How to save $100k by Clever Girl Finance
Today's story is all about how I saved over $100,000 without earning a six figure salary in a little over 3 years. 3.5 to be exact. I'll be honest and say that it took a lot of hard work but I did it and so can you.
When I first graduated from college, there were a few things in place that allowed me to jumpstart my savings:
- I was fortunate to have no student loans
- I found a job right after graduating where I was earning a salary of $54,000 a year (~$40,000 after taxes - as a new college grad, I thought this was amazing!)
- I got a raise and a bonus every year and got promoted in those 3.5 years, raising my salary by the end of 2008 to ~$74,000 (~$52,000 after taxes)
A few other things to I'd like to note:
- I saved this money entirely on my own, there was no inheritance, no handout and no trust fund.
- I was single and did not have the added luxury of a joint income, it was just me.
- I made up my mind that I was going to save no matter what.
- Did I mention I did this all without earning a six figure salary?
So how exactly did I do it?
1. I contributed to my retirement via a 401k offered by my employer
To be honest when I first started working I had no clue what a 401k was, or why I needed one. All I knew was that I was being offered free money via a match and I was all over it. Over time I learnt what it was, about asset allocation, fund types, expense ratios etc but to start out, I took advantage of the free match.
At the time, my employer matched 100% of the first 6% that I contributed. I didn't max out my contributions back then but I contributed ~15% of my salary and throughout the 3.5 years I was about to save about $40,000. This was also before the last major US recession and so the money I contributed had grown because the stock market had been performing pretty well.
2. I kept my expenses low
After my 401k, health insurance and tax deductions, my main expenses were my car (I paid a car note for ~$150 and then later ~$300), insurance (~$80) and my mortgage (~$900). I lived at home for six months after graduating college before moving into my first place which helped me really kickstart my savings.
Groceries were never a big bill being single. Yes, ramen was my friend. Going out was hanging in at friend's houses, and zero alcohol was BIG money saved. I travelled a lot for work and so a lot of my lunches during the week were reimbursed. I also lived very close to work so I didn't buy gas often. I shopped here and there too but I didn't have any expensive habits at the time. My water bill, internet bill and cell phone bill all came in around $170 combined each month.
3. I focused on saving 40% to 50% of each pay check and anything extra
After my 401k, other deductions and taxes (my tax rate was ~25%), the first year I earned somewhere around $1350 - $1400 a pay check. I tried to save at least $500 to $700 every paycheck and because I kept my expenses low, this wasn't hard to do.
I saved my yearly bonus (after 50% bonus taxes this was somewhere around $1500 the first couple of years) and I always saved a bulk of whatever tax return I got. As a result, I saved a ton of cash very quickly this way - I averaged about 18k a year in cash savings and in 3.5 years I had well over 50k saved in cash from my full time job.
4. I started a side hustle
Towards the end of my 2nd year of saving money, I became very interested in take photographs and ended up with a successful part time lifestyle and wedding photography business after taking a bit of money from my savings to invest in an entry level DSLR camera. I studied my craft, did a lot of free photography to start and within a few months I found this business growing very quickly and becoming very profitable.
I loved doing it and it earned me a great side income. I spent my earnings reinvesting into my business, saving (I always save something when I earn something) and funding the early stages of my former super amazing handbag collection that you can read all about on my blog. If I didn't have such a handbag obsession, I know I could have saved so much more money.
The first year of my business I earned around $10,000. The second year I earned around $30,000. Subsequent years I earned more. I worked hard but to me, it was worth it. Around this time, I also started learning about investing outside of retirement and I used some of the money I earned from my side hustle to do that. This side hustle pushed my savings over the 100k mark.
5. I spent money on credit but I was smart about it
Yup I still had a credit card but the majority of my spending on credit was using a charge card. With a charge card, you are required to pay your balance in full each month. e.g. American Express Gold is a charge card.
I was required to have a charge card to cover all my work travel expenses and so I thought why not get one for myself too. I got a few reality checks when I over did it at times but using a charge card always reigned me in and still does. I know my limits.
That, in summary, is how I was able to save over $100,000 in a little over 3 years.
Yes, I made a few money mistakes here and there that took me off track but I managed to recover - crossing the $100,000 mark with my savings was a big motivator for me.
All of this being said, you may not be able to save $100,000 right now and/or you may have large amount of debt but regardless of where you are (single, married, kids, no kids - I know what it's like to have big expenses - I now have twins!), know that you can still pay off your debt and you can still save a serious amount of money with time.
It starts with adjusting your mindset, taking a full assessment of where you currently stand, creating a strategy around your situation, keeping your expenses low, automating as much as you can and staying focused. Over time, and with discipline and dedication, you will see results. I promise.