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Dear Pay Dirt,
Is my bad spending really a problem? I’m a single person in my mid-to-late-20s making a crazy good income at a little over $100,000/year and renting in a large and expensive city in the U.S. (about 30 percent of my income goes to rent and parking). I don’t want kids and am not planning on buying a house any time soon. Thanks to good advice and generous company matches, I have about $38,000 in my 401(k) and another $12,000 in general investments through a roundup investment app (Acorns). The problem is that I also have about $5,000 in credit card and medical debt, very little savings, and can’t stick to any sort of budget.
I am thoughtless about money and end up spending frivolously and impulsively by diving into bizarre hobbies. To give you an idea, I found myself breeding exotic fish and owning about six separate fish tanks, I amassed a collection of rare gemstones, became a licensed facialist, self-published a novel, and am an avid gardener. Those are just a FEW examples from the last couple of years.
I was recently diagnosed with ADHD, which my therapist thinks is a big factor in my spending habits. I waste a lot of money technically speaking, but I’m able to be generous with my friends in times of need or just for fun, and I don’t worry about money despite my general balance of credit debt. I live my life without thinking about money, which is an extreme privilege I’m aware of, but I know I’m wasting a lot in interest and am squandering money others would give anything to have. I’m probably in the top 5 percent so I feel really bad about how I go about my spending, but I still feel like it’s not too big of a problem. Am I spoiled and irresponsible, or is this OK?
—Reckless But Responsible
Dear Reckless But Responsible,
Your income is high, but you are not financially well. I don’t begrudge people spending on hobbies they love if they can afford it—I am a figure skater who owns $2,000 knife shoes—but you’re prioritizing your hobbies over your financial stability. Yes, your spending is a problem. It’s not an unsurmountable problem, but it could become an emergency if you don’t address it. If you unexpectedly lost your job, would you struggle to pay rent without borrowing from your 401(k)?
The Consumer Financial Protection Bureau’s definition of financial well-being isn’t “makes six figures” or “has $50,000 in the bank.” Instead, they define financial wellness as control over your regular finances and capacity to absorb an economic shock— but also the freedom to enjoy life. That’s because your income is a tool for being financially healthy, but it isn’t the only determinant. Your behavior and attitude toward money make as much of an impact as the size of your paycheck. I’m not denying the power of more money, especially if you’re living close to the poverty line, but income alone doesn’t make up the whole of your financial story.
If you make more money than everyone you know, you’re likely to think that $100,000 is a ton and that you can spend on anything you want. But if you hung out with Logan Roy’s kids, you might say it’s impossible to get by in a big city on only $100,000. You’re letting your income tell lies about what you can genuinely afford. Focusing on how much more you’re making than your peers makes it easy to convince yourself there’s no problem with spending frivolously.
You’re doing a lot right, though! It’s great that you are saving for retirement, especially in your 20s. However, by holding onto credit card debt (and getting into more of it) while still putting money into investments, you’re costing yourself more in interest than you’re likely to make off the investments (especially on your taxable investments). What’s great about the amount of income you have is how quickly you can turn this around. If you find systems that work for your brain, you have a big shovel to work with. You could even retire in your 30s if you prioritize savings over gemstones and exotic fish.
The fact that you’ve been able to save when it’s automatic, like your 401(k) and Acorns, but you still have debt, shows me that you need to find ADHD-friendly systems. You need a savings method for an emergency fund that works like Acorns does for investing, like Digit, Bank of America’s “Keep the Change,” or Chime’s “Save When You Spend.” That way, even if you’re spending on new hobbies, at least you’re building up an emergency fund simultaneously. I’ve done several streams on my channel about specifically handling impulse spending and building ADHD-friendly budgets. Find an interesting method and try it out for a few months to see if it works for you. If it doesn’t, try a new one. Changing your budgeting method often can keep the novelty factor up and keep you interested—it doesn’t mean you’ve failed.
But pay off that credit card and medical debt before it balloons. Even if you have to crank down your 401(k) contributions for a few months, prioritize paying off your credit card debt ASAP (especially with interest rates going up). You should be able to pay it off in less than four months at your income level. After the debt is paid off, stick your credit card on autopay for the entire statement balance instead of the minimum payment, and don’t let it build up again. If you don’t trust yourself with a credit card or get into trouble again, it’s OK to get rid of it. Some people with ADHD find that their impulse control and credit cards are a terrible mix. You could also get creative and cool down spending impulses by freezing your card (after putting it in a Ziploc bag) in a block of ice. That way, the ice must melt before using it.
I’m not going to tell you to stop doing cool hobbies or being generous. You sound like you would be a blast at parties. But set up systems for your long-term financial health first and THEN use the extra money for fun. Once you pay off your debt and start saving toward your six-month emergency fund (using an ADHD-friendly automatic method), make an “assorted hobbies” fund. Then buy all the fish, plants, and gemstones your heart desires until the fund runs out.
—Lillian
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