I used to be terrible at saving.
Although my parents were frugal – they bought their first house with cash (no mortgage), and paid for every cent of my and my siblings’ educations – I didn’t exactly live fiscally responsibly during the first few years of my 20s.
I suppose it’s a lot to ask a 20-something just out of college to retain much of what they earn in what’s likely, these days, to be their first paying job. In our 20s we’re finally free to choose where to live, to come and go as we please, and what and when to eat. It’s absolutely liberating.
In our 20s we're finally free to make our own financial decisions, to live the way we want. But it costs a lot to do it. A plan is necessary.But it costs a lot to do it, and the cost of retirement is a mere vague notion in some distant future.
When I was 26, I left a well-paying job in Chicago at a group I loved to “follow my passion” and begin a business. I was encouraged by friends to take advantage of this rare time in my life to start something new, and that I would regret it if I didn’t do it.
So I did it. I quit my great job and began to spend my savings on current living expenses while a partner and I bootstrapped a business from the ground up.
(About those savings: it would be dishonest for me to imply I had actually earned all of my savings at that time. My parents contributed most of the money I was now tapping into to support a lifestyle I had no business having, given my circumstances. An expensive apartment, nice furniture, out-of-town flights to visit friends … I consumed even more than I had while in a paying job! I didn’t give a second thought to saving any money.)
After a couple years of working on the new business along with some inconsistent side income, reality began to take hold: this wasn’t going to work. Coincidentally, my business partner passed away unexpectedly, and I was completely deflated. Another colleague and I worked for a while longer to continue the business, but we continued to lose steam.
The New, Monied Future
About four years ago, I had an opportunity to return home to Atlanta to take a dream job with FEE. After several years of inconsistent income, I found myself rolling in money on a non-profit salary. It was glorious.
Paradoxically, I discovered that while it’s so easy to spend money when you’re not making any, it becomes a lot more difficult to spend when you’re actually earning it.
It was only at this point in my life – the waning days of my 20s – I got real about my personal finances. I began budgeting. I started clipping coupons and “value engineering” everything about my life. I became so enamoured in this process that budgeting started to affect me like a drug. Seeing the numbers on a spreadsheet change after altering a single cell was like a good hit of something strong.
I also created a new line in my budget: “Savings.” Just like a fixed expense such as an apartment or car payment, Savings reduced my disposable income. When something had to give, it would not be Savings, but some other spending.
Your savings mileage will vary and circumstances will differ and change, but if you simply start today, you may be surprised just how far you can get.I chose to sacrifice my present instead of my future.
Slowly, over the years, I discovered more and better ways to save. I became obsessed with maximizing the amounts I saved for myself in “tax qualified” accounts, where I could keep more of my earnings without paying taxes on them or their investment gains until later in my life. The single Savings line on my budget turned into six distinct lines of fixed savings “expenses” that would be the absolute last items to give in case of a cash crunch.
Some of these new savings buckets are in qualified accounts I can’t touch without steep penalties and fees, and others are easily accessible in case of an emergency. Some savings are in cash, and others are in equities and a whole life insurance policy I can liquidate if necessary. All of it, though, is money I can call on later when I will no longer be working.
There are a couple of tools I’ve found particularly useful. For those scared of Excel after being abused by it in school, I recommend Apple’s Numbers spreadsheets app (for Mac and iPad/iPhone). It includes budgeting templates and can now display current values of your stock market holdings. I also recommend Personal Capital for a holistic view of your net worth. It can be linked to your bank, brokerage, loan, and other accounts, and you can add assets such as cars, houses, and Star Trek collectibles.
Thanks to these and other tools, along with a major change in mindset, today I’m creeping up to saving half of my gross annual income for the future. It feels great, especially given my spendthrift ways just a few years ago. I still travel and now own a house and am planning for a wedding in the fall. Although the amount I spend is increased, so has the amount I save. It’s amazing how planning ahead works.
Your mileage will vary and circumstances will differ and change, but if you simply start today, you may be surprised just how far you can get.