The following is a guest post by Leigh, who has saved more than 50% of her income ever since she earned an income! Find out more about her, and how she does this without eating cat food and ramen, below. How much money can a 20-something save? 75% of her income in this case!
I love what Kathleen and Brent are doing with trying to make saving more normal! I’ve always been a big saver myself, but I’ve gotten a lot of flack (mostly from my sibling) for being cheap. They say that being a saver or a spender is a natural instinct and being a saver absolutely is for me.
In high school, I worked a minimum wage job and saved 80% of my paychecks. (No, that is not a typo!) On pay day, I would take 80% of my paycheck and transfer it to the attached savings account at my credit union. I often transferred money back to checking for spending, but I kept a spreadsheet of how much my checking account owed my savings account and would then pay myself back out of my future paychecks. I didn’t actually earn a lot of money then, but I didn’t spend a lot either.
I’ve tracked every penny of the money I spent, earned, and saved including every transaction out of every single one of my bank accounts since about 3 months before I turned 16. I have charts of the growth of my assets from the time I was 14. When I went off to college, I had about $6,000 in the bank. My estimate is that I saved about $5,000 in my last year of high school, even though I never made more than $8/hour nor worked more than 16 hours a week except in the summers. It looks like I earned about $6,000 in high school and saved $5,000 of it, 80%.
I opened up my first retirement account at 19 and made the maximum contributions I could, while still in college. I lived off of about $500/month while in college, including during internships. (My parents were really, really generous and paid for my tuition, as well as books and housing while I was in college. I was on my own during internships.) I never felt like I was scrimping. I just didn’t have need for much more than a nice computer and food! Plus, I eat very little, so I’ve never spent a ton on food. My sibling definitely thought I was being cheap and I remember him/her complaining to my parents that it was impossible to live as cheaply as I did!
At 21, I graduated from college with $32,000 in the bank.
It was mostly in cash, except for about $7,000 in CDs in retirement accounts since I knew nothing about investing. I sure did know how to save money though!
Thanks to my internships in college, I had a great job offer in hand and I netted about $65,000 in my first calendar year out of college. I estimate that I saved about $34,000 of that, including getting the most of the employer match from my 401(k), maxing out my Roth IRA, building up an emergency fund, setting aside some money to buy a house some day, and buying a car. My initial goal was to save 50% and it looks like I met that!
The next year, I saved 60%, and 75% the following year. How? By maintaining my spending level while increasing my income.
Here’s how my 75% savings broke down in 2013:
- $17,500 Traditional 401(k)
- $2,602 Health Savings Account
- $2,010 Series I Savings Bonds / Cash savings
- $16,000 Backdoor Roth IRA (2012, 2013, and setting aside for 2013)
- $6,790 Principal paydown from my regular mortgage payments
- $66,419 Extra mortgage payments
- $2,167 Vanguard taxable index funds
Today, in my mid-twenties and almost five years out of college, I maintain a $20,000 emergency fund, get great rewards from my credit cards, max out my Roth IRA and Traditional 401(k) every year, and have a plan to pay off my mortgage within 4-5 years from origination. My net worth sits at around $400,000 today. My 401(k) balance should surpass $100,000 early next month when my last contribution for the year goes through and I’ve paid off almost half of my original mortgage balance! I’m on track to save 75% of my net income for the second year in a row. One day soon, I will get back to saving 80% of my income like I did ten years ago, I’m sure! But I’m totally okay with saving 75% instead 80% to enjoy life a bit more. I’m definitely less frugal than I was in high school and college, but I’m still focusing on savings.
Kathleen’s thoughts: If Leigh can save as much as she is, why aren’t you saving more? What’s your excuse?