Everyone is familiar with popular money saving tips (I like suggestions found in this Bootsnall Post):
- Direct Deposit into a Savings Account you don't touch
- Budget. Know what you're spending, on what.
- Cut out Cable
- Bring lunch to work and eat-out less
But what does that actually look like on paper, for a real person? When preparing for our RTW Honeymoon I found myself reading tips in blog posts but felt like I was spending more time reading than actually changing my lifestyle. I felt a little silly putting out a piggy jar in my oh-so-cute apartment. Besides, I never carried cash anyways -- why would anyone?! You don't earn points on cash transactions! (But that's another story).
My goal here is to lay down the dollars and cents and SHOW you how QUICKLY you can save money and earn financial freedom. Maybe you'll use the money to travel, maybe you use it as a down payment on a house or to pay off student loans, but once you start putting in place well-known "Money Saving Tips" watch what happens....
How someone with a $55,000 annual salary In Chicago could save enough THIS YEAR for 3-6 months travel in SE Asia.
Googling "Average Chicago Salary" (May 2015) reveals several results between $65k - $70k. (WHAT?!) Well I think that's ridiculously high. More realistically, let's say you make $55k/year.
$55k is about $4580/mo or about $3200/mo after taxes and healthcare (automatically deducted from your pay check).
Of course you contribute to your 401k at 4% or $120/mo. (If you don't, change that habit! We contribute 8%-12%)
Now you have $3080/mo to live, save and spend (and pay off debt if you have any).
$700 Rent: Living with a roommate in a decent Chicago neighborhood (Lakeview, Wrigleyville, Wicker Park) but you can certainly find cheaper in Logan Square, Ravenswood and Uptown. (We each pay $550 to share our 1br in Lakeview, grandfathered in with a price from 3 years ago.)
$400 Groceries: This is a highly variable field. You almost end up spending the same amount on groceries with two people versus buying for just one. Find a friend. Cook together. This is about what Tim and I spend and we even get our groceries delivered.
$400 Restaurants: Let's not call this Saturday night between 11pm - 1am (that's for the "other" category below). This is dinner after work, date night, Sunday brunch with friends and "we don't have any food let's grab Pad Thai down the street". I'm sure this category of spending varies across an enormous spectrum. Thinking about some of our friends I doubt they've ever had a month of spending this low in this category (although perhaps they spend less on groceries). Tim and I as a couple don't really prefer to eat-out. That's just us and we know we are the exception. It's not even a frugal money thing, we just prefer to prepare our own food and eat-in, but then then go out for a walk around town and duck in to a few bars or an ice cream shop. The number represented here equates to $100/week/person. You should be able to hone-down close to this even if you are a foodie. Save by bringing lunch to work so you can go to happy hour with friends.
$55k Spending vs Saving
$90 Phone: Let's be honest. You have a phone. I'm not considering this an expense we can just "erase". There are, however, ways to minimize your bill by holding a lower GB plan. We are lucky enough that my company pays my bill and Tim's subsidizes his, resulting in a large savings in this budget line for us.
$50 Cable/Internet: My favorite line-item to talk about! (Restaurants are a close second.) This low number represents you splitting the cost with a roommate. Let's go ahead and say "no one" can live without internet. BUT can you live without cable? We do! That doesn't mean that we're freaks. It just means that when you're talking about "that so-funny commercial" we don't know what the heck you're talking about. Our $17/mo Netflix account satisfies any TV need we have. Sports fan? Try watching the game with a friend (at his house) or catching the game at the bar (just make sure to order the Happy Hour special!) My company also subsidizes our internet cost since I am a remote employee, so that has helped us too.
$100 Transportation: This number represents a month pass on Chicago Public Transportation. Many companies subsidize this cost as well, so you could get by with even less. This line item, however, is EASY to push out of control. Look at this number in your life. Do you have a car payment? How much do you spend on insurance? DO YOU TAKE AN UBER EVERYWHERE YOU GO? For fun one month, total up this number just to see. In Chicago you could easily spend $500/mo on transportation (public, taxi, Uber, Car lease, insurance, gas). Hell, you could spend twice that if you have a lease on a decent but non-luxury car. Tim and I own 2 cars (a '96 Camry and a '05 Cadillac) but we outright own both of them and do not make any monthly payments. We, of course, pay for car insurance and have to pay for gas when we drive them (that's how cars work). We try to take public transportation around the city as much as we can, but, depending on where you're travelling to, if each person pays $2.50 to get on the bus, the two of us might take a $8 Uber ride that could save 45 minutes on a trip across town. We probably spend close to $150/pp on Transportation.
$700 Other: Now that you have a roof over your head, food in your belly and some other key essentials, that leaves you with plenty of extra cash... but money still flies out the door with loans/debt, prescriptions, haircuts, dog food, donations, those shoes, that Groupon deal, Carly's Bachelorette Party, Taco Burrito House at 2am, etc. The less you spend in this category, the more you get to save, but $700/mo should be PLENTY.
$640 Savings: This is the number, more or less, left over based on how you did in the above category. No matter whether this looks like a lot or a little to you, watch how it can accumulate over time:
In 3 months: $1920
In 6 months: $3840
In 1 year: $7680
So, assuming you make $55,000, live in Chicago, and push your spending habits to meet the requirements listed above, you would have enough money after one year to travel around SE Asia for 6 months. Just like that! Incentive enough?
*I am just putting a label on that amount of money to make a point. You could certainly travel for less in that region, you certainly could travel for more. You could also blow it in a week in the Maldives - but hey, it's your money, and you SAVED IT! WHOO!
PSA: Please do not go away and travel until your last cent leaving yourself no safety net!
Make More, Save More
- Any salary, then, above $55,000, could increase that savings number.
- Living in a less expensive city than Chicago increases that number.
- Living more frugally in Chicago than my projected outline increases that number.
Playing around with your own budget is when you can really see what you are spending money on, and which areas can you decrease spending.
Let's say you make:
$70,000 annual salary
A $70k annual salary in Chicago is what 6 websites suggested was the "average salary". I still don't believe that, but let's just say you do make $70k/year. If you make $70k per year but in turn, go out more, live in a nicer apartment and have a bad shopping habit, you, my friend, will end up with no different of a savings account than example #1 above (it may even be worse!)
The only way someone making $70k can save more than someone making $55k is if they live like they still make $55k.
$70k SPENDING VS SAVING
If you successfully avoid Lifestyle Creep and make $70k but spend like you did when you made $55k then:
In 3 months: $4440
in 6 months: $8880
in 1 year: $17,760
($70k/yr = $4080 after taxes & healthcare. Contribute 4% to 401k = $3920 take home - $2440 expenses/mo = $1480 savings/mo)
$17,760 saved in 1 year
LETS GET CRAZY:
Double that number by including your Significant Other or your best friend that you'll be travelling with and the two of you could be off around the world together AT THIS TIME NEXT YEAR WITH
YOU + FRIEND = $35,520
Cash in your pocket. Throw in a couple credit card sign-up bonuses and airline miles and you've got yourself a year abroad.
What if you saved for a longer period of time? Take the $35,520 saved in one year and double it (2 years saving) and now you and your BFF have
$71,040 in cash
Still with $12k in your 401k's
(Contributing 4% over 2 years with employer 50% match up to 4% times 2 people)
Your new goal
No matter your salary, change your spending habits to find the lowest comfortable cost of living. From there, just be patient and watch the $$dollars$$ roll in!
Questions for you:
How much have you saved? #humblebrag
Where do you fall on each budget line? Is your city more or less expensive than Chicago?
Are you inspired? Are you planning to save more after reading this?