I made the decision to live on 50% of my income for two reasons: I wanted to pay off my student loans as fast as possible and I was tired of feeling broke. I had just started my first full-time job as a digital strategist at a local university. Before that, I was paying my way through college by working three part-time jobs. I knew what it was like to be broke and I never wanted to feel that way again, so I set a goal to save half of my new paycheck.
That sounds extreme, but it's actually a recommended savings strategy for young people looking to build wealth. Of course, it's also easier said than done. Here’s the exact breakdown of how I've made it work over the past two years (in southern California, no less).
Housing: $750 per month
After living in a one-bedroom apartment with two other women during college, I learned I valued privacy and space. So instead of buying a new car when my old one broke, I bought my sister’s 2001 Honda for the bargain price of $1,100 and put the money toward housing instead. My partner and I currently split a spacious one-bedroom apartment located within a complex that boasts a pool, hot tub and full gym. I’m paying $750 for my half of the rent, but it feels like a small price to pay for a clean, quiet home.
Transportation: $150 per month
Even though my car is the same age as a high school senior, it drives just fine. But, most importantly, it gets me safely to work each day. Plus, my mechanic has assured me it will last “300,000 miles and beyond”. Driving an old, yet reliable car is one of the fastest ways to save money each month. I don’t have a monthly auto loan payment. And, because my ride is older, my car insurance is about $80 per month. Gas rings in at around $70.
Bills: $75 per month
When it comes to Internet and electricity, there’s not much to do except minimize usage. Because I don’t have cable, I opted for a slightly pricier Internet package that rings in at $30 per person each month. Considering it powers my streaming services and lets me get work done from home, I consider that price a bargain.
Food: $200 per month
This category includes household items like toilet paper, dish soap, laundry detergent and cat food. We buy the staples, like bread, eggs, cheese, frozen chicken breasts and coffee at Costco. If possible, we freeze half of what we buy for later in the month. I also keep four frozen pizzas on hand in case of an “emergency” (also known as times when I don’t feel like cooking). After our monthly Costco trip, we buy additional items at Trader Joe’s or Von’s. To keep costs done, we typically opt for vegetarian dinners and eat the same thing for breakfast and lunch every weekday. That ensures food isn’t wasted and as an added bonus, it saves time.
Fun money: $200 per month
Everything else falls under the category I call “fun” money. Whether it’s birthday gifts for friends and family or supplies for our medicine cabinent (not fun, but a common side expense), it all comes out of the same budgeted funds. To keep these costs as low as possible, I rarely buy clothes and only eat out once or twice per month. When I want to spend time with my friends, I suggest a night in or a free outdoor activity like hiking. The truth is most people are also trying to save money and very few scoff at the idea of a free hang-out.
My secret to an affordable social gathering? BYOB. Have your friends bring a bottle of wine or a six-pack of beer and provide them with a cheap yet delicious Crock Pot meal in exchange.
Life & other surprises: $100 per month
My “life” fund is earmarked for things like annual membership fees, registration and unexpected car repairs. Some months, I spend it all. Other months, I barely touch it. If there’s anything left over, I save it for the next month.
You might be wondering why I didn’t mention student loan payments in this tally. Well, during my first year of saving, I put the half of my salary I wasn’t spending toward paying down my $14,000 student loans. All the penny-pinching paid off as I paid that balance in about eight months as a result.
Saving half of your income might seem daunting, but the truth is frugality is like any other muscle — the more you workout, the stronger it becomes.
My over-arching tip? Start with something small, like eating dinner at home for a week and then slowly graduate to bigger tasks like revamping your transportation or finding cheaper housing. Once it’s impossible to cut back anymore without drastically decreasing your happiness, it’s time to focus on the other half of the equation: earning more. Use your existing skills to make extra money on the side (you can find some solid side hustles here) or ask for a raise at your full-time job (it can be done!). Small changes lead to big changes, and big changes to lead to financial freedom.
Got a good budgeting story you want to share? Drop us a line at editorial[at]policygenius.com!