How I saved my first 100k
If I told you one day that I woke up and set out to increase my net worth to 100k, I would be lying. As someone who grew up low-income my first order of business when getting my money sh** together was to NOT live paycheck to paycheck. I had just graduated college and while I was only making $13 per hour and working 50 hour workweeks, that was the most amount of money I had ever earned in my life.
I began repaying my student loans and in my mind I was getting ready to buy a new car. I would spend a good chunk of my paycheck on therapeutic trips to Target and Marshalls. I was happy and the vibes were great. At some point intrusive thoughts crept in, and “how long will my student loans take to pay off” or "how much should I be saving?” I did not know the answers to either one. Another side effect of growing up on a low income is that you’re oftentimes not taught how to build wealth, as much of your life is about survival and making ends meet -- all vital components, but not enough to someday become financially independent or financially free.
I was curious about how I should be saving before I started making a dent on my student loans. I accidentally stumbled upon a podcast authored by a certain personal finance figure that has a very black and white view of managing money. This individual has the ability of shaming and guilting you for breathing and living life while simultaneously paying off debt. Looking back I do not necessarily agree with everything, but listening to those podcast created two things:
Forced me to become conscious and mindful about where and how I was spending my money.
Created a sense of urgency which is vital to create momentum.
I created a rough budget draft. I had tried budgeting in college with a budgeting app, but did not work because my budgeting aspirations were too unrealistic. When trying new things and trying to stick to a money plan, I realized you need to make subtle changes. Anything too drastic and your brain will rebel. This is when people suggest that you track what you spend for about two months and create a realistic budget off of what you spend. I personally agree with the mindset, you have to treat budgeting like you’re training for a marathon - add small incremental changes over time. Anything too drastic and you risk injury, lose inspiration, and fall off the wagon.
An early budget outline from April 2018. My after tax monthly take home pay was $1,978. Clearly I was still living life - hello Utah and Cole Swindell. It helped that my base expenses were relatively low. I did side hustles like weekend cleaning jobs for some extra cash.
Set Goals.
I eventually figured out the answer to “how much I should be saving.” It is a three part answer.
Part 1: I did not have an emergency savings and had to scramble to get that done. This was intended to cover any unexpected emergencies. The idea was that I would not add anymore consumer debt and if anything urgent camp up, I would be financially prepared. My first goal was $1,000.
Part 2: After my emergency savings was complete, I began saving 6k to cover 3-6 months of expenses. This was in case I lost my job and the 6k would give me a cushion to pay my bills while I sorted my life.
Part 3: This was my annual goal for my 401(k) retirement account. I wanted to scale my annual savings rate to 15% of my annual income. In the spirit of being kind to myself, the 15% goal was part of a five year plan, and not only my 2018 plan. I could not afford to contribute 15% of my income ($4,515) in 2018 but nonetheless, I still contributed some.
Manage consumer debt.
When I graduated college I owed about $6,000 in consumer debt. This was my credit card balance that I would carry over each month because at the time, this is how I thought you build credit. Note: you do not need to carry a balance to build credit. I prioritized this debt in a higher category than my student loans. The interest rate on my credit card was 18% compared to the 5% my student loans carried.
Sticking to my budget became easier once I laser focused into paying my credit card off. I wanted to be a free woman and spend that money elsewhere. Let me tell you, the day I paid it off, it was like a weight lifted off my shoulders AND this further incentivized me to tackle my student loans next.
Automation.
Managing your personal health seems especially daunting at first, but once you get the hang of it, it becomes a habit.
After reaching my savings goals I wanted to make saving a habit. I created an autosave calendar, where $200 would automatically transfer at the end of the month to my savings account. This amount seemed feasible and I would not be tempted to dip back into my savings for spending money as I was used to spending based on my budget.
Retirement contributions also became automatic. I would not change the monthly contribution unless I got a raise. Each time I got a raise, I made a point to pay half to my future self and half for my current life. This ensured I kept up my savings rate and also I would not succumb to lifestyle creep.
In conclusion, setting the above financial parameters allowed me to increase my net worth to six figures. I am privileged enough to have had a steady source of income since I graduated college. I do believe this made all the difference in helping me reach my savings goals. Most things if you do them often enough, become habits - this includes how you spend your money.
