Wednesday, September 11, 2013

Spend 25% Less Than You Make, Mess Up, and Start Again

Did you see this article by Jason Nazar on last month? He includes a lot of really great tips, several of which I learned either from my parents or as an intern, but there is one piece of advice I didn't listen to anyone about. Some things one has to learn for herself, but it doesn't stop me from wishing I could tell my 23 year old-self this one. I'll settle for repeating it and hoping that another 20-something listens...

Spend 25% Less Than You Make: Be willing and able to take 20% less in the short term, if it could mean 200% more earning potential. You’re nothing more than penny wise and pound-foolish if you pass up an amazing new career opportunity to keep an extra little bit of income. No matter how much money you make, spend 25% less to support your life. It’s a guaranteed formula to be less stressed and to always have the flexibility to pursue your dreams.

When I started working after finishing school, I had two part-time jobs and in my free time I interned in the industry I wanted to be in. When someone asked if I was working on a given day, my answer was, "does that day end in 'Y'?" For my goals, interning was the best way to land a full-time job, so I worked crazy hours, and did my best to set myself up for a better future. Don't get me wrong: I did take days off and went on vacation, but overall, I worked a lot. I knew many other people who did the same, and it just seemed like a given for my age in NYC.

Working a million hours did not mean I earned much money, and New York is very expensive. When 70% of one's income is going to food and shelter, it's very difficult to save money, but I was able to save a tiny amount from each paycheck, and I often saved the money my family gave me as gifts. I was not in a position to earn less, and I know I turned down opportunities which may have turned out to be great because I couldn't afford it, and I wouldn't ask my parents for any additional help. I needed that time to learn to stand on my own, and I'm glad I went through it, because it made me grow up and was a quick lesson in fiscal responsibility.

The entire time I was struggling, I promised myself that when I got a "real" job, I would continue to live on the same amount of money, and save the difference between that and my new income. I probably told myself this every single day. But when that new job came along, I did not follow my own advice! I needed new clothes for work, so I told myself I would start saving after the second paycheck. My family had done so much for me, and I wanted to treat my mother to an expensive dinner as a thank you, so I would start saving after my third paycheck. I had denied myself all kinds of things that I now deserved, so I would start saving after the fourth, no, the fifth paycheck.

That was the time when I most needed to heed the advice of saving 25%, but it became more and more difficult. After all those weeks, the spending had become a habit. It took much more strength to pull down to a lower spending percentage than it had ever been to make ends meet when I was struggling. Suddenly, my knee-jerk thought of, "I can't afford that," had turned into, "should I buy that?"

As I've gotten promotions and raises, I have found myself falling into the same trap. Each time, I tell myself I will not increase my spending, and each time I find myself spending more, and then forcing myself to pull back. I think this is a very common problem many, many people face, and for some people, that results in credit card spending to make up the difference between what one can afford and what one thinks she should buy right now. I've done it over and over, and I'm pretty aware of my money, so I know how easy it is to fall into this behavior.

The best trick I've learned is to use an online savings account. When the money pulls from my account before I even see it, I trick myself into believing I'm back to struggling financially, which forces me to be more careful with my money.

Even with this set-up, I'm not always perfect -- but who is? Luckily, after all these years, I'm so used to spending little that when I do go overboard I get a nagging thought in the back of my mind telling me that I've spent too much money, and I leave my wallet at home for a few days to force myself back on track.

Mistakes are going to happen, but the important thing is just always getting back to one's goals as quickly as possible. I try to remember that by closing off those spending doors now, one gives herself more open doors in the future.

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