You ask: How do you do it????
Posted on March 4, 2008 17 Comments
In response to my last post, I received the following question:
“How are you putting away $1,000 per month?”
The answer? I work really f’ing hard at it (f-bomb for emphasis). Here’s how.
1) Low rent. The single most important factor. My rent is only 12 percent of my monthly income after taxes. This is no accident. I could easily be paying twice or three times that. When I chose not to live in the “trendy” city neighborhoods in my early 20′s, a lot of colleagues and friends thought I might as well fall off the planet. But I could not, would not justify paying a rent that was at at the time roughly 50 percent of my monthly income.
My apartment, in its own sleepy, funky suburbia, isn’t the most glamorous. It wasn’t the nicest one we saw. It doesn’t even really have a kitchen, the appliances are old and I have a Barbie-pink bathroom (really). But it does boast an AMAZING location, just one block away from the Metra and the el, and is walking distance to our downtown (restaurants, bars, shopping, gym, banking, etc.). It has two huge bedrooms, two bathrooms and free parking. So what if my “chandelier” is bright turquoise with fake candles and a plastic chain? Or if my carpets are ugly?
I knew when we started renting here that we had a savings goal in mind. I knew the place was small and the layout was cramped. But for the money, it was just what I needed at the time. No more. No less. The trick for me was understanding that I can’t have everything I want all the time, at least not right away. And lucky for me, my rent hasn’t been raised in four years.
(Sorry New Yorkers, this lesson probably doesn’t apply to you 
2) Staying power. I’ve been working at the same job for seven years. And I put everything into it. The first couple years were really tough; I made hardly anything. But after five years with the same company, I started to make some nice headway with my salary. I’ve said before that while it’s popular to spend your 20′s extending your education, “finding yourself” or floating from job to job, there’s a lot of opportunity to be had by staying loyal to one place. It’s an old-school idea, but some of the most successful folks I know under 30 have been working at the same company for a number of years.
3) Cap your spending. I don’t buy anything, really. I’ve had the same TV for 10 years and the same computer for five years. I have the same god-awful table and chairs that I had in college, and I bought all the rest of my furniture at discount stores. I got my bed at Sam’s Club in 1999 and most of my current apartment decorations came from Ikea. I’m very careful about my discretionary income. Although my monthly income has steadily risen, my lifestyle has not. I don’t go to fancy restaurants, and I limit my spending at bars and clubs. Instead of raising my monthly expenses, I just keep raising the amount that goes in my savings and my 401k. That way, I never notice that my lifestyle lags far behind my income.
4) Go without. I don’t have a car, and I don’t drive. I walk or take the train and the bus everywhere. I’m trying to learn how to drive now, so I’ll probably eventually need to purchase some insurance. But B and I have one car between us, and right now we only drive it about once per week. I hitch rides and sometimes chip in for gas. I hitch rides a LOT with people who do drive. But other times, I’m stuck waiting in the snow, the rain, the wind, the cold … it’s just no big deal to me because I don’t really know anything else.
Another BIG without… I don’t have any kids yet. This isn’t something everyone can control, or would want to, for that matter. And it’s definitely something that’s difficult for me to explain to others sometimes, while other times it’s difficult for myself to deal with. It just hasn’t happened yet. But I can guarantee you that if I had kids I wouldn’t be saving as much, if anything at all.
5) Live for experiences. (Picture at right is me and B ocean kayaking in Monterey Bay on vacation in 2006)…
When I do splurge, I’ve learned that I’m much more satisfied spending on experiences than I am on things. So I’ll drop a lot on a vacation (a budget vacation, of course, that uses free miles and credit card points) that allows me to spend time planning and prepping throughout the year … and that lives on in my mind forever when it’s over. Some people like to spend on big entertainment systems or name brand clothes or house decorations or whatever. I don’t. For me, it’s much more about the memories in my mind than the art on my wall. Make sense?
So that’s really it. Those are my big secrets. Who knows if they’re right or wrong, and who knows if they’ll help you at all. I’m just a girl trying to save some money and having a good time doing it.
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March 4th, 2008 @ 6:17 am
I’ve found myself treating money the same way I treat food: deliberately. When I splurge, I do it with intent. There are no small bites, no “just this once” occasions. Since I started doing that, my weight has gone down and my savings has gone up.
March 4th, 2008 @ 12:25 pm
Thank you. Thank you. Thank you.
While the whole list is great, number 2 is something I’ve been saying for years with very few listeners. I did it the same way you’ve done it — and it’s truly the best route in the long run.
March 4th, 2008 @ 12:37 pm
We follow a lot of the same ideas, but I’d like to add to ‘pay yourself first’. We have money taken out on payday and put directly into our ING savings account. It’s money we never ‘see’ so we’re not really missing it, but it’s making a nice chunk of change sitting in the savings account.
March 4th, 2008 @ 1:18 pm
I think that low rent is a good idea when it you’re not sacrificing too much of your own happiness. Personally, I’m moving out of my *very* cheap apartment I share with my BF because I’m not happy with cohabitation. I’ve been on the apartment hunt ever since trying to find the delicate balance of nice and affordable.
My friend (who makes about $28k a year) has a very nice studio. Since I know he makes about $7K less than me, I figured the apartments would be in my price range. But at $675+ (without utilities) I’d be ‘too broke’ to enjoy life outside the apartment.
March 4th, 2008 @ 6:51 pm
Perhaps an example of perception does not fit reality, but I’ve noticed you blog a bit about buying a new article of clothing or two for some occasion or other. Also you blog about buying lots of booze (or it seems like it). What percentage are these items in you budget?
March 4th, 2008 @ 7:59 pm
Pretty small, actually. I tend to buy clothes on clearance…my overall clothing budget is less than 1% of my income. And I only go out to bars and clubs like once or twice per month. So while I spent $100 on dinner and drinks with my friends one random Friday night last month, that was the only time it happened in February. I spend much, much more on fixed monthly expenses than I do on clothes or alcohol. And my monthly savings far outweighs my spending on both of those categories combined.
March 4th, 2008 @ 10:40 pm
Oh, how I envy your housing situation! I live in NYC and I just signed a lease on a place today. I’ll be spending 24% of my take-home income on rent (and I still consider this a small victory, given the prices here).
March 4th, 2008 @ 11:30 pm
One of the things I’ve struggled with living on the West Coast (from the Midwest) has been the very high cost of owning a home.
While I’ve owned four homes in my life, moving here I have not been able to justify buying a home. So I rent a home instead — and a nice home, but at about $2-3000 less than a mortgage. All those dollars have gone into maximizing the 401(k), gone into straight savings, having an emergency fund — and having a life.
For five years it somewhat bothered me that I didn’t own one of those nice (but horribly expensive) homes, but right now it’s looking like a great decision.
But it started with getting the company match for the 401(k) and then taking any raises and bonuses and putting that into maximizing the 401(k) and savings.
Nice going.
March 5th, 2008 @ 6:08 pm
Nicole – I’ve recently started reading your blog and I love it.
I was glad to see you post #2. I’m 27 and have been with the same firm for almost 8 years (I started here while finishing my BA). All of my friends (including my hubby) continue to “job hop,” however my ability to stay the course has benefited me in more ways than just anual raises/bonuses. There’s something to be said for seniority and the freedom that is gained.
Now…I just need to find a way to save $1000 per month!
March 6th, 2008 @ 4:06 am
“I can’t have everything I want all the time.”
All I would add is, “and that’s okay”. Then you have the secret to not spending your life drowning in debt. If only I had grasped it earlier in life.
March 6th, 2008 @ 5:33 am
I’ve been spending nearly 50% of my take home on rent for the last ten months. I’m moving next week, and it will go down to about a third. But that’s life on the West Coast, as was noted above. That will definitely improve savings and debt repayment rates.
March 6th, 2008 @ 8:50 am
For what it’s worth, I think that the numbers everybody throws around to “prove” the expense of children are kind of exaggerated. I’m not going to say I don’t worry more about money now that my daughter’s here, but a lot of what parents spend on for their kids is purely unnecessary crap. Won’t say it any more nicely than that.
I co-sleep with my daughter and have since she was born; she’s three now. That’s three or four hundred I didn’t spend on a crib. I gave her some baby food when she was ready, but not for long, and she didn’t get solids until she was eight or nine months old (her dad has food allergies and I wanted to do what I could to help prevent them in her)–yet another expense slashed. I also breastfed her instead of using formula. I had used formula for my son years ago and OMG, the expense. We fall on our faces when it comes to toys, but you’ve already determined you don’t like to spend money on unnecessary things. I think you would have more willpower than I do in that area. The worst thing will be health coverage but at least you know that with a child, if you suddenly lost your job you could probably get them on state coverage; it’s politically inexpedient to make poor children go without care.
I think one way or the other you would still manage to save. The Tightwad Gazette is full of good ideas too; it was written by a woman with several children!
March 7th, 2008 @ 10:35 pm
Just wanted to give a big shout out to #4.5 – the decision to postpone having children until one is financially ready. While I agree with the previous poster that many of the numbers that are thrown around on this subject are inflated, there are large expenses that usually can’t be bargained away, particularly DAYCARE. $1000 per month per kid is a starting point. Unless one is fortunate enough to have willing family nearby, this expense is huge (with the alternative being reducing/quitting one’s work and therefore reducing/eliminating one’s income). It’s been almost 6 years since I collected a full time paycheck and 2 with no paycheck at all, and while we’ve made it work and are still saving some, it’s been a huge blow to our previous savings levels. Worth it, of course! But you are very smart to wait until the time and situation is right, no matter what kind of comments you get or how cute the clothes are at a baby shower…
Great blog and keep up the good work -
March 11th, 2008 @ 2:48 pm
Here is one more way I keep up eith the financials.
If you look around your house you ill find a lot of things which you used once but are of no use to you.
Yes its the same with me where I have so many things and are just lying there, I am buying so many things now which I know will be of less use or no use after a few years.
So I have got this way of Garage sale now and then where I sell of these stuff.
Now Garage Sale is not an easy task, to put up things is very easy but to have people buy them is a different game altogether.
I used the tips provided at http://www.garage-sale-riches.com and had a successful experience.
March 11th, 2008 @ 8:40 pm
This is one of your best posts ever. Very concrete advice on how you live your life in a way that maximizes your savings. Not all the choices are options for everyone, but some will eventually be choices for others.
Like you: my rent is about 14% of my salary; after job-hopping for a while, I’ve been able to stick with one place and have seen significant salary increases and the kind of professional/personal stability that allows me to focus on my financial stability; don’t drive since I live in a larger city; no kids yet; savvy shopping and few bigger purchases allow me to splurge on vacations and the very occasional fancy outing (e.g., Restaurant Week; discounted theatre tix, etc.)). I’m currently savings 10% of my salary in 401K (+ employer contributions) and $800 per month in long-term savings. A portion of any bonus, tax refund, tax rebate goes straight to savings.
This has not happened overnight. When I moved to the city 5 years ago, my salary was much lower, portion going to rent was higher (but I lived in a group house to cut rent costs and slept on a twin bed until I could afford something bigger!) and I had $6000+ in credit card debt. So it doesn’t happen overnight, but it does happen eventually where one can make lifestyle choices to minimize their spending and still maximize their living.
March 14th, 2008 @ 8:20 pm
I soooo miss living in Chitown, I was paying <20% of my take home pay on a cool pad in Bucktown. Nice post!!
March 18th, 2008 @ 3:04 pm
Good for you! I think people consider having an expensive house, smart funishings and a load of expensive clothes to be a necessity. I can see where a smart wardrobe could help your career but if you have to spend all of your time working to pay off your debts then what is the point of having a lovely house?