Millennial Money

The budget breakdown of a 25-year-old who makes $100,000 a year and is excellent with money

Here’s what it’s like to live on $100K a year in Boston
Here’s what it’s like to live on $100K a year in Boston

Trevor Klee, he admits, is a "terrible employee." But he's great at working for himself — and at taking tests.

So the 25-year-old entrepreneur started a thriving business of his own. As a test prep instructor in Cambridge, Massachusetts, he brings in $100,000 a year tutoring people for the GMAT, GRE and LSAT. "It's one of those weird skills that turned out to be really monetizable," he tells CNBC Make It.

Klee is the first to acknowledge he's benefited from both luck and privilege: "Growing up in a family that talked a lot about money was a definite advantage," he says. "In a lot of ways, I feel like I'm good with money, but I'm playing life on 'Easy' mode: I'm a single guy with no dependents and I make a pretty solid income."

Here's a look at how Klee earns, saves and spends his money, and how he gives it away.

What he earns

Klee first started tutoring as a student at Princeton University, where he discovered that he could turn his understanding of standardized tests into a way to earn extra cash. "I've always loved teaching people," he says. "I coach jiu jitsu as a hobby, I love teaching friends … Tutoring was a chance to do teaching for serious."

After graduating from college in 2015, Klee moved to Singapore to work for a test-prep company. While the company provided a good starting point, Klee soon realized he didn't like his employer all that much. Still, he wanted to continue tutoring. "I really do love teaching," he says. "I never really loved school, but I love being on the other side of a classroom."

Klee didn't want to seek out a different test-prep company, though. He acknowledges that he's not exactly an ideal staff member.

"I'm actually a really terrible employee," he says. That's because "I always think I know better than other people, and sometimes I do and sometimes I don't. Sometimes I'm just being stubborn."

He decided to work for himself instead.

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In January of 2016, he moved to Cambridge, where he's close to a number of colleges and universities, including Harvard, MIT, Northeastern and Tufts. "There's a lot of people exiting college [and] going to graduate school, so it was a natural place to start a graduate exam test prep business," he says.

Striking out on his own has paid off for Klee, who earned around $90,000 in 2017 and is on pace to make $100,000 in 2018. But he wasn't immediately successful. During his early days in Cambridge, he crashed on his brother's pull-out couch because he couldn't afford his own place.

"I had no money," he says. "I had savings, but I had no income, so I desperately needed to find people."

Klee started experimenting with various marketing tactics, which included promoting himself on Reddit and tutoring students for free in exchange for their testimonials. He took note of what worked and, as he refined his methods, he began to land more and more clients.

You can get more money a lot of the time if you ask for it. ... I just charged more, and now I make more money.
Trevor Klee
test prep instructor

More than three years later, his monthly income ranges from between $3,000 and $4,000 up to $14,000 during busy periods. He charges $160 per hour for GMAT tutoring and $125 per hour for LSAT or GRE help, and he requires a minimum of 10 hours. He's also started consulting for other tutors on the side, for which he charges a flat fee or a percentage of revenue generated.

He owes much of his success to his own hustle. "You can get more money a lot of the time if you ask for it," he says. "There are other GMAT or GRE tutors who charge probably like a tenth of what I charge, or at the very least, half of what I charge. I just charged more and now I make more money."

Klee tries to keep his business costs low. He typically pays $350 per month for membership at a coworking space, although that can rise to $1,500 per month during busy seasons when he rents out his own office, and puts $100 to $200 toward marketing and online ads. He also pays his quarterly taxes out of his savings.

What he gives

Philanthropy is a key part of Klee's financial picture. Each month, he donates a significant amount, around $615, to a variety of charities, including More Than Words and GiveDirectly. The bulk of his contributions go to One Family, a non-profit located in Waltham, Massachusetts, that works to end homelessness and break the cycle of poverty for local families.

"I spend money that I would otherwise spend on going out, or just putting it in savings," he says.

It's a worthwhile expense for Klee because, while "it's not a significant amount of money for me," it makes a difference for others. "It doesn't affect my quality of life at all, and yet I'm able to actually alleviate a lot of suffering and make a lot of people's lives better," he says.

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What he spends

Here's a breakdown of everything Klee spends in a typical month.

Rent: $825

Klee lives in a shared house with four roommates and one dog. Although he says he could technically afford a studio apartment, which go for roughly $1,400-$2,000 a month in Cambridge, he prefers to save and invest the extra cash instead.

"I like my rent to be at a number where it doesn't actually matter to me each month," he says.

Groceries: $400

Klee eats the majority of his meals at home and typically buys his groceries from Trader Joe's, a chain known for its reasonable prices.

Dining out: $250

Klee does splurge on a few meals out each month, mostly with his girlfriend. Depending on where they go, it can cost anywhere from $20 to $80 per meal.

Transportation: $130

Klee pays $81.50 for a monthly CharlieCard, which lets him use subway and bus lines around Boston. "I live pretty close to where I work, so I take the T," he says.

He also spends between $40 to $50 on Lyft rides each month.

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Phone: $40

Klee is still on his family's phone plan. His part of the bill comes to $40 per month.

Everything else

  • Utilities: $195
  • Internet: $20
  • Health insurance: $270
  • House cleaner: $30 (his share of the total cost)

Klee incurs a few additional regular expenses as well. He's developing a personal finance application for Google Sheets to track and analyze emailed receipts, and he maintains a separate bank account for the Google app so he can easily track how much he's spent on the project. He's also studying for the MCAT, which has attendant costs.

While he splurges on the occasional video game, he mostly chooses to buy things only when he needs them. "My family tends to make fun of me for not spending money on a lot of things," he says. "I very rarely buy new clothes. I won't buy a car, I don't buy a bike."

Klee buys things to last. "The only time I buy new clothes is when my old clothes get holes in them," he says. "My main goal is durability."

I don't really save up for goals. I just save.
Trevor Klee
test prep instructor

What he saves

Between a brokerage account, money market account and Roth IRA, Klee has around $43,000 put away. He estimates that about $20,000 of that is liquid.

"I don't really save up for goals," Klee says. "I just save. My default mode is saving and I only spend money when I think I need to spend money."

The amount he contributes to savings each month varies depending on how much he earns. He says that he likes to keep $4,000 in his checking account to cover expenses, including taxes, and then he saves or invests anything beyond that.

What the experts say

CNBC Make It asked Pamela Capalad, a certified financial planner and founder of Brunch & Budget, to comment on where Klee is doing well and how he could do even better. Overall, Capalad thinks Klee is making smart choices, but there's always room for improvement.

He's smart to keep his rent low

Not everyone wants to live with roommates. But because Klee is young and doesn't mind, Capalad says it's smart for him to save on rent while he prioritizes other things. "He understands what his needs are when it comes to that," she says. "Everyone has their own lifestyle preferences."

How much you choose to spend on rent depends on many factors, and there's not a "right" answer for everyone, financially speaking. What's important, she says, is that "he has a gauge of when he's ready to take that next step, based on what his goals are."

Pamela Capalad
Source: Pamela Capalad

An HSA could help boost his savings

Capalad points out that Klee is already excellent at saving money. But one way he could bolster his savings is by contributing to a health savings account, or HSA, if his insurance plan qualifies for one. That's because an HSA offers a triple tax benefit, Capalad says.

"You get a tax deduction for the money that you put in. All the money that you pay for medical expenses is tax-free. And for certain HSA accounts, you're able to invest the money and all of it grows tax-free," she explains.

Unlike a flexible spending account, or FSA, any money contributed to an HSA can be rolled over year after year. Because Klee is young and healthy, it's likely he won't need to spend much on medical expenses, so anything he puts in an HSA is "all tax-free growth."

It's a great idea to have separate accounts for side projects

Capalad approves of Klee keeping a dedicated bank account for his Google project. "Separating things like that both physically and mentally will help you track a second source of income more easily and you'll know that you'll have the money for taxes," she says.

Additionally, "it will give you a gauge of whether or not it's worth it to keep going."

It might help to create a business account for tutoring

However, Klee doesn't have a standalone account for his test prep business. Although his current expenses are straightforward, it can still be beneficial to keep things separate, Capalad says.

Opening a business account would allow him to "pay" himself a set salary. Plus, it "will even out those lean months and he'll know that he's only spending a certain amount of money every month," Capalad says.

It's harder to tell how much is actually coming in and going out when you're "topping off your checking account three times a month," she adds.

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He's responsible with his giving

Capalad explains that generosity can get out hand when you aren't sure how much you're donating, but although Klee gives away a substantial amount, it's not more than his budget can handle.

"If he was living paycheck-to-paycheck and was giving away that much money, it would be a different conversation," she says. "But I think he's thought this through very carefully and is very clear why he's doing it."

He could save even more with a SEP IRA

It's great that Klee is already putting money away for retirement through his Roth IRA, Capalad says, but he could save even more on taxes by contributing to a SEP IRA, or simplified employee pension, as well.

A SEP IRA allows self-employed individuals to make tax-deductible contributions and not have to pay taxes until they retire. They also offer higher contribution limits: As of 2017, you can contribute up to 25 percent of your income after deductions, or as much as $54,000.

For Klee, having two types of accounts would mean twice the perks. "What's great about the Roth is he doesn't get a tax deduction now, but all of the growth is tax-free and what's great about the SEP is he gets a tax deduction now and all of the growth is tax-deferred," Capalad explains. "So he gets to take advantage of the tax savings on both sides."

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