This story is part of CNBC Make It's Millennial Money series, which profiles people across the U.S. and details how they earn, spend and give away their money.
Australian native Madeline Parkinson has always wanted to work as a video editor at a major production company in the U.S.
"It's definitely been my dream to live in a big city, either New York or Los Angeles, and work for a studio," says the 22-year-old, who moved to L.A. after graduating from college in the spring of 2018. "That's still something I'm working towards, with the studio part, but at least I'm here right now, and so that's a step in the right direction of my dream."
Originally from Melbourne, Parkinson went to high school in Hong Kong. "I decided that I wanted to come to America for college and to follow my dream of eventually being an editor, which is what I do now," she says.
Parkinson researched schools where people she looked up to in the entertainment industry had gone and settled on the University of Texas at Austin. After finishing undergrad a year early, she landed a job as a video editor at the L.A.-based company Watch Gang, where she's been working since July 2018.
"I definitely think that right now I live comfortably," she says. "I don't have to worry about my bills. I'm never like, 'Am I going to be able to pay rent?'"
As an international student, Parkinson had three months to find work after graduating. "If you don't find a job in 90 days, you have to leave the country," she explains.
She was feeling desperate to nail down a job and it may have affected her starting pay: When asked to name the minimum salary she would accept, Parkinson said $50,000, which she knew was on the conservative side for the position.
"And then of course they came back and offered me 50. They're not dumb!" she says. "I think I should've stuck to my guns [and asked for more] ... but at the time I was very concerned that I was going to get deported."
She eventually wants to earn more than her $50,000 salary and is putting in the time and effort at the office so she can ask for a raise at her performance review. "What I'm working on right now is really impressing my boss, going above and beyond what I have to do," she says.
Besides her 9-to-5, Parkinson spends up to 15 hours a week working on freelance video editing projects. She charges $20-$30 an hour and the side hustle earns her an extra $5,000 a year after taxes.
Freelancing is "not about the money," she says. "I definitely don't need that extra $5,000 to pay my bills. … I just really want to get stuff on my resume so that one day I can work at a big studio. It's more for the experience rather than the money."
Here's a breakdown of everything Parkinson spends in a typical month.
Parkinson pays $1,225 for her share of a two-bedroom apartment that she splits with a roommate. Included in her rent is a parking spot and access to a gym.
"My rent is definitely my biggest monthly expense," she says. "I think it's about 40% of my take home. It's crazy." While she could have found a cheaper place, she says, she has a dog and wanted to live somewhere with a balcony that was close to a park and to her office: "I knew that I was going to pay a premium for that."
Parkinson doesn't dine out often. Instead, she splurges on groceries. "I spend around $300 to $350 a month, which is a lot," she admits. Keeping her apartment stocked with nicer food, though, helps her limit her restaurant spending to about $100 a month. While she doesn't necessarily cook elaborate meals, she likes to splurge on add-ons that can enhance simple dishes, like "expensive cheese to put on pasta to bump it up a notch," she says.
She doesn't spend on coffee, but she does drink a lot of diet soda. On stressful days, "I probably go through a 12-pack," she says.
She buys the off-brand kind and gets a discount with her loyalty card. "My grocery budget used to be a lot higher because I was buying real Diet Coke and a pack of 12 is like $6 or $7 at my grocery store," she says. Now, she pays about $2 for three, 12-packs and includes the expense in her food budget.
Health, dental and vision insurance come straight out of Parkinson's paycheck. Combined, it costs about $85 a month.
Car insurance costs her $250 a month. It's so steep because she only recently got a U.S. license. She had an Australian license up until last year. The more driving experience she gains in the States, the more the price will drop, she explains: "It is going down over time and so I hope I will see a one at the beginning of my bill rather than a two sometime soon."
The $250 she pays every month includes renters insurance, she adds.
"After I graduated college, something that I started to spend money on myself for was my skincare," says Parkinson.
Her big monthly splurge is a facial, which costs $90 after tip. "That's something that I don't need to spend money on, but I choose to," she says.
She also spends about $40 a month on makeup and various skincare products.
Parkinson used savings from high school and college jobs, graduation money and any extra money from her first few months living in L.A. to pay for her car in cash.
"I just didn't like the idea of having a car payment every month and, if I had the cash around, I thought it would be better just to pay in full and be done with it," Parkinson says. She bought a Hyundai Elantra for $17,000 last October.
Since she doesn't have any car payments, her main transportation expenses are gas, which costs her about $40 a month, and parking meters, which can add up to $30 each month.
"My dog doesn't really cost me that much every month," says Parkinson. She buys her food in bulk from Amazon: It gets delivered every other month automatically and costs $18.
"I get her nails clipped at Petco once a month or once every two months," she adds, "and I buy treats and chew toys for her to have."
While she typically spends $25 a month on pet supplies, there have been a few times when she's had to cover a big vet bill. "When her vaccinations comes around, it'll be like $300 for a vet visit just to get her rabies vaccination and a checkup," Parkinson adds. "But, month to month, it's nothing crazy."
Parkinson pays about $10 a month for Spotify Premium and a few bucks a month for Amazon Prime Student. "They still think I'm a student because I graduated a year early," she explains, "but next year I'm going to have to pay the $119 renewal."
As for television, "my roommate's friends used her Hulu on our Apple TV once and it's just stayed logged in, so I don't pay for Hulu. My Netflix account is my ex's Netflix account. He knows I use it."
Parkinson saves about $730 a month: She contributes 8% of her income to a Roth 401(k), which comes to about $330, and automatically transfers $400 to a high-yield savings account, where she keeps her emergency fund. Currently, it has about $15,000 in it.
She's interested in the financial independence, retire early (FIRE) movement: "I feel like early retirement gets a bad rap because that implies that you don't like your job and you want to retire and do other stuff, but I would love the financial independence to be more picky about the projects that I work on."
She hasn't established any specific goals around when she wants to retire, but familiarizing herself with FIRE has inspired her to increase her savings. Right now, she's working towards maxing out her 401(k), which would mean saving $19,000 a year, the contribution limit for 2019. "Then, I would love to open a Roth IRA, with Vanguard or Fidelity or something like that, and then try and max that out," she says.
Parkinson also has an Australian bank account that she uses when she goes home. "There's honestly not that much money in my Australian bank account: It's my McDonald's money from when I used to work there," she says. "It's not very much, but whenever I go back I don't have to worry about exchanging currencies."
Because Parkinson is an Australian citizen, she needs a visa to work in the U.S. She hired an immigration attorney to help with the process.
"I was responsible for finding the lawyer and taking care of all that, but some employers will pay for it for you," she explains. "Some companies have their own lawyers if they're big enough, but my company was smaller so it kind of fell on me to do the leg work, especially because I'm entry-level as well."
Last year, lawyer fees cost her $7,000. "When you apply for a visa you could technically do all the paperwork yourself, but I think hiring professional help, an immigration attorney, is the way to go the first time," she says. She also spent $2,000 on flights back to Australia to go to the consulate.
Her particular lawyer requested the fee in two halves. "You have to wire the money to them," Parkinson says. "You can't put it on a credit card, so if you don't have that money, you're in a very tough position."
It was an expense she'd been preparing for: "I was just constantly like, 'Well, I shouldn't buy this because who knows what my lawyer fees are going to be,' and I was just saving for it." By the time she needed to make the payments, she had the money in savings.
"Even though it's so expensive and a lot of money I think that I would rather be here than anywhere else right now, just because I want to be an editor and I want to be at a big studio," she says. "This is the place to be."
"I'm definitely in a privileged position where I didn't have to worry about student loans," says Parkinson, whose parents paid for her education. She graduated with two degrees — one in radio, television and film, and the other in French — from UT and finished early, in three years, to save her parents money and get into the job market sooner.
Parkinson uses a credit card, but she never carries a balance and prefers to pay it off every few days. "I definitely treat my credit card like it's a debit card," she says.
She knows exactly where her money is going: "I track everything. I track things on apps. I track things on paper. I have a budget binder that I use."
Tracking her expenses has helped her evolve from "an impulse shopper," she says, to a more responsible spender. As a student, "I would buy the makeup because it was shiny and American and new," she explains. "Same with food: I would buy all these snacks because I saw them in movies. ... And so I think in college I wasted a lot of money trying to become American.
"I think I realized as I got older and as I graduated that I don't need to buy all these things. They're going to be there forever."
Between her 401(k) contributions and the $400 she puts in a high-yield savings account every month, "she's saving about 16% of her gross income," he points out. While the amount you need to be setting aside is highly personal and depends on your goals and lifestyle, "she's gotten a really great start as far as how much she's saving."
She's also smart to keep her emergency fund in a high-yield savings account, he says. By doing so, "She's making her money, even though it's conservative, work as hard as possible for her."
Internet banks, like Synchrony, Ally or Marcus by Goldman Sachs, tend to offer higher interest rates than the major brick-and-mortar banks. Marcus, for example, offer 2.25% APY, while big banks that have to spend money building thousands of branches and hiring people to fill them typically offer rates closer to 0.01%. If you let a $10,000 deposit sit in a standard savings account with a major bank for a year, you'd earn about a dollar in interest, but if you put it in an online-only bank, your $10,000 deposit could yield up to $225 after one year.
Some companies, like Parkinson's, let you choose between investing in a traditional 401(k) or a Roth 401(k). Signing up for the Roth was a smart move for the 22-year-old, says Westlin.
The main difference between a traditional and a Roth is when you pay taxes on your money. In a traditional 401(k), you contribute pre-tax dollars and then pay taxes on the funds when you withdraw them in retirement. With a Roth 401(k), the process is reversed: You pay taxes upfront, but you can withdraw your contributions and earnings tax-free in retirement.
The reason a Roth is a particularly good option for Parkinson and anyone early in their career is because, as a younger worker, you're likely earning less today than you will be in the future. That means you're in a lower tax bracket and paying less in taxes than you would later on.
When making the decision between the two types of accounts, "what you would look at is your current tax bracket versus your future tax bracket," says Westlin. "The general rule of thumb would be: If you're in a lower tax bracket now than you would be at retirement, you'd want to go with Roth-style accounts."
If your situation is reversed — you're in a higher tax bracket now than you will be in the future — Westlin recommends going with traditional-style accounts. "You would pay taxes in the future," he explains, "but you'd be in a lower tax bracket then and pay a lower percentage tax."
Contributing to a 401(k) is one of the easiest ways to put your money to work, notes Westlin, since contributions are sent directly from your paycheck and you never get the chance to spend that money.
However, "some 401(k) plans can have high fees and limited investment options, " he says. That's why he recommends Parkinson look into her plan details and understand the investment costs, administrative fees and any other additional expenses.
"No matter what, she should always save enough in her 401(k) first to get the full employer match, " he says. Some companies, like Parkinson's, will match whatever contribution you put towards your 401(k) up to a certain amount. It's essentially free money. "But if the 401(k) has higher fees and limited investment choices, she should then focus on a Roth IRA before contributing more to the Roth 401(k)."
A Roth IRA is an account designed specifically for retirement and works similarly to a Roth 401(k) in that contributions are taxed when they're made. You can't contribute as much to a Roth IRA as you can to a 401(k), though: The contribution limit for IRA plans in 2019 is $6,000 a year, or $7,000 for people age 50 or older. For 401(k) plans, the contribution limit is $19,000 a year, or $25,000 for people age 50 or older.
Parkinson spends a lot on skincare per month — $130, with $90 of that going towards a facial — and that's OK, says Westlin, especially since she's already saving for her future and is debt-free.
"Saving as much as possible is great but it doesn't mean we should cut back on everything," he says. "Balance is important."
"The best part is that she's already conscious of it," he adds. "And I'm sure that if things ever got in a bind, she'd be able to cut that out, at least for a period of time. Where splurges can be more harmful and where you might want to consider cutting back on them is if you are in debt already or you don't have an emergency fund or you're not saving at all."
But as long as you're saving enough each month, "having that splurge is a great way to treat yourself."
When it comes to saving for the future, there are equations you can follow, such as, "you should save 15% of your income for retirement," says Westlin. "But at the end of the day, it really comes down to everybody's own personal situation."
That's why Parkinson can benefit from thinking about when she wants to retire and how much she'd like to spend in retirement. It'll help her determine exactly how much she needs to save in order to reach those goals.
"It's great that she's focused on trying to up her 401(k) and save more, but by setting a clear goal, we can then determine how much she actually needs to save," Westlin says. "As long as she's saving that much, how she uses the rest of her money is totally up to her, whether it's spent or used on additional savings."
Besides retirement, it's smart to set other savings goals. In Parkinson's case, she's already built a solid emergency fund that would cover her for three to six months and she doesn't have any debt. That means the $400 that she's sending to a high-yield savings account can go towards any other financial goal she may have, says Westlin, like buying a home or paying for a wedding.
She could also put that $400 in an additional retirement plan, like a Roth IRA, curate a diverse mix of funds herself or use a robo-advisor, which would manage a portfolio for her. Another option, he adds, is to invest it in a target-date fund, which are pre-structured funds created to hit certain goals over a specified period of time.
Any of these options will "make her money work a bit harder," says Westlin.
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