After we started our first jobs out of college, we fell victim to some serious lifestyle inflation. We were living large by traveling several times per year, buying clothes and electronics just for fun, and eating out almost every day. Of course we budgeted for these expenses, but we didn’t realize we were left with little leftover at the end of the month and living paycheck-to-paycheck. We just wondered where all of our money went!
Despite all of this, we thought we were smart with our money. We paid off our credit cards every month. We never bought anything we couldn’t afford, although there’s been some close calls! No matter what we always stashed away an emergency fund. Aside from those Personal Finance 101 principles, we thought we were free to spend the rest of our money. There’s no harm in living a little in your twenties! That’s what social media and advertisements told us. Have as much fun as you can before you hit thirty and have to start worrying about kids and mortgage payments.
At some point, we looked at our paltry savings accounts and wondered if we were going overboard. We thought about our future goals and how much money it would take to get there. Things like our cabin in the woods, early retirement, and side projects we’ve considered but never pursued. How can we possibly save for these goals if we fritter away our hard-earned money? We found examples of people who have created the life we envision without going broke, like Frugalwoods and Our Next Life. We were inspired to get our act together and start saving as much as we can.
Goal #1: Deflate Our Lifestyle
The easiest way to save money is to not spend it. Our experiment in frugality last month showed us how easy it is to cut back our spending without feeling deprived. Now we want to see where else in our budget we can cut back. Most importantly, how can we maintain a savings mindset in every aspect of our life?
Could we ban buying new clothing for a year? Can we take the bus or bike to work? How will we keep our utilities down when we move to our new apartment? There are so many ways to reduce spending, but the hardest part is making the change permanent. Sometimes it’s hard to see the benefits of these kinds of changes, especially when the latest new shiny distracts us and our wallets. We know how to do it, but we have to remember why we’re doing it. With our goals in mind, we won’t miss the small luxuries we used to indulge in and we’ll get the satisfaction of seeing our savings skyrocket.
Goal #2: Retirement Savings
We’ve had access to retirement accounts since we entered the workforce, but it took a couple of years for the importance of saving for retirement to kick in. We were young and dumb, thinking we needed that money now rather than stashing it away for the future. Unfortunately our generation will likely take a hit on the Social Security safety net, so it’s up to us to save for a comfortable retirement. Now we’re kicking ourselves for waiting so long! As much as we would like extra money for travel or upgraded gadgets, our future selves need the money more.
This year we both increased our retirement contributions through our work-sponsored plans. We are funneling our freed-up debt payments into an IRA, which will allow our savings to grow even faster. We’re hoping to max out our contributions in the next couple of years, relying on “lifestyle deflation” to ride through the discomfort of seeing a smaller number from our paycheck. After one or two months we won’t even miss the money, and we will feel more secure in our financial future.
Goal #3: Down Payment
We talk about our plans to move to a cabin in the woods a lot. Nothing gets us more excited than browsing Zillow to scope out homestead properties in tiny mountain towns. We’re itching to ditch our urban lifestyle and settle into quiet country life, but the reality is we’ll need a down payment to do it.
We set up a goal to have our down payment saved in 4-5 years. Whether we actually decamp to the country in 5 years is yet to be determined, but having that goal as a starting point has been incredibly motivating. We’ve started finding ways to boost our savings rate to reach our goal sooner. There’s no harm in putting away extra funds, especially since we have no idea what the real estate market will look like once we start home hunting. If interest rates ramp up to 10% (please, no!) we want to be prepared.
Goal #4: Build Wealth
If we manage to deflate our lifestyle, increase our retirement contributions, save our down payment, and still have money leftover, then it’s going straight into a taxable account. We consider this a bonus option for money we could use at a later date but don’t need right now. There’s no point to having extra money chilling in our checking account that could be boosting our net worth. Maybe we’ll decide to pursue financial independence or early retirement. Or perhaps we’ll take a sabbatical to travel the world. Whatever we decide, this money will get us there.
These goals are super scary for us right now. They’re especially scary to put down on paper and come up with a hard number. All those zeros can be overwhelming. It’s hard to shift from a spending mentality to a saving mentality, but we want to hold ourselves accountable to our goals. We’re hopeful that these baby steps will get us on the right track.
What are your financial goals? Are you saving toward your dream home, or planning to give up the daily grind and travel the world? We’d love to hear about it!