At the time, I didn't think much of it. I knew that I should be absolutely comfortable on my very respectable salary, I had just been given a pay raise to $86,000. Two years prior I was making $38,000 and was in the exact same spot. What gives?
In February '13 I learned my credit card was charging me 16% interest on my $1,500 credit card debt. I had been under the impression that I was fixed at 9%. I wiped out what little savings I had to pay it off immediately after discovering the credit card company was tacking on ~$240 each month in interest - I was paying $250, well above the minimum payment, but hardly making a dent. This left me with zero savings, and very little in my checking account due to my existing spending habits. I think I had about $80 to my name till pay day.
But that wasn't really the catalyst that made me rethink my finances and become frugal. It was what happened a week later, when I did my taxes, expecting a 1-2K return (which is what I had every year) to help offset some of my expenses. I was miserably surprised to find out that due to some stupid mistakes I made throughout the year (withdrawal of my old company's 401K to pay for crap instead of rolling it over, raises mid year bumping me into a new tax bracket, etc...) I owed $2,200 dollars between state and federal taxes!
How the hell was I going to pay a $2,200 bill in two months when I had 80 dollars to my name and was having a hard time saving a single penny to the point that I rack up credit card debt each month?! I went into a bit of a panic, disbelief, I rechecked my numbers, I called my mother. The best thing I did, however, was start Google searches for "saving lots of money" "cut expenses", etc.. I didn't know what I was doing, but I knew I needed to suddenly come up with more money than I was use to and I needed advice.
This situation was, as I later learned to call it, face-punch worthy. There was no reason that I shouldn't be able to save 2,200 dollars in two months on my income - or already have it. However, a lot of people are in this situation right now and have no clue how to get out of it.
I was lucky that the phone call with my mother yielded 1,000 dollars to help cover my expenses - "I was in that situation once and someone gave me 1,000. I'm paying it forward to you now." I am incredibly grateful to her and it still pains me that I had to take that money. That still left me with another $1,200 to come up with and the desire to never be in this situation again. It was unacceptable.
A lot of the finance sites I went to were worthless. They were of no help at all. Think things like finance.yahoo.com, Forbes and other "financial" news sites. I finally discovered one site that I looked at in passing called MrMoneyMustache - considered a "personal finance blog". I'd be fooling myself if I said it all of a sudden clicked and I knew what I was looking at. It took me quite a bit of reading and looking at other sites before I came back to MrMoneyMustache and spent about an hour reading his "Getting Rich: from Zero to Hero in One Blog Post" article. It was an astounding amount of information to take in on this second pass but I sat through it and it suddenly clicked. The most important part for me wasn't the tangible things to do such as cutting your cellphone bill, reduce your grocery bill and going out to eat, but rather the philosophy behind it. I'd be doing a disservice if I paraphrased, so this is the exact quote that really helped drive it home:
The bottom line is this: by focusing on happiness itself, you can lead a much better life than those who focus on convenience, luxury, and following the lead of the financially illiterate herd that is the TV-ad-absorbing Middle Class of the United States today (and most of the other rich countries). Happiness comes from many sources, but none of these sources involve car or purse upgrades. No matter what the herd or the TV set tells you, this is the truth. Far from being a social outcast, this new perspective will make you a hero among your friends. This is not a fringe activity anymore – millions of people are fixing their lives these days. And the earlier you can accept it, the sooner you will be rich. - Mr. Money Mustache
Stop here. Go back and reread that quote, it's really important. I'll wait..
Holy shit. It sounds so obvious now, but at the time I was throwing away my money to buy things that really didn't impact my happiness at all. Most of the time, all my spending actually increased my stress and anxiety! Why was I doing this to myself? I couldn't tackle everything at once, I knew, but I did immediately perform a few changes after reading this post:
- I created and setup a Mint.com account and pointed it to all my accounts. ALL of them. Car, credit card, savings and checking (notice: no investment accounts at this time).
- I started tracking my expenses to the penny.
- I set up a $150/week budget for anything that was not a bill
- Note - this was critical in my 'first steps' success, but a mistake. I'll cover this below.
- I dedicated to going out to eat as little as possible.
- I started packing lunches for work.
- I started looking at how to cook at home better.
That's it. That's all I started with. I saved 1,200 in ONE MONTH. Looking at that list, what did I give up? What was so hard? Going out to eat as often and unchecked spending. That's all. Just by observing every expense and setting an arbitrary limit on myself, I went from saving little to nothing, to saving a LOT of money. I'm not going to say it was all roses, it was very difficult when I first started. I was changing habits, after all. I had to resist giving in to cues that triggered spending routines without thinking about it. I still remember the first day that I didn't spend anything. It was an exciting accomplishment!
When was the last time you went 24 hours without spending anything? No transactions clocked for that day.
When was the last time you went 24 hours without spending anything? No transactions clocked for that day.
The $150/week budget was a mistake, as I mentioned earlier. There's a reason people setup monthly budgets, not weekly budgets. I noticed that certain expenses fell at different times and completely ruined my budget for the week for important things... like food. Although, this did have an upside. Weekly budget tracking is significantly easier to do than monthly. It's in smaller chunks. However I eventually moved this to a 600/month budget. (same numbers, different way of looking at it). This worked out a lot easier.
This is not to say that I stayed within this budget every week or month. It was very trying. But this got me going. Needless to say I paid my taxes come April and had some money left over. All the while I continued to consume all things frugal, with the optimism of Mr Money Mustache as my go-to source, but I picked up many other sites, joined some online communities, started learning about investing. Fast Forward 12 months later and I have a $34,000 positive net worth, a paid off car, no credit card debt and no liabilities and $24,000 in invested accounts and it's only going to keep growing quickly from here.
There was a lot done in that 12 months to achieve those numbers and more to do still! I'll be going through, in depth, the different things I did through the first year, and continue all the things I plan to do going forward as well.
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