Finance: How I Saved 20-30% Of My Income Every Year

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I have been meaning to do more finance posts for some time now. Having lived in the US for almost 5yrs now, I’ve been surprised to learn about how many Americans live paycheque to paycheque, regardless of income. I’ve since realised I have a very different mindset when it comes to finances than the average American, because even when I didn’t have anything in particular to save up for, I still saved 20-30% of my income after tithing and gifting 10-15%.

As such, in the past 5yrs I have been able to:

  • Purchase a 3yr-old Honda Civic and paid it off in full within a year.
  • Accumulate enough savings to live without working for a year.
  • With my hubby, pay for our wedding in full.
  • Still have some savings left to make opening a CD worthwhile.

A friend asked me how I managed to save so much, and I really had to think about it because saving has just been somewhat second nature to me. I’ve now put it into words, and have decided to write it here in case you’re interested and it can somehow help you with your savings goals.

This may be particular relevant now as many Americans are struggling due to COVID, and we are very, very thankful that Jacky still has a job. We aren’t able to save up much now that we’re on his single income, but knowing we still have savings in the bank just gives us a lot more peace of mind.

So here they are, some key financial/saving rules I’ve followed subconsciously my whole life. Jacky and I are now slowly saving up for a house, following the same guidelines:

#1 – Try not to spend more than 30% of your take home income on rent and utilities.

In America, they suggest you don’t spend more than 30% of your gross income on rent. That’s crazy to me, because 30% of your gross income is like 43% of your take home income. And then on top of that you need to pay utilities, wifi, cable… It’s a lot. It’s literally additional thousands of dollars per year – like, 13%-of-your-take-home-income thousands.

I lived and worked in London before moving to Santa Monica. I was not on a very high salary. However, I always just rented a room and lived with roommates because it was significantly cheaper that way. Moving into a new city by myself as a woman, this gave the added benefit of safety in numbers, and having other people around also helped me not feel so lonely.

I typically had to share a bathroom, which was inconvenient at times, but the amount of money I saved made it so worth it, and I was able to live in larger apartments in areas I’d never be able to afford on my own.

In addition, when I just rented a room from someone else, they’d already furnished the apartment so all I needed to buy were some light furnishings for my room as necessary (less of an issue in UK, but in the US most places are unfurnished).

I did at one point move into an apt that cost over 45% of my take home income and I really, really regretted it. It was a very comfortable home and I enjoyed living there, but the sense of throwing so much money into someone else’s mortgage for a luxury I did not need was a major mental challenge, and I’ve definitely learned my lesson.

At the moment Jacky and I are on a single income so rent takes up a much larger chunk, but it’s still under 50% of his income including all housing-related bills and utilities, and for two people on one income I think it’s reasonable. We have a Roku TV, pay for Netflix and I got an annual Viki subscription for $30, so we have no need for cable.

Hopefully I will not be unemployed forever, and the plan is that even after I start working, we would still aim to live on only Jacky’s paycheque and put mine directly to saving up for our own place.

(This is not the case if you own your home. If you’re paying into your own mortgage, then put every spare penny you have into paying it off, within your overpayment allowance! The sooner you pay off your mortgage, the better. Don’t take out a large mortgage to buy a house you can’t afford though; you should still aim to keep your mortgage payments below 50% of your take home income.)

#2 – Invest in ways to enjoy your favourite caffeine drinks at home.

Do you love coffee? Invest in a coffee machine. A year ago I splurged and purchased a Gaggia Classic Pro after hours and hours and months and months of research. I also purchased a cheap but acceptable grinder, a tamper, a tamping mat, a milk frothing pitcher, espresso shot glass and recently the Hario V60 Scale and Timer.

The entire set up probably cost around $550 after coupons and discounts.

This is steep but it’s no secret I adore coffee, and my drink of choice is an oat milk latte. Jacky has now adapted to my love of coffee (lol, sorry not sorry) so we are having at least 2 caffeine drinks per day in our household.

If we were to purchase 2 lattes outside, it’d cost about $11+tips. In a year, that’d be in excess of $4,015.

Yes, I have to purchase coffee beans and milk, which, to be fair, can be expensive since I have expensive taste. But let’s break it down:

I conservatively estimate my coffee machine set up to last me 5 years, so amortised = $110/year
Coffee beans cost $100 for 3mo = $400/year
My fancy oat milk and Jacky’s whole milk costs $60 every 3 mo = $240/year
Coffee machine maintenance costs about $10 every 3mo = $40/year
Total: $790/year

In that sense, I’ve just saved over $3,200/year.

You don’t need my fancy coffee machine set up. You also don’t need my fancy coffee beans. Depending on what you like to drink, you can get a basic Nespresso or a Chemex or even just a Mr. Coffee for much cheaper and save even more.

Before the quarantine, I was pouring my home-made lattes into an insulated tumbler and going on my merry way to wherever I needed. It was incredibly convenient and time-saving because you also avoid the coffee shop queues.

On a related note, I rarely drink alcohol in outside establishments anymore, though sometimes will on special occasions. Restaurants are still closed so this isn’t an issue right now, but it’s worth bearing in mind once things start opening up. I got out of that habit just before moving to America; it saved me a lot of money when I was still single, and is even more cost-effective now.

At this point in our lives, we’d much rather pay $5 for a bottle of wine at Costco that we can drink for a long time at home than pay $14 per glass at a restaurant. When we’re living on a single income, it’s just not worth it. (I also don’t drink much alcohol in general for health reasons.)

#3 – If it isn’t broken, don’t upgrade or replace it. Try not to buy the top-of-the-line model, and wait until Black Friday to purchase.

In the past, I got phone upgrades when my company paid for them. When I changed companies, we had to use our own phones. I stuck with an iPhone SE for years before changing to an iPhone 8, which I waited until Black Friday of 2017 to purchase and shopped around for the best deal (I got a $200 Target gift card with it).

I’m still using my iPhone 8 and it’s still going strong. It’s fully paid off. Once it dies, I’m going to get the new iPhone SE. I guess it helps that I love the size and weight of my iPhone 8 and loved my previous SE, so can easily overcome a desire to get the fancier iPhone.

Jacky’s previous phone was dying so hard I was practically begging him to get a new one. He’d had his eye on the Google Pixel 3a, which again wasn’t top of the line and really was affordable straight up, but we’d still waited for one of the holiday sales to buy it.

Given how expensive the new iPhones are these days, not upgrading every year saves at least $1,000 if not more.

On a similar note, same thing (and even more so!) with cars. If you don’t think you can afford to pay it off within a year, don’t buy it. You don’t need a luxury vehicle when you are barely making ends meed. I love my trusty little lowest-of-the-line Honda Civic and she’s plenty luxury enough for me.

If you can pay for it in cash, definitely consider doing so because cars are a depreciating asset, so getting a loan on a car means you are paying more money for an item that is losing its value. I paid mine off quickly and plan to use it for a long, long time. I only financed part of my car and didn’t pay it off sooner because I was told it would boost my credit score (which it really did).

In California, car dealerships have great deals on Black Friday too! I doubt people are upgrading their cars as often, but the same rule applies: if it isn’t broken, don’t upgrade or replace it. We may have to replace Jacky’s car because the angle of the seat gives me back and neck pains, but we’re still toughing it out until November at least.

If you can get away with just using public transport, then don’t even buy a car at all. I didn’t get one until moving to LA, and you’ll save on insurance and gas as well.

#4 – Find satisfaction with what you already have rather than buying new things, and never spend more money than you are making.

Not spending more money than you are making feels like it should be a given, but I think it’s worth addressing why people sometimes make such purchasing decisions. Is it to make yourself feel good? Look impressive? Seem wealthier than you actually are? But why? Why try to impress people with your possessions?

It really surprises me the number of people I have seen, interacted with or read about who will spend hundreds or thousands of dollars on a new phone, car, clothes, shoes, alcohol etc. but then will be so broke they can’t afford basic necessities like food. I can’t imagine they’re happy living like that, and clothes are unfortunately inedible.

Really sit down and look at where your money is going, then consider this to come to a better understanding of yourself and your spending habits: why do you spend that way? If it’s to impress others, my thinking is that I’d much rather be impressed by your manner, gentleness, kindness and the joy that you spread.

Also understand that whatever satisfaction you get from gaining a shiny new toy will often wear off very quickly. Then you will have a less shiny older toy that will likely be tossed in a corner with all your other discarded toys that should have brought you joy but have now become clutter.

Before buying something new, recall what you already have and really consider if you need that new product. Then weigh up the cost and see if it’s something you can easily afford. I guess for me the big ones are gadgets and shoes. I’ve stopped myself many times from buying new gadgets or shoes that I did not need, and cannot quantify how many thousands of dollars this saves.

And finally…

#5 – If you really want it and have the money, then buy it. However, make sure it’s not an impulse purchase.

I have a bunch of other budgeting tips that I’ll write about at some point, but frugal as I am, I am kitted out with a MacBook Pro, iPhone 8, iPad, Apple Pencil… and am also known for having spent over $800 on a pair of boots.

But I did not buy any of them impulsively.

Before buying my Stuart Weitzman Highland boots, I’d been interested in them and tracked the prices on them for literally three years on/off. As in, I wasn’t obsessing over them, but I knew I really liked them. I wasn’t looking at them all the time, but every so often I’d get reminded of them, check the price to see if they were on sale, and decide not to buy them.

Eventually I realised the price on them was just increasing, so during a Saks Fifth Avenue sale event I finally bought them.

Similarly with my gadgets, I purchased the 2015 MacBook Pro after the 2016 version came out, and bought it on Black Friday. My iPad was second hand (though like new), my phone you already know about…

In all cases, I’d already saved up for months or even years before finally buying them, and often I purchased them when I’d received some sort of bonus so I didn’t have to go into my savings account.

Now that Jacky and I are married, we also make large purchasing decisions together. We tell each other if we are planning to make a purchase that costs $100+, and that helps us keep one another accountable as well.

I keep a list of things that I really want to have and Jacky’s on board with buying, and if I still want it by Black Friday, I’ll buy it if we have the funds.

Final Thoughts

If you look at the above, here’s where my money went on average while I was single:
30% – rent & utilities
15-20% – groceries & eating out
12% – tithing & gifts
7% – car insurance
3% – misc bills (phone, hosting, gas for my car etc.)
3% – entertainment, other

And the remainder went into savings. If you aren’t Christian and don’t give to a Church, you should be able to save 10% at least. Put that money away and use it on a holiday at the end of the year or something.

The one thing I didn’t address here is food. You can save a lot of money by eating in, but honestly what’s life without one of its greatest pleasures haha. Jacky and I give ourselves a decent food and eating out budget, but it’s still reasonable enough that we are still able to save some money each month…

I can’t not enjoy food ok? LOL.

It’s not an exhaustive list, but these are some basic savings principles I follow that enabled me to save a large chunk of my income while I was still working, and still allows us to save some of Jacky’s salary despite being on a single income. It may require a mindset shift, but think of it as investing in your future, and it’s definitely doable because I have done it.

If you are one of those who have no savings whatsoever, please don’t wait until tomorrow. Start setting some money aside today and don’t touch it unless it’s actually an emergency. Invest it in a Marcus no-penalty CD or savings account or something.

I started using a new budget tracking system a year ago that’s really working for me so I’ll be excited to share that with you at a later date. But for now, I hope this helped! Let me know if they did, and if there any tips that you’d like to add I’d love to hear them.

Muchos love,

Bobbie

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