I’m going to put “lower income” in quotes here, because, for heaven’s sake, I make $47500 in base salary, plus side hustling that is probably going to amount to $1000-$2000 this year. That ain’t a low low income; it’s not all that far below the median household income for the United States.
But it’s certainly not the kind of income that many PF bloggers have, either through successful freelance businesses, or just because they’re in much better paying fields. Even at under $50K income, and despite a few emergencies, my net worth is steaming along at a respectable pace at this point. I’ll run exact numbers at the end of June, after exactly one year at this salary, but most months I manage a net worth growth of around $1800-$2000, on a gross salary of $4000. Obviously, I’m keeping my expenses low — something people routinely comment on when I do a monthly net worth update.
I should say before I get into this that there are other things in life than net worth growth. I’m trying to boost mine up as fast as possible so that I can in fact focus on some other stuff. No judgment here if you’re not interested in doing what I’ve been doing! However, for the record, here’s what I’ve been doing to keep my expenses low — around $1000 in a normal month — so that I can jack up the net worth.
1) You have to, have to, have to, HAVE TO keep housing costs low. I’m putting this at #1 for a reason: it is the single most important thing I’ve done this year, and the only reason why my net worth goals are feasible at all. “Live with a roommate in a place that has low housing costs” is the holy grail here. Last academic year, I lived in a city that had medium housing costs, and I lived alone; this year, I’m living in an exceptionally cheap city, and I focused on finding a good housemate situation. If I’d just moved cities, I’d probably have saved $100 a month vs. my costs last year; however, the combination of sharing a house rather than going solo, and being in this new city, means I’m paying less than half of what I was last year in rent and utilities. (Last year, I spent $785 a month on rent and internet, plus a variable amount on electricity and gas that averaged about $50-60; right now I’m paying $400 for rent and all utilities including internet.) So: if you want to extreme-save, you have to do something to keep your housing costs minimal. Roommates, older building, less “desirable” neighborhood, living with family, whatever it takes: absolutely nothing will get you a boost that’s in the multiple hundreds of dollars a month like minimizing housing. If you want to extreme-save, you have to be at least a little adventurous. This includes if you have kids. I know, I know, easy for me to say; but you can be adventurous with your kids too, if it’s important to you to cut down these expenses. It’s character building, and I’m not even joking; consider sharing housing with friends or family (or taking in a boarder if you own a home; students are a good bet, and might well trade housing for child care), definitely have your kids share rooms if they’re of the same gender or young (I shared with my younger brother until I was 10 or so, and it was fine), etc.
2) You also have to keep car and food costs under control. The easiest way to keep car costs under control is of course not to have one 🙂 I’m not doing that, but I do have a car I paid cash for (so no regular payment) and in most months I only use about a tank and a half of gas. My car is also olllllllld, so insurance costs are minimal. My biggest car costs by far are repairs — I’ve spent about $700 on maintenance and repairs this year and we’re not even halfway through, although I sincerely hope I don’t spend anything else in this category this year 🙂 When the weather allows, I bike a lot of places, which is very helpful with both costs and my health. Food: I eat out very, very rarely; I don’t even budget for one night a month or whatever (when I do eat out, it comes out of my slush budget, or sometimes travel if I’m doing it while out of town.) I’ve been working hard on using my pantry and on not buying things I’m not actually eating, too, as well as eating mostly vegetarian, and the upshot of all my work on that is that I spend about $200-250 a month on food, give or take. (That includes my takeout coffee.) I could do better — just like I could have saved even more on housing by downgrading to a situation that would have been really difficult for me — but I’m ok with this being where it’s at. Finding the balance is key.
3) Use a tax-advantaged account to do the bulk of your saving. I don’t get an employer match, which is a major bummer, but I do have 25% of my monthly gross salary deposited into a 403(b). Because I don’t have to pay taxes on that money, I’m saving it and the portion of my overall paycheck that goes to taxes is pretty minimal, so I can increase my net worth more than I would if I were just trying to save straight cash.
4) Move set amounts of targeted savings out of your checking account immediately. Some people swear by automatic withdrawals, but I don’t like them — I tend to lose track of what I’ve set up and what I haven’t. But as soon as my paycheck hits, I log into my bank account and send whatever I have budgeted for savings into my Capital One accounts (I use multiple targeted savings accounts.) This money is accessible if I need it, of course; I transfer money out of the travel account in particular all the time. But since this is a stretch goal I’m trying to hit, and my finances do feel constantly stretched because of it, every little bit of psychological boost helps. Seeing the money in savings, accumulating interest (even though it’s not much) makes me want to keep it there, and discourages me from accessing it for non-necessities.
I could say more, of course — there are lots of ways to improve on the margins, and I practice some of those and talk about them on the blog and on twitter. I’m not proud; I’ve been known to ask for discounts that have netted me less than a buck, and it all goes into the growth in the end. But at the end of the day, I don’t really believe in the latte factor in its extreme form. To make big gains relative to your income, the basic idea is to keep costs for housing, transportation, and food as low as possible while not hating your life; to take advantage of whatever savings help you can get via your employer and/or the federal government; and to get your money out of your grubby little checking account’s hands as fast as possible, before it disappears into somebody else’s pockets.
(On the other hand, I’d love to be proven wrong — anyone making big gains on a moderate income with one weird trick that I didn’t list here? Tell me about it so I can start doing it, please!)