I was 27 years old before I ever created a real budget. During the 26 preceeding years I would simply spend until my money ran out. If I was lucky, more money would show up, and I would start spending it again. For 17 of these years, when I ran out of money I was really out of money. I usually had more month left at the end of the money, so I would make ends meet by eating gourmet cheese sandwiches or ramen noodles — with hot sauce, if I was feeling Beyoncé with an accent-levels of fancy that day.
When I turned 18, I got my first credit card. No longer constrained by the limits of my monthly income, I spent the next 9 years of my life amassing over $30,000 in personal debt. I won’t bore you with the highs and lows associated with living on credit and then paycheck-to-paycheck since I wrote an entire book about that experience you can read here. I want to spend today talking to you about how I finally put a budget together after hitting “rock bottom” — a point where my debt had ballooned so high I couldn’t even afford to make my minimum monthly payments.
For years, at the top of my budget I lived by the motto: “Spend less than you earn.” It’s a simple rule, but honestly, a minimalist lifestyle, especially a self-imposed one, kinda sucks. For example, even when I could afford to go out I would have to remind myself that I was on a self-imposed spending diet. I had to have the willpower each day not to buy that avocado toast. Toast that is literally so delicious, I read us Millennials are deferring homeownership just to eat it! Recently, I updated this motto:
“Spend less than you earn; or earn more than you spend.”
This new motto gives me more flexibility and makes it easier to stick to my budget, debt reduction, and various cost-saving plans. I’ve repeatedly found that first “identifying my why” helps me prioritize my goals. Contrary to popular belief, I do believe that money can buy happiness, but money cannot create happiness. I used to spend my money on material things because clever marketing convinced me that is what would make me happy. I now spend less money than ever but I focus my spending on buying and experiencing things that truly make me happy now that I have clearly prioritized my needs and wants around a sustainable budget, investment, and spending plan.
In this new scenario, I am afforded two options when considering how to spend money: I can either spend less or find ways to make more through passive income, multiple income streams, or cutting back on other expenses. For instance, when many of us get a raise, myself included, we typically engage in lifestyle-inflation: spending up to our new salary which only perpetuates the cycle of living check-to-check. If you’re willing to briefly pause this habit, below are five minor lifestyle-deflation steps I took that helped me save over $5,000 a year or $25,000 every 5 years.
I’ve completely parted with two different cable companies on two different occasions (2010 and 2015). I now use an ‘a la carte’ ordering system by purchasing only what I want or need for the month or streaming services like Netflix. In my markets, dropping the full cable package has saved me up to $200/mo. We talked about this exact topic in more detail on episode PB32: Cutting Cable to Save Money ft. Dennis Restauro.
Monthly Savings: $200/mo
Review Your Cell Phone Plan
Most of us pay too much for our cell phone or data plans. If a data plan was working for me, I used to go years without exploring my options. I randomly found myself in my company’s store one day and learned they had been offering a new pricing promotion with more data for less cost for months! I now recommend folks review their cell phone and data plans like car insurance, every 12 months. Check with your provider to see if there are any promotional deals that are lower cost or a better fit for your usage needs. You might be surprised. In my case, I was paying almost twice as much for a worse plan!
Monthly Savings: $100/mo
Running total: $3,600
It Taste (almost) the Same From Home
Please don’t judge me, but I had an extremely expensive drinking habit at a local coffee chain which shall go unnamed that I visited every morning before work. Ok, I’m lying. I still have an expensive drinking habit from this exact same coffee chain, I just make their coffee from home now. Conservatively estimating, I easily spent $25 a week on coffee. I eventually invested in a home coffee maker and make the same brand of coffee from home for about ¼ the cost.
Monthly Savings: $100/mo
Annual Savings: $1,200/yr
Running total: $4,800
Game of Townhomes
Although it can be a significant cost saver given Americans spend about 60 percent of our income on housing, transportation, and food; living with a roommate isn’t for everyone. If you’re one of these people, then a temporary cutback in size or location might be a better option for you. We wrote about how much estimated income-to-debt you can afford on a $30, $50, and $100,000 salary. In a world where most people up-size when they get a raise, I decided to get a smaller apartment to maximize my savings. After doing some online research and estimating moving costs, I found that a move of less than 10 miles down the street would save me over $200/mo.
Monthly Savings: $200/mo
Running total: $7,200
Automate Your Savings
If you take nothing else from this piece, please start saving something! I know budgeting sucks and even after trying to master it for almost a decade, if I get hold of some unexpected cash my first thought is always, “let’s make it rain” and never “let’s invest this in an interest bearing account like a responsible adult.” With this in mind, automation is my friend. I get paid on the 1st and 90% of my bills are automatically paid, including all pre-tax allocations to my investment retirement accounts, by the 3rd of the month. Most banks offer this service for free, or you can use helpful apps like Mint, Chime, Acorn, Tip Yourself or Digit.
Monthly Savings: ¯\_(ツ)_/¯
Annual: Something more than the $0.00 you’re currently saving.
Some will read these tips and only think of what they’re giving up. That’s one way of looking at it. Given that the average U.S. household has $16,000 in credit card debt and $50,000 in student loans here’s another way: all of these suggestions can be temporary changes too. Perhaps you cut back for 3-months instead of 12-months to save for a purchase you would have normally made on a credit card or to take a vacation you’ve been putting off because you can’t afford it. You’re likely already spending the money and the time is going to pass whether you change your spending habits or not. Even with a conservative return of just 5%, investing $5,000 in savings annually for five years would earn you $29,117. You can either spend $25,000 on bills & expenses during this time or you can invest in yourself, and if your company offers an IRA employer match, you can likely further amplify these returns for your future.
I believe a dollar saved is a dollar earned, so you can view this as almost $30,000 less equivalent hours of work you have to perform. With that said, please share your other successful cost-saving ideas or income increasing strategies in the comment section or with me @PayBalances!