Ten years ago, I was a doe-eyed recent college graduate with a minimum wage job, a second part-time job, an arguably worthless degree, and negative net worth. Today, my net worth is over four times my average annual salary across those 10 years, I am comfortably living within my means, and my largest budget category is savings for the future.
It didn’t happen overnight, and it wasn’t blind luck. Yes, I have been very fortunate, but I have also been extremely disciplined. Here’s how I did it, and perhaps you can too.
I graduated as the country worked to climb out of a recession and it took four years of menial, entry-level work before I landed a job that paid slightly more than minimum wage and offered health insurance. I knew that opportunity would not come knocking at my door without some serious effort on my part, so I spent my free time learning and honing my skills.
For the last seven years, I have been working 50- to 70-hour workweeks to bring value to my employer, in hopes of salary boosts and performance bonuses. I show up early, stay late, take on additional responsibilities, and volunteer to help other departments. I have continued to read books on leadership, systems thinking, and industry-specific standards. I invest in my education, attending seminars and achieving certifications to transform a $5,000 investment into a $10,000 salary bump. In my field, if I were to simply show up and do my job, I might never have the opportunity to advance; I imagine that’s true across many areas.
In my early 20s, I attended a conference where MIT computer scientist, Cal Newport spoke. The key takeaway was that following your passion is bad advice; instead, one should determine what they are good at, put in the work to become excellent at that skill, and then leverage that value in the direction of one’s passion. To this day, I consider this one of the most impactful pieces of advice I have received: what I do for a living is much less important than how I do it.
I stumbled blindly onto my current career path, and then embraced it.
Living Within Your Means
I live in a condominium complex, where many of the residents are retirees. Whenever I chat with them, I’m disheartened to hear how many are struggling financially. They drive 20-year-old cars, sleep on a mattress on the floor, shop on “senior discount day,” and ask permission to pluck produce from neighborhood trees. When I’m elderly, I want to have the means to not worry about money, and moreover, to be generous with friends, family, and neighbors. I am terrified of losing financial security, and I’m not counting on government assistance to be an option.
Whether your monthly budget is $1,000 or $10,000, there is a limited amount of funding available, which requires identifying priorities and then spending accordingly. Unless you’re regularly featured on the world’s wealthiest lists, you can’t afford it all.
Personally, I don’t need much to be happy. I have a roof over my head, access to healthy food and clean water, and small pleasures like walks in nature and library books. In our household, the top priority is health, so our a huge slice of the budget allows for private-pay medical care, organic produce, and pasture-raised chicken. Since I cook so much, I use a top-of-the-line Wusthof chef’s knife, a Christmas gift, and a full set of All-Clad D5 cookware, which I purchase piece-by-piece on discount. Sleep is important, so we have a hand-me-down Tempurpedic mattress. We spend money on properly-fitted hiking books and running shoes. Since working from home, we bought two used ergonomic chairs.
Our small home is paid off, and we drive old but reliable cars. Our home cabinetry reeks of 80s fashion, our furniture is almost entirely thrifted, and my wardrobe consists of hand-me-downs that have somehow survived 10 years of regular wear. We don’t eat out, own a television, or subscribe to Spotify, Netflix, or Prime. Our travel primarily includes camping and day trips.
And I don’t feel any sense of lack.
I could write an entire book on the psychology of money, but I won’t because it’s been done. Here’s the takeaway: Spend lavishly in the areas that matter to you, and cut expenses relentlessly everywhere else. I believe this intentional spending the key to building wealth.
At the start of each year and with any change in income, my partner and I sit down to discuss finances. What is the gross income, income post-taxes, and net income post-deductions? How much have we spent over the prior 12 months?
What are our current expenses? Are prices rising with inflation, and how much? Is there anything we can cut from the budget?
What are the required purchases on the radar? What appliances are on their last leg? How much will these necessities cost?
What are out goals for the coming year? Do we want to take a vacation? What items are on the wish list?
Once establishing a loose budget for the year, we determine a goal saving rate, typically around 50% of gross income. These funds are automatically directed to different accounts: 401k, Roth IRA, cash savings, and alternatives.
The top reasons I choose to live so frugally now are to prepare for an unknown future and to take advantage of compounding returns. Cha-ching!
The Power of Compounding Returns
When I was in fourth grade, someone came into the classroom to talk to us about personal finance and investing. All I remember is the well-dressed woman handing out a worksheet that showed how much money Joey would have if he invested for ten years starting at age 20, versus Dan who invested for 10 years starting at age 30. I decided that day that I would be a Joey.
When I began my first job, making $7-something an hour, I also began contributing to a Roth IRA. I started with just $25 per month, but I built the habit and scaled up the amount with my income. By age 25, I was maxing my Roth IRA contribution while also contributing a nice chuck to my company’s 401k.
Over the last few years, I have been continually thanking my younger self for the fumbling foresight. Sacrificing all that avocado toast and all those overpriced lattes–or more realistically big trips and luxury good–quite literally, paid dividends.
Aim for a high savings rate. It’s been an arduously slow process but, after nearly a decade of of consistent effort and compounding interest, I am finally beginning to recognize the fruits of my efforts. No, really, it took 6 years to notice any deviation between my contributions and the value of the account. Keep at it! The invisible magic of compounding returns is happening, and one day it will show up unexpectedly and give you a high five.
So, you’re living within your means and investing anything left over. What’s next? Set a big goal! Do you want to buy a house, retire early, host an over-the-top wedding, fund a goat yoga retreat startup, or outfit your home with hundreds of taxidermied squirrels? You do you! No judgement here.
When you identify a big dream that truly excites you, it’s much easier to make small sacrifice today to support your future wellness and joy. Personally, my current goal is a trifeca of owning a rural homestead, starting a family, and retiring early, with a dash of international travel thrown in. My current saving rate and strategy could support any or all of those goals. If I were to focus solely on financial independence, at my current saving rate, I could theoretically retire before I hit age 42. (For reference, my average annual salary over the last 10 years was $37,300, so discipline has been a bigger factor than income.)
What matters to you today, and what do you dream of for your future? When you take the time to identify your end goal, you can then work backward to develop a plan. How much will your dream home, big wedding, or new business idea cost? Are there way to cut or spread out the costs? When do you want to achieve these goals, and which milestones might you target along the way? What challenges might you encounter, and are there ways to mitigate those risks?
These can be hard questions, but this is your future we’re talking about, so it’s worth the time, effort, and possible discomfort to ask them.
Progress Trumps Perfection
So, you set an aggressive budget and you failed. But you didn’t really, as long as you’re moving in the right direction. If you cut your $100 per month coffee habit back to $50, that’s a start. If you downgrade your cable package, saving another $25 a month, that adds up. Several successful and notable people talk about building systems rather than setting goals. Focus on building a sustainable habit, rather than ticking off a checkbox each day. I began saving for retirement when I was making about $900 per month; while $25 didn’t seem like much, it was a covenant to my future self.
There are tons of resources out there to get started once you decide that personal finance and financial security matter.
No Golden Ticket
In personal finance forums, I often see people asking: “What’s an easy, low-stress job that doesn’t require a degree and makes over six-figures?” Typically, a highly paid job is requires extensive training, high stress, or both. No one is going to pay you $100k to putz around on the internet all day. Alternatively, I see young women seeking a wealthy and attractive man who will pay for everything while the woman sits at home lazily doing nothing. Beauty fades and if you’re not bringing anything more to the table than a pretty face, I wouldn’t be surprised if the man eventually finds and pays a younger and prettier face to sit at home lazily and do nothing.
Luck exists and you may get famous for your underground rap video, that goat yoga retreat center, or the next Bitcoin. That’s not beyond the realm of possibility, but I wouldn’t bet on the golden ticket. Your inheritance may be spent on end-of-life medical expenses for your loved ones. The judge may deny your request for alimony when your husband leaves you for a younger woman. There are no guarantees, so we need to act as though we, ourselves alone, hold the key to our future. That may require some sacrifices today, but I highly suspect we will look back on our younger selves and feel good about where were land and the journey we took to arrive there.