The most critical skill to ensure your financial prosperity is learning to pay off debt. The next most important skill is saving money. If you can’t do that, you’ll always be treading water, worrying about your next unexpected car repair or waiting anxiously for your next paycheque.
In the two years since I’ve become debt free, I’ve learned a thing or two about saving. I learned how to save money very quickly, and I learned how to save money in a slower, more sustainable way. I learned how to knock out big, hairy audacious goals and check off smaller, but still important goals.
Today, I’m able to work towards my savings goals in a quick and efficient manner. I do this because I’m currently saving about half of my family’s joint income every single month. Here’s how I do it, and you can too:
I Paid Off My Debt
When I first graduated from university, my minimum debt payments took up a high percentage of my take home pay. Those minimum payments were significantly impeding my ability to save money, so I paid that debt off. Now those minimum payments are funding my retirement.
I Keep My Transportation Expenses Low
About 20% of Canadian spending goes to transportation. That’s a lot of money to tie up on an asset that will eventually depreciate to zero.
In contrast, my transportation costs amount to about 6% of my joint net income with my husband. We’re able to achieve this low cost by being a one car household. We can be a one car family because I work remotely from home about 80% of the time, and use a bicycle as my primary mode of transportation. Our low transportation costs is not a happy accident. We’ve engineered our lives this way so that our money and our time is not tied up by the act of moving from one place to another.
When I occasionally have to travel I either rent a car or take the bus, which is cheaper than owning a second vehicle, if a little inconvenient.
Since our transportation costs are low, the excess cash gets diverted to savings.
I Spend Money Only on What Is Valuable to Me
While my debt costs and transportation costs are low, my housing costs are high, coming in at 33% of my family’s net income. Our housing costs are high because we choose to live in a city with a higher cost of living. Residing in the city is important to me, so I’m willing to swallow the cost.
On the other hand, material possessions aren’t that important to me, so my husband and I only spend about 25% of our income on “life” which is groceries, entertainment, pet stuff, communications and personal care.
I Am Always Cutting
I regularly call our service providers looking for a better deal. I often will compare car insurance rates for fun, and every time I find a line item that I can save money on, the excess goes into savings.
When I first moved to Halifax, I was only saving about 30% of our net family income, before freelance. Through a series of money-saving cuts and raises, I’ve managed to boost this amount to 36% of our net income, before freelance.
I Still Count My Freelance Income as Bonus Money
The first year I started freelancing I made $2,500. That amount is so low that I didn’t count it in my monthly budget, and today, even though I’m on track to earn significantly more than that amount, I’m still not counting the money in my budget, here’s why:
So far this year my monthly side hustle income has swung widely, from as little as $450 to as much as $2,300. That’s pretty much useless when it comes to budgeting.
So, instead, I add this money straight to my savings. By sending my side hustle money straight to savings I manage to get my savings from the baseline 36% that I’ve achieved through strict budgeting, to much higher. Most months I average about 50% of income saved, my highest so far this year was 56% saved.
I Am Always Hustling
It’s all well and good for me to say that I can save half of my income because my income is above average in Canada. My husband and I make over $100,000 per year together, and that’s enough for us to have a good life and still save a lot.
If you aren’t earning what I earn, saving money is going to be much, much harder.
This is where the hustle comes in. I’m not just talking about hustling on the side; I’m talking about hustling at your full-time job too.
When I graduated from university, I was making $38,000 a year. Through working hard, freelancing on the side, asking for raises and a little bit of job hopping, I’ve managed to dramatically increase my income.
My husband is in the same situation. He’s gone from making a below average income, to running his own business, to leveraging those skills into a full-time position where he’s earning more than double what he made after graduation.
We’ve both worked hard and put in many, many hours over and above the typical workweek. We’ve learned new skills, taken on more responsibility, and grown our roles.
This increased earning capacity is hugely important to our ability to save half our incomes.
The Benefits of Saving Half My Income
The idea of saving half of your income may seem extreme, but it has many advantages. For one thing, you’re able to attack large, hairy, audacious goals and complete them quickly. We’re six months into 2016, and already I’ve put $16,000 into the bank. That’s enough money for a decent used car, an extended trip to Europe, a year of post-secondary education, a year of maternity leave top-up, or (in my case) roughly half of my desired goal of $35,000 saved for a house down payment this year.
When you save this much of your income, truly crazy financial priorities become possible. Here are things that I would consider doing, or have done, with my money that most Canadians don’t think they can do (although they can):
- Pay for a wedding and honeymoon in cash (check)
- Pay off $40,000 of debt in two years (check)
- Accumulate six months of living expenses in a savings account (check)
- Put away money every month for retirement (check)
- Put 10% down on a home purchase (in progress)
- Buy a car with cash (in progress)
- Go on parental leave without changing your standard of living (someday)
- Pay off your mortgage in ten years (someday)
- Retire early (someday)
Lastly: I’m not special. I’m an average, entitled, selfish, lazy millennial. If I can do it, so can you.
How much of your net income do you save? I want to know!
Photo Credit: Fabian Blank