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10 Things Learnt From The Two Roommates Who Saved More Than $55,000 A Year

10 Things Learnt From The Two Roommates Who Saved More Than $55,000 A Year

Reading the story of Geoffrey Szuszkiewicz and Julie Phillips, who saved $55,000 dollars in one year by choosing to buy nothing, brings back memories of when my wife and I first got married back in August of 2010.

Coming out of college was rough for both of us. Like most new college graduates, we were broke and had no money.

However, on the night of our honeymoon, we decided to make a savings goal. Our plan was have twenty thousand dollars in cash saved by August 2011. Sarah was still in school at the time, so we were going to have to accomplish this intimidating goal on the salary of an assistant manager in the retail industry.

As you can imagine, this wasn’t easy. Saving money is a lifestyle change; one that is more than anything, mentally and emotionally draining. Like Geoffrey and Julie, Sarah and I also lost friends. We also had doubts and many times wanted to quit.

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However we stuck it out and reached our goal just a few days shy of the one year mark. The decision we made to save gave us a sense of security and peace of mind.

Hopefully you too will find these ten tips I learned useful as you plan to save money.  They are simple and very actionable.

 1. Check your pride; you will need to live minimally.

If you want to save money, you cannot be sold out to the cultural expectation of having nice things. This is because you will need to adopt a minimalist mindset if you are to be successful. Do not confuse minimalism for self-denial. I mean you don’t need a fancy car with a monthly payment. You may have to drive a beat up clunker for a while.  Keep your clothing simple, no buying fancy designer outfits.  Like Geoffrey, you will have to delay the pleasures of travel and consumerism.

2. Decide how much you want to save

You must have a tangible goal set.  Look at your income and decide how much of it you want left your bank account at the end of the year.  Geoffrey decided to save 65% of his take home pay while I decided to save 50% of mine. There is no magic number, just decide how much of your hard earned money you would like to keep. There is an alternative to being a consumer, and it is being a saver.

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3. Whatever is left is your take home pay/ Allocate wisely

Say you make $3,800 after taxes a month and you want to save twenty thousand in one year like Sarah and I did, you will need to save $1,670 every month. This means that you only make $2,130 a month.

That is all you have for rent, gas, groceries, gym memberships, fun money etc. Make sure you allocate wisely.

4. Keep your rent or mortgage no more than 25% of your net income, or get a room mate

This means that your rent or house payment cannot be more than 532.50 if you use my example.

Sarah and I moved into a 350 square foot apartment for 315 a month that year. Geoffrey moved in with Julie to save money on the rent.

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5. The quickest way to get a fifty percent raise is to cut your bills in half

I eliminated my gym membership fee ($60 a month) by working part time as a personal trainer at my local gym. I also cancelled my cable service ($180 a month) for Netflix ($8 a month). We also cut our grocery bill in half by sticking to simple diet foods (rice, chicken, potatoes etc.) I also biked to work, while Sarah walked to class ($200 in gas). All in all by cutting our bills in half, it was as if I received an extra $500 a month. Julie quit going out to eat all together and Geoffrey went as far as to quit getting haircuts.

6. Designate an accountability partner

Every month end, I would show my good friend Jeffery my account balance. Knowing that he was going to see my deposits was enough motivation to deter me from dipping into my savings. If my account was at $1,670 on January 31st, it had to be at $3,340 on February 28th.  Geoffrey and Julie created a website and blog to let the world in on what they were doing and used this medium to keep themselves accountable

7. Save first, pay bills latter.

Saving money is all about priorities. It was my priority to pay myself first. Nothing else mattered.

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8. You may lose some friends

Remember that we are social creatures and as such, your friends may not understand the commitment you are making to secure your financial future. Don’t take it personal. The same people who are now asking you why you are doing it, will eventually ask you how you did it.

9. Don’t try to “keep up with the Joneses”

Don’t try to keep up with the Joneses. For all you know, they may be broke or living pay check to paycheck. Be careful about being pressured to spend especially when you are around friends who make more than you do.

10. Reward your self

Every couple of months, reward yourself. Set aside up to $200 for something you may want to splurge on. This is more of a necessary mental break.

Good luck! May you be able to put away exactly the amount of money you hoped for!

Featured photo credit: Julie Phillips and Geoffrey Szuszkiewicz via finance.yahoo.com

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Last Updated on September 2, 2020

How to Set Financial Goals and Actually Meet Them

How to Set Financial Goals and Actually Meet Them

Personal finances can push anyone to the point of extreme anxiety and worry. Easier said than done, planning finances is not an egg meant for everyone’s basket. That’s why most of us are often living pay check to pay check. But did anyone tell you that it is actually not a tough task to meet your financial goals?

In this article, we will explore ways to set financial goals and actually meet them with ease.

4 Steps to Setting Financial Goals

Though setting financial goals might seem to be a daunting task, if one has the will and clarity of thought, it is rather easy. Try using these steps to get you started.

1. Be Clear About the Objectives

Any goal without a clear objective is nothing more than a pipe dream, and this couldn’t be more true for financial matters.

It is often said that savings is nothing but deferred consumption. Therefore, if you are saving today, then you should be crystal clear about what it’s for. It could be anything, including your child’s education, retirement, marriage, that dream vacation, fancy car, etc.

Once the objective is clear, put a monetary value to that objective and the time frame. The important point at this step of goal setting is to list all the objectives that you foresee in the future and put a value to each.

2. Keep Goals Realistic

It’s good to be an optimistic person but being a Pollyanna is not desirable. Similarly, while it might be a good thing to keep your financial goals a bit aggressive, going beyond what you can realistically achieve will definitely hurt your chances of making meaningful progress.

It’s important that you keep your goals realistic, as it will help you stay the course and keep you motivated throughout the journey.

3. Account for Inflation

Ronald Reagan once said: “Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hitman.” This quote sums up what inflation could do your financial goals.

Therefore, account for inflation[1] whenever you are putting a monetary value to a financial objective that is far into the future.

For example, if one of your financial goal is your son’s college education, which is 15 years from now, then inflation would increase the monetary burden by more than 50% if inflation is a mere 3%. Always account for this to avoid falling short of your goals.

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4. Short Term Vs Long Term

Just like every calorie is not the same, the approach to achieving every financial goal will not be the same. It’s important to bifurcate goals into short-term and long-term.

As a rule of thumb, any financial goal that is due in next 3 years should be termed as a short-term goal. Any longer duration goals are to be classified as long-term goals. This bifurcation of goals into short-term vs long-term will help in choosing the right investment instrument to achieve them.

By now, you should be ready with your list of financial goals. Now, it’s time to go all out and achieve them.

How to Achieve Your Financial Goals

Whenever we talk about chasing any financial goal, it is usually a two-step process:

  • Ensuring healthy savings
  • Making smart investments

You will need to save enough and invest those savings wisely so that they grow over a period of time to help you achieve goals.

Ensuring Healthy Savings

Self-realization is the best form of realization, and unless you decide what your current financial position is, you aren’t heading anywhere.

This is the focal point from where you start your journey of achieving financial goals.

1. Track Expenses

The first and the foremost thing to be done is to track your spending. Use any of the expense tracking mobile apps to record your expenses. Once you start doing it diligently, you will be surprised by how small expenses add up to a sizable amount.

Also categorize those expenses into different buckets so that you know which bucket is eating most of your pay check. This record keeping will pave the way for cutting down on un-wanted expenses and pumping up your savings rate.

If you’re not sure where to start when tracking expenses, this article may be able to help.

2. Pay Yourself First

Generally, savings come after all the expenses have been taken care of. This is a classic mistake when setting financial goals. We pay ourselves last!

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Ideally, this should be planned upside down. We should be paying ourselves first and then to the world, i.e. we should be taking out the planned saving amount first and manage all the expenses from the rest.

The best way to actually implement this is to put the savings on automatic mode, i.e. money flowing automatically into different financial instruments (mutual funds, retirement accounts, etc) every month.

Taking the automatic route will help release some control and compel us to manage what’s left, increasing the savings rate.

3. Make a Plan and Vow to Stick With It

Learning to create a budget is the best way to get around the uncertainty that financial plans always pose. Decide in advance how spending has to be organized

Nowadays, several money management apps can help you do this automatically.

At first, you may not be able to stick to your plans completely, but don’t let that become a reason why you stop budgeting entirely.

Make use of technology solutions you like. Explore options and alternatives that let you make use of the available wallet options, and choose the one that suits you the most. In time, you will get accustomed to making use of these solutions.

You will find that they make it simpler for you to follow your plan, which would have been difficult otherwise.

4. Make Savings a Habit and Not a Goal

In the book Nudge, authors Richard Thaler and Cass Sunstein advocate that, in order to achieve any goal, it should be broken down into habits since habits are more intuitive for people to adapt to.

Make savings a habit rather than a goal. While it might seem to be counterintuitive to many, there are some deft ways of doing it. For example:

  • Always eat out (if at all) during weekdays rather than weekends. Weekends are more expensive.
  • If you are a travel buff, try to travel during off-season. You’ll spend significantly less.
  • If you go shopping, always look out for coupons and see where can you get the best deal.

The key point is to imbibe the action that results in savings rather than on the savings itself, which is the outcome. Focusing on the outcome will bring out the feeling of sacrifice, which will be harder to sustain over a period of time.

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5. Talk About It

Sticking to the saving schedule (to achieve financial goals) is not an easy journey. There will be many distractions from those who are not aligned with your mission.

Therefore, in order to stay the course, surround yourself with people who are also on the same bandwagon. Daily discussions with them will keep you motivated to move forward.

6. Maintain a Journal

For some people, writing helps a great deal in making sure that they achieve what they plan.

If you are one of them, maintain a proper journal, where you write down your goals and also jot down the extent to which you managed to meet them. This will help you in reviewing how far you have come and which goals you have met.

When you have a written commitment on paper, you are going to feel more energized to follow the plan and stick to it. Moreover, it is going to be a lot easier for you to track your progress.

Making Smart Investments

Savings by themselves don’t take anyone too far. However, savings, when invested wisely, can do wonders.

1. Consult a Financial Advisor

Investment doesn’t come naturally to most of us, so it’s wise to consult a financial advisor.

Talk to him/her about your financial goals and savings, and then seek advice for the best investment instruments to achieve your goals.

2. Choose Your Investment Instrument Wisely

Though your financial advisor will suggest the best investment instruments, it doesn’t hurt to know a bit about the common ones, like a savings account, Roth IRA, and others.

Just like “no one is born a criminal,” no investment instrument is bad or good. It is the application of that instrument that makes all the difference[2].

As a general rule, for all your short-term financial goals, choose an investment instrument that has debt nature, for example fixed deposits, debt mutual funds, etc. The reason for going for debt instruments is that chances of capital loss is less compared to equity instruments.

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3. Compounding Is the Eighth Wonder

Einstein once remarked about compounding:

“Compound interest is the eighth wonder of the world. He who understands it, earns it… He who doesn’t… Pays it.”

Use compound interest when setting financial goals

    Make friends with this wonder kid. The sooner you become friends with it, the quicker you will reach closer to your financial goals.

    Start saving early so that time is on your side to help you bear the fruits of compounding.

    4. Measure, Measure, Measure

    All of us do good when it comes to earning more per month but fail miserably when it comes to measuring the investments and taking stock of how our investments are doing.

    If we don’t measure progress at the right times, we are shooting in the dark. We won’t know if our saving rate is appropriate or not, whether the financial advisor is doing a decent job, or whether we are moving closer to our target.

    Measure everything. If you can’t measure it all yourself, ask your financial advisor to do it for you. But do it!

    The Bottom Line

    Managing your extra money to achieve your short and long-term financial goals

    and live a debt-free life is doable for anyone who is willing to put in the time and effort. Use the tips above to get you started on your path to setting financial goals.

    More Tips on Financial Goals

    Featured photo credit: Micheile Henderson via unsplash.com

    Reference

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