6 Financial Makeovers: You Won't Believe Week Two

6 Financial Makeovers: You Won't Believe Week Two

altTwo weeks ago, we introduced you to our first-ever Financial Makeovers—the LearnVest version of a reality show. (With balanced budgets replacing Bridezillas and, this week, a surprise pink slip instead of a rose ceremony.)

We chose six women of all ages and walks of life and gave them eight weeks to overhaul their financial lives. To do so, we had them link their accounts to the LearnVest My Money Center and gave them access to Lauren, a Certified Financial Planner and expert in our Advice Center.

We also asked them to keep money diaries, chronicling their usual habits, biggest challenges and most important financial goals. You wouldn't believe how much can change in two short weeks: From being suddenly unemployed to moving to save money, our six brave makeover-ees shocked even us. Read on to see their progress so far.

Ashley, 29


alt

Location:

New York, NY

Occupation:

Attorney 

Her Money Goal:

Save for a Baby

Salary:

Between $90,000 and $100,000

Why She Needed a Makeover:

Ashley has $230,000 in student loans left over from law school. Her husband, Jonathan, can't work for now—he's awaiting his green card. They want to start trying to have a baby by next summer, but haven't begun to save. (Read more about where Ashley started from.)

Last Time, Lauren Asked Ashley To …

Enroll in LearnVest’s Cut Your Costs Bootcamp to find out how much she was spending on little extras, like her cab habit and eating out.

altAshley's Money "Aha" Moment:

Realizing how pricey work lunches work against her.

“I never realized how much my husband and I spend on ‘little’ things that add up so quickly!" says Ashley. "We've made a real effort to cut back."

It’s also led her and Jonathan to talk about budgeting and how they’ll eventually combine their incomes. In the LearnVest My Money Center, she set up separate folders to track how much she spends on cabs and lunch. “My biggest realization was the amount of money I spend on work lunches,” she says, “not only how often—five days a week—but also how pricey: $12 for a salad!?"

She's anxious to cut corners any way she can: The couple still has $11,000 in credit card debt to pay off before they can start saving for their baby.

Lauren's Next Steps for Her:

  • Dealing with those “small” splurges that quickly add up is a challenge for pretty much everybody. I recommend using the LV Budgeting Tool to find out how much cash you have left over—after your monthly expenses and savings goals. Ashley has about $800 each month to put toward variable expenses. That’s after her student loan and credit card payments.
  • The best way to deal with the little everyday things that come up is to set a weekly budget. With her $800, Ashley can spend $200 per week, or $28 per day. That may seem like a lot, but that’s got to cover two people for now. I recommend a “cash diet”—at the beginning of the week Ashley and Jonathan each get $100 in cash for variable expenses. When that money’s gone, it’s gone. It's great motivation when deciding between a $15 cab or a $2.25 bus ride.
  • One of the best things newlyweds can do—especially before children come into the picture—is learn to talk openly about their finances. Coming clean can be tough, especially if there are things you are embarrassed about. Ashley and Jonathan are doing a great job of encouraging each other. Now I'm enrolling them in LearnVest's financial compatibility course, Money & Relationships, to make sure they're on the same page about everything.

 NEXT TIME: See what secrets Jonathan and Ashley learn about managing their money as a couple.

Macy, 22


alt

Location:

Cedar Rapids, IA

Occupation:

Marketing Strategist

Goal:

Buy Her Dream Home

Salary:

$36,000

Why She Needed a Makeover:

Macy moved back home after college and wants to know how to manage all of the financial tasks that come with earning her first salary. She also wants to start saving for her first major purchase—a downtown loft of her own. (Read more about where Macy started from.)

Last Time, Lauren Asked Macy To …

Enroll in LearnVest’s Personal Finance 101 Bootcamp and start tracking her “yo-yo spending" to see where money was flowing out of her life.

altMacy's Money “Aha” Moment:

Uncovering the hidden cost of her commute.

Macy had never taken a close look at her yo-yo spending. “I had never categorized my spending into folders before, to see where the money was going," she says. "When I did, I realized I was frittering away an astounding amount. Some weeks I will go to a coffee shop every single day for my latte or stop to pick up lunch because I didn’t want to get up early to pack one.” Those everyday expenditures are adding up to $250 a month.

Now that she's got a job, Macy really doesn't want to be living at home anymore. Besides, her commute is costly: about $100 per week to refill her tank. While paying rent will be a new expense, an apartment in downtown Cedar Rapids, closer to where she works, will mean less time commuting and less money spent on gas. Some of that can go toward offsetting her rent. Luckily, one-bedrooms where she's looking are relatively affordable—$600 to $800 per month. She wants to know how much she can afford.

Lauren's Next Steps for Her:

  • Rent a truly affordable apartment, which means a place that is up to 30% of your monthly take home pay. For Macy, that's $650 (30% of $2,176). Since rent is the biggest single expense she’ll have, she’ll do better to find something even cheaper and put her extra savings toward her dream loft. A good rule of thumb? If you’re having trouble saving 10% per month—move. Find a smaller apartment that is only 15-20% of your monthly take-home pay. If you're a new grad, one easy way is to get a roommate. Macy could pay as little as $435 a month if she split a two-bedroom instead.
  • Window-shop for her dream loft: Part of the fun of having a big financial goal like buying a house is doing the research to see what you like and how much it costs. This week, Macy will price out her dream loft. Next week, we'll calculate how long it will take her to save up. Looking at a wide range is key: If she chooses a place that's $250,000 versus $300,000, she'll be in there that much faster.

NEXT TIME: See how long it will take Macy to save for her dream home.

Elisabeth, 41


alt

Location:

San Rafael, CA

Occupation:

Fertility Coach

Goal:

Save for Retirement

Salary:

$37,000

Why She Needed a Makeover:

Elisabeth owns her own business but has next to nothing saved for herself for retirement. Until now, she's been afraid to take an honest look at her financial picture. (Read more about where she started from.)

Last Time, Lauren Asked Elisabeth To ...

Link up her accounts in the LearnVest My Money Center to calculate her net worth and enroll in the Why a Budget Is Your First Step course, to face her fears.

altElisabeth's Money “Aha” Moment:

How "quick getaways" are keeping her in the red.

Elisabeth’s biggest shock was seeing that she currently has a negative net worth. “I never looked at my money in this way, and to see the side-by-side comparison was truly shocking, but somehow empowering at the same time,” she says. “My biggest issue has been confronting reality, so seeing it like this makes dealing with it much easier, even though nothing has changed yet.”

Her next goal will be creating—and sticking to—a budget in order to turn that ratio around. But there are obstacles in her way: Namely, the short trips she takes in order to have quiet time to work on a book she's writing. “I've realized I am spending more than I have for travel. I don’t have money in the budget, so I just put it on a card and go. I would love help managing that.”

Lauren's Next Steps for Her:

Having a negative net worth is only temporary: Elisabeth is going to work on turning that negative into a positive, and she's recently achieved a huge goal—she paid off three of her four credit cards, simply by mailing an automatic payment to each card every month. So she’s only got a few hundred dollars in credit card debt left—which is excellent. She’s mostly in the red from student loan debt (about $10,000 worth), which she’s slowly chipping away at. My homework for her:

  • Start saving $500 month: I worry that Elisabeth could rack up credit card debt again. She has a goal of saving up for a new laptop, and I want to see her set money aside each month, then buy it, instead of putting it on a credit card. A goal can be a great motivator to make a budget and stick by it. She'll need to save $500 per month for three months to buy that computer, which will get her excited and change her habits. Once she's used to saving, that $500 will be her retirement savings.
  • Crunch the numbers: If she's mindful, here's where Elisabeth can find the money to pay for her computer. She was spending $300 a month—$100 to pay off each of her credit cards. That's found money since she no longer has to make those payments. To save the other $200, she needs to do exactly what she suspected: Cut out travel and find a quiet place at home to write instead. That additional sum will bring her up to $500—or, her laptop savings. But adopting this savings habit could change her life.

 NEXT TIME: See if Elisabeth can meet her $500 savings goal this month.

Minling, 29


alt

Location:

Los Angeles, CA

Occupation:

Adventure Philanthropist

Goal:

Pursue Her Dream Career

Salary:

$0

Why She Needed a Makeover:

After making $90,000 a year, Minling left her corporate job to pursue her dream career at a start-up called RoadMonkey. Now she has no salary—just equity—and is trying to see how long she can stretch her $30,000 in savings. (Read more about where she started from.)

Last Time, Lauren Asked Minling To …

Create her first budget in the LearnVest My Money Center. Since she has no income coming in, Minling needs to  adjust her lifestyle and look into making money on the side, maybe as a part-time yoga teacher.

altMinling's Money “Aha” Moment:

Realizing how having no salary impacts her social life.

At first, Minling was afraid to face her new financial reality. I’ve grown accustomed to not really having to worry about what I spend, so this whole process scares me,” she says. “It’s more than a money makeover. It feels bigger, like a lifestyle makeover.”

She was also amazed by all the emotions having less money brought up, especially when spending with friends. “Dinner and drinks are so expensive. I also always feel guilty ordering a small salad or a side dish at a nice restaurant and think the server probably hates me," says Minling. Guilt is also why she tips higher than 15%. “Well, a little bit of guilt and a bruised ego because I can’t afford the 'luxuries' in life anymore,” she confesses.

But Lauren's advice struck a chord: "She told me that money is a choice," Minling says, "which helped put things in perspective. Do I choose to spend it on drinks, dinner, clothes, or do I choose to spend only on necessities, to further my dream career? When I feel down because I can’t buy something I want, now I think of it as choosing to live my dream instead of having some material thing."

Lauren's Next Steps for Her:

First, Minling needs to spend time recalibrating her brain and realize that she is a business owner! A risk-taker! A trendsetter! Maybe she can't afford to tip more than 15%, and she might have to be that "cheap" person who uses coupons, but she is living the life she dreamed of, and this is just a phase. In the meantime:

  • She needs to get serious about finding extra sources of income, whether it's teaching yoga or working part-time at Lululemon. She should only be paying for her fixed costs out of savings.
  • Minling should open a new checking account for the "play" money she'll earn on the side. That will be used to cover variable expenses, like dinner with friends. If there's no cash in the account, she can't spend on things outside her fixed budget. Simple as that.

Her new mindset needs to be about cutting back, everywhere. Starting a company is a bit like having a child—you don’t get to buy things for yourself anymore, as everything is about the business.

NEXT TIME: See how Minling finds a way to earn income on the side and start funding her "play" account.

Daina, 25

alt

Location:

New York, NY

Occupation:

Fashion Illustrator

Goal:

Afford the Big City

Salary:

$48,000

Why She Needed a Makeover:

Daina got bad financial advice back in college: She wound up with $80,000 in student loans and poor credit—a combo that left her feeling powerless. But she's young, has a great job and is finally ready to make some changes. (Read more about where she started from.)

Last Time, Lauren Asked Daina To …

Check her credit score for free at CreditKarma and reduce her $1,450 rent below $1,200—ideally even under $1,000.

Daina's Money "Aha" Moment:

altRealizing it is possible to change your financial future.

Daina’s first conversation with Lauren was nervewracking, since she assumed she’d be scolded for her “terrible budgeting skills” and “poor credit score.” “How could I tell this ‘Money Maven’ that I’m in debt and broke, chasing a fabulous New York City lifestyle?” she asks.

Now, Daina confesses, she’s found herself feeling hopeful, despite finding out her credit score was a low 575. “The one word to describe this experience has been ‘liberating,'" she says. "To know that someone has my back and is helping me while I pursue my dreams is indescribable."

Daina's boyfriend lives in Canada. To prove she's really ready to make changes, Daina has taken a big step: She took an exploratory trip there to look into potentially moving in with him while staying employed at her current job and working remotely. This is potentially a huge money-saver. While she isn't ready to pull the trigger on leaving New York yet, she did take a major step: She's not re-signing her current lease and is looking for a place to live within the budget Lauren gave her.

Lauren's Next Steps for Her:

By facing her situation head-on, Daina is making progress in leaps and bounds. When a situation feels overwhelming, it is often paralyzing. I often see people who are spending more than they can afford on things like rent or their car. Rent, in particular, is one of the most important money decisions you make because it's usually the biggest fixed expense you have. Choosing to live within your means—literally—is a great way to lay a solid foundation.

  • Because all of a sudden she’s feeling strong and clear-headed about her money, I want Daina to enroll in LearnVest's Take Control bootcamp. It’s kind of advanced for her, but I want her to dive right in. Then, when she's ready, she'll have all the tools and know-how she needs.
  • Next time, she needs to report in with an update on her living situation. This would include her new, cheaper rent, if she stays in the U.S. Or, if she decides to take the leap and go to Canada, her plans to sell or move her furniture (no storage units!), sublet her place and look into local jobs. Then, we'll help her create a new budget.

NEXT TIME: See if Daina's new living arrangement will be the start of a prettier financial picture.

Hannah, 32

alt

Location:

Miami, FL

Occupation:

Marketing

Goal:

Rebuild After Divorce

Salary:

$70,000

Why She Needed a Makeover:

Hannah is trying to rebuild after a divorce left her finances in tatters and forced her to declare bankruptcy. She's raising two children, living paycheck to paycheck and, just this past week, lost her job. (Read more about where she started from.)

Last Time, Lauren Asked Hannah To ...

Check her credit score on CreditKarma, and set up alerts to check back in monthly since rebuilding credit after bankruptcy takes time. She also enrolled in LearnVest’s Cut Your Costs bootcamp to slash her daily expenses.

altHannah's Money “Aha” Moment:

Realizing that not even a pink slip is the end of the world.

Hannah was so relieved to finally be doing something proactive about her situation that she dove right in—only to find that her credit (which had been perfect before her divorce)—is now a dismal 536. She set up monthly alerts to keep an eye on it and make sure that her score only goes up.
Hannah had also been finding ways to entertain her kids on a budget: “Weekends lately have been a picnic with friends around our condo pool or on the beach," she says. "Rather than costly trips to arcades or to the movies, we have movie night with a Netflix film on my bed!”

Then came the news about her job. "It's a tough time," says Hannah, but there is a silver lining: She's built a website, hannahshapiro.com, and rekindled former professional relationships. While she looks for a new full-time job, she can look for freelance work as a marketing/branding consultant.

Lauren's Next Steps for Her:

As a single mom who is still struggling to get on her feet after her divorce, Hannah is truly tapping into all of her resources. She’s networking and interviewing a few times per week—which will hopefully result in a good job very soon. In the meantime, she's applied for unemployment and is fortunate to have parents who can help out a bit. Until she finds a job that can support her and her kids, she needs to do whatever it takes to get by.

  • Go on a "money fast": Hannah really wanted me to be tough on her and give her a hard homework assignment, so I recommended she put her family on a "money fast."  It's a game to see how long they can go without spending anything.
  • Teach her kids a financial lesson: The little things are the hardest. Your kids might not notice a picnic instead of a visit to the arcade, but little purchases like iPhone games and candy at the grocery store add up. They need to know that even .99 cents counts. When times are tough, it’s important to maintain a feeling of security. That said, this is a good time to teach life lessons about money.

Next time: See how Hannah is surviving after the double whammy of bankruptcy and a pink slip.

Learnvest

Financial planning made simple.

Get your free financial assessment.

Related Tags

Get the latest in your inbox.

Subscription failed!

You're Now Subscribed!