From overcoming emotional spending to gaining an appreciation for the magic of compound interest, here’s how I learned to live off less than one paycheck, and save 50 percent of your income in my first year out of college.
Throughout college, I worked just enough to pay my bills. Past that, I didn’t think much about money, and I surely didn’t think twice about spending it on a whim. Frankly, it wasn’t until I started my first full-time job, and started to budget against my bi-weekly paycheck, that I realized I was living well beyond my means. I knew that in order to break the cycle of living paycheck to paycheck, I needed to at least rein in my shopping habit.
It began as a three-month spending freeze to save some extra cash. It was attempt to break a bad habit. But it quickly matured into a year-long process of fundamentally shifting my relationship with money. One year later, here are the habits you can apply to save over 50 percent of your income, even on a starting salary.
Start With A Spending Freeze If You Must
For years I’d used shopping as a form of entertainment, and in some cases, a form of therapy. It had become such an engrained habit that I knew I needed to go cold turkey in order to break my reliance on it.
I decided on a 90-day spending freeze to get started. During those three months, I allowed myself to purchase food, to dine out twice a month if I felt the need to indulge, and to pay routine bills. While the first two weeks were uncomfortable to say the least. The departure from my hitherto mindless spending allowed me to better understand why I spend. It also freed up several hours of time each week that I reallocated toward growing my financial literacy.
If unhealthy money habits are keeping you from reaching your financial goals, instituting a spending freeze is a wonderful place to start. You can do it for any length of time and/or ramp up the intensity of the freeze over time.
Track Your Spending
We’ve all heard the adage that “what gets measured gets improved.”
This phrase is generally used in the context of big business. But, it couldn’t be more applicable to keeping your personal finances in check.
Right after I finished my spending freeze, I began tracking my spending judgement-free for three months. I did this to gain a baseline understanding of my unrestricted spending patterns. Although there was quite a bit of variation month to month, I was shocked at the number of purchases I made each month that were not improving my quality of life.
At the end of my three-month data collection period, I moved into phase two of my tracking efforts. Analyzing past and incoming data in order to change my spending behavior in real time. At the end of each month, I also look at the aggregate data in order to set actionable goals for the upcoming month.
In addition to tracking every dollar I spend, I also never go more than a week without updating my spending data with the most recent transactions. This cadence ensures that I never lose sight of my monthly financial goals. It keeps me motivated to save the 50 percent of my income, even when I might normally be tempted to spend.
Understand Why You Buy
When I began my spending freeze, I was quite frankly terrified. I couldn’t put my finger on exactly why at the time. But I’d come to believe over the course of several years that I had to shop in order to be happy.
Once I held myself accountable to a three-month moratorium on shopping, I finally realized that I was using my purchases as a means of avoiding boredom, stress, and other negative emotions. That realization allowed me to strip away the power that I’d given shopping over me and my perceived happiness. I got to know myself on a much deeper level as I learned to deal with life’s stressors in a more productive manner.
Further, by recasting my past purchases as being made as a form of retail therapy, I finally came to the realization that the act of acquiring things did not make me happy. From there, I was able to gradually cut all of my discretionary spending without feeling deprived.
Come Up With At Least One Savings Goal
Breaking my shopping habit, and subsequently eliminating all other nonessential spending, was much easier to stick to once I decided that the resulting savings would go toward a goal. Since I didn’t have a full emergency fund at the time, I decided to only shop again once I had six months of expenses saved up and sitting in a high-yield savings account.
Tracking my progress every paycheck toward my savings goal allowed me to not only resist the temptation to shop. It also allowed me to view my spending freeze as a fun challenge with an end date rather than an indefinite punishment.
Once I learned how easy it is to build wealth over time through simply putting a portion of each paycheck into an index fund, my attitude toward spending money completely changed. Instead of making small purchases during the day to pass time or lift my spirits, I now keep the future value calculator as a pinned tab on my phone and laptop.
In essence, considering every purchase in terms of future dollars makes spending any amount of money, rather than investing it for the future, a hell of a lot less enticing.
Find Cheaper Alternatives To Your Favorite Products
Even when I cut clothing and takeout from my budget, I noticed that I was still spending around $150 to $200 a month on makeup, skincare, and beauty services.
When I was spending hundreds on clothing alone each month, my beauty budget was the least of my worries. However, the more I cut from my budget, the more my remaining expenses stuck out. In turn, the more I sought to eliminate or shrink them.
When it came time to slash my beauty spending, I began by taking an inventory of the cost of the products in my makeup, skincare, and haircare routines. Since roughly 60% of my beauty budget had gone toward repurchasing $100+ anti-aging serums and luxury foundations, I knew I could save at least $50 a month by doing the research to find similar drugstore alternatives to my go-to products.
Replacing all of my luxury makeup with drugstore brands taught me that I didn’t need to spend a fortune on makeup to look my best. Making those swaps also emboldened me to do extensive research on skincare ingredients, and to find a new routine that’s more effective at a tenth of the cost of the old routine.
No matter where the bulk of your discretionary money is going, the lesson is the same: Do your research to find a more affordable alternative that works for you.
Buy In Bulk When Appropriate
Now that I save over 50 percent of my income out of habit, I often feel a bit of dread when it comes to making even the most essential of purchases. It could be another box of trash bags for my kitchen. Or a fresh bottle of my trusty Cerave cleanser from the drugstore. It’s always tempting to go with the cheapest sticker price, often at the smallest quantity, without looking any further.
However, buying household items, cleaning supplies, and personal care products, have become substantially cheaper since I got in the habit of stocking up on everything with Buy 1 get 1 50% off promotions at Walgreens.com. Even better, Walgreens, like other pharmacies, allows me to combine manufacturer coupons with in-store promotions for even deeper discounts on the essentials.
No matter where you choose to shop, buying products in bulk that are non-perishable and will need to be repurchased periodically, can save a significant amount of money over time.
Wait A Week Before Buying
99% of the time I want to make a purchase, I’m either bored or tempted by a deal. Instead of pulling the trigger on the purchase that day, I leave it in a shopping cart. I allow myself to revisit after seven days. It turns out I rarely follow through on the purchase after waiting the full week.
Price Compare Everything
I can’t remember the last time that I paid full retail price for anything. Before I make any purchase online or in store, I check at least five website. I also browse my Amazon app, and a few physical stores to ensure that I’m paying as little as possible.
While this step sounds rather time consuming, it has gamified shopping for my everyday staples. I’ve also made my online due diligence more effective by installing Honey on my browser. By running the coupon codes on a few different websites, Honey allows me to get an even lower price than what I normally would have found by comparing advertised prices. Making these comparisons is a brilliant way to save towards your 50 percent of income target.
Learn to Make Do
When I thought I “needed” to buy something during my three-month no-spend period, sticking to my no-spend rules forced me to get creative with, and more fully appreciate, what I already had.
I still practice making do outside of the spending freeze that started it all. I limit myself to only going to the store twice a month and when I’m completely out of food. A few weeks ago, I ran out of coffee grounds but still had several days worth of food before I could justify going back to the supermarket. Instead of making an exception, I altered my routine slightly to drink coffee exclusively for free at the office. By making do, I avoided breaking my own rules. And, I found yet another thing to cut from my monthly budget without feeling squeezed.
DIY Whenever Possible
I perfected my affordable yet effective makeup, skincare, and haircare routines. Then, I decided that I no longer wanted to pay to get my hair professionally colored every two months and cut every three to four.
I did a bit of research on how to maintain my dye job and haircut from home. Then, I bought a pair of hair shears and a root touch up kit. A few YouTube tutorials later, I got a surprisingly good at-home result without shelling out over $50 bucks a month ever again.
There we have it. Once you implement these strategies and tips, you’ll be well on your way to learning to save 50 percent of your income.