When I was 24 years old I had one goal, to move out of my grandmother’s basement. While I enjoyed the perks of living at home – no rent, home-cooked meals every day, and free cable – I had absolutely no privacy. The laundry room was right outside of my door and you had to walk through my “apartment” to get to the boiler room and my grandfather’s closet. On top of it all, my grandmother’s house was the hub of our extended family. At the time I just wanted a little space. I knew that I would eventually go to graduate school and living at home with all the hustle and bustle, would lead to a less than ideal study environment.
The only snag in the equation was my income. I recently started a new job where I was making a whopping $24,000 before taxes and no overtime. In my mind, all of my friends were making twice that amount and living on their own. It was downright depressing. I could not afford market rent in a decent neighborhood, and a roommate was out of the question – why live with a stranger when I could live with family. I decided to apply for a Mitchell-Lama co-op (best-kept secret in NYC). At the time an unfurnished studio (no appliances) was $5,000 and maintenance was based on your income. I just needed the money!
Assess the Situation
First, I did an HONEST assessment of my spending. I wrote down every expense I made over the previous three months and compared it to my income. I realized a few things, not only had I not saved a penny since I graduated from college at 22, I was actually spending more money a month than I was taking in! My expenses included my monthly metrocard, cell phone, credit card bills, student loans, tithes and lunch. But that alone did not amount to my salary. I realized that every time I got paid I went shopping for clothes. Whatever was left in my account after I paid my bills was fair game.
Create an Aggressive Plan and Reduce Expenses
I decided that if I wanted to move out in six months, I needed to save $5,000 fast, and the only way to do so was to put myself on an aggressive plan. With each paycheck, I immediately withdrew $500 and put it in my savings account. I also put myself on a tight budget. After taxes, my monthly income was $1400 and I dedicated $1000 per month to savings and had $400 to live on. The only way I could manage was to be extremely thoughtful about every dollar I spent and to make sure I was getting the best deals on everything. I got a better deal on my cell phone plan, found the cheapest place to do my hair, and reduced my lunch budget to $20 a week. I did give myself a budget of $50 for entertainment/eating out. This way I still hung out with my friends but I didn’t go to every “boom boom” I was invited to.
To make a long story short, in six months I had $5,000 saved. So I applied for the apartment but there was nothing available. I was devasted. It took another 18 months to get an apartment in that building. But a funny thing happened, after learning to live on $400 a month for six months, when the time came to end my extreme saving, I realized I didn’t need the extra money and so I just kept on saving! When I finally decided to stop (12 months after my six month stint) I had $13,000 in the bank. In the end when I finally moved in, I had the money to buy the co-op, furnish the place AND I used the extra money to supplement my cash flow when I started graduate school a month later!
The moral of the story is, if you want to save money FAST, you have to:
1 – Be aggressive
2 – Make saving your absolute number one priority
3 – Cut your discretionary spending in half (at least)
I never knew I was capable of living off such a little amount of money until I tried. Once I put myself on a financial timeout, I was able to curb my bad habits and develop the strong willpower I have today.