,000 money market account.
Downey suggests that Mondt increase her 401(k) withholding from 6% to 9% of her salary and earmark her credit union savings for the house she wants to buy someday.
“A good rule of thumb for someone with your income level is to save roughly 15% of your gross. It doesn’t all have to be for retirement, but it should be for something major, like a house.
“And by saving more in your 401(k), you reduce your taxes. By changing your 401(k) contribution to 9%, you’re increasing the amount by $48 a week, but that means you take home only $28 less” because it is a pretax expense, Downey explains.
The planner also suggests that Mondt begin researching mutual funds through Morningstar Reports at a public library--maybe an hour or so a week--and read a few books, such as “The Only Investment Guide You’ll Ever Need,” by Andrew Tobias, and “The Millionaire Next Door--The Surprising Secrets of America’s Wealthy,” by Thomas J. Stanley and William D. Danko.
One of the three Oppenheimer funds in Mondt’s Roth IRA, the Oppenheimer Discovery fund, has been performing particularly poorly, Downey said, and all three charge high fees.
However, the funds are “B” class, or with back-end loads, which means Mondt would face a charge if she were to sell them within five years. She’ll have to weigh that against the burden of high expenses and potential for better returns elsewhere. Downey suggests that for the Roth IRA or future savings, Mondt consider a no-load fund group such as Vanguard.
Next, Mondt must stop thinking of her annual income as $90,000. Although she’s paid $1,600 a week by Hanna-Barbera, $676 is deducted for state and federal taxes, and $196 is deducted for savings--$96 for her 401(k) and $100 to a new account she’s building at the credit union. So Mondt’s take-home pay is $726 a week. That’s about $2,900 a month, less than half her gross salary.
Downey recommends that Mondt write down a budget based on her take-home income from Hanna-Barbera. She’ll probably have to trim some impulse spending to make room for car payments and insurance.
A Structure, Not a Straitjacket
Once Mondt figures out what she can spend on a car payment, she’ll realize that she really can’t afford a Lincoln Town Car, Downey says. But a spending plan doesn’t mean Mondt has to cut out her pamper sessions. Downey suggests she use her freelance money for those purchases--after setting aside half for taxes.
Mondt likes the suggestions. They appeal to her practical side. After talking to Downey, she immediately increased her 401(k) contribution to 9% and plans to begin researching a new family of mutual funds. Moving her Roth IRA money is scary, but she’s determined this time to make a decision based on her own research.
The key investing point Mondt needs to understand is that asset allocation--the types of investments she makes--can be far more important than the actual choice of investments. Most planners agree that a person of her age can be invested mostly or entirely in equities, which historically have outperformed all other categories.
Setting up a spending plan looms as Mondt’s most daunting task, because it seems too restrictive. “It’s just so normal, so specific, and that’s sort of the opposite way I’ve always been,” she says. “Among my friends, I don’t know anyone with an actual spending plan. I have friends who make more money than me, and we all just throw money at whatever whim we want because we figure we have enough.”
Still, after her discussion with Downey, she says she’s become more aware of her spending. “This weekend, when I walked past my favorite store and was eyeing my little cosmetics and lotions, I was debating with myself, ‘Should I go in or not?’ And I decided not to go in because I might spend $300 accidentally.”
Downey says the trick to setting up a successful spending plan is to remember that it’s not a punitive act but a way to achieve one’s goals. “You’re setting up the structure and you’re modifying it, so it’s not like a straitjacket. You make the choices, and that’s significant.
“So why don’t people do it? Because people don’t pay attention to themselves. They go scurrying around, day by day, and they don’t take time to ask, ‘What’s important to me? What do I want?’ Those are pretty scary questions.”
Jeanette Marantos is a freelance writer based in Wenatchee, Wash. To be considered for a published Money Make-Over, send your name, age, phone number, income, assets and financial goals to Money Make-Over, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053 or to money@latimes.com. You can save a step and print or download the questionnaire at https://www.latimes.com/HOME/BUSINESS /FINPLAN/make-over.htm.
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
This Week’s Make-Over
Investor: Susan Mondt, 33, illustrator
Gross annual income: $90,000
Immediate goals: Replace 1969 Camaro and become more knowledgeable about investing
Long-term goals: Build healthy savings for retirement and a house without putting a damper on her free-spirited spending
Current Portfolio
Money market account: $11,000
Retirement accounts: About $68,000
Debt: $6,000 on two credit cards
Recommendations
Develop a spending plan based on salary, use only freelance money for “pamper” purchases
Keep the money market account for emergencies
Purchase disability insurance
Increase 401(k) contribution from 6% to 9%
Research finance and investing, then consider moving Roth IRA out of poorly performing mutual funds
Meet the Planner
Peg Downey is a fee-only certified financial planner and a registered investment advisor. She is a founding partner of Money Plans, a Silver Spring, Md.-based financial planning firm.
