Saturday, September 15, 2012

Living Well On $25k Or Less: Financial Goals

It's hard to save money. It's even harder when your income is in the lower brackets. It can feel impossible to save up enough money for a new car, a house, retirement or a vacation when you barely have enough money to pay your bills on time. Unfortunately, delaying saving for the future until that distant day when you earn six figures might mean that you won't get there. The good news is that it is possible to not only save for, but meet your financial goals, even when your income level is low.

First, think about where you want to be. Daydream. What do you think will make you really, truly happy? What needs do you foresee? Here are some common goals:

* Buy a house.
* Get married.
* Have a child.
* Take a trip.
* Start a business.
* Replace a car.
* Remodel a room/whole house.
* Go back to school.
* Retire.

Next figure out a realistic time frame. How long do you think your car can last before it needs major, costly repairs? How long do you think you will be able to and enjoy working? 

Put a dollar amount to each goal. It doesn't have to be exact, but do try to be reasonable. Now, figure out how much you will need to save from each paycheck to meet that goal. Is that amount reasonable for your current budget? If not, can you push back the date or increase your income through a part time second job?

Make a reminder. If you want to buy a house, post pictures of houses you love around your apartment. If you want to take an extended hiking trip, post breath-taking scenes. If you're expecting a child, get those ultrasound photos up. Look at them often and allow yourself to daydream about when your goals will be met and how happy that will make you.

Open an interest earning account that charges no fees for small balances. You don't want to pay $3/month while you are trying to build up your balance. A savings account is great, but you could also purchase $25 savings bonds or open a CD that allows deposits. For the latter two, make sure that you won't need the money before the funds are available; these are best for moderate-term goals, 3-5yrs out. 

Make it automatic, if possible. I've found that it is much easier to save money if I don't see it. I save for retirement automatically through my employers 401k. Since it comes out of my paycheck, I never miss the money, but it sure adds up fast. Ask your bank about setting up an automatic transfer to your savings account. Otherwise, treat this savings goal as any other bill. Pay it before you start spending on entertainment or other non-essentials. 

Now I know that it is not easy to come up with big amounts of cash when you're making a smaller income. Saving a small amount regularly adds up very quickly, however, and it's relatively easy to do. Here are some ways that I have had success finding money to save:

* Clip coupons for groceries. Deposit the amount saved into savings.
* Redeem rewards points for cash back. My card nets me $20 about every month ($240/yr).
* Tax refunds.
* Birthday money. I only do this if the goal is really exciting for me (taking a vacation vs buying a new commuter car)
* Sell stuff that you don't want/need. Old books, movies, and collectibles can earn you a bit of savings money and you'll have more space.
* Whenever you get an extra paycheck in a calendar month, put at least half into savings.
* If your employer offers a match, take it (401k).
* Cut unnecessary services such as netflix, even if for just a short while.
* If you pay off your current car payment, continue to make payments, but into your savings account. Same with credit card bills.
* Fill out rebate forms and deposit the checks, however small.
* Figure out how much it costs in gas to commute to work. Bike or walk and deposit the savings.
* Live below your means. Buy cheaper clothes than you can afford. Rent a cheaper apartment (as long as it is safe enough). Drive your car a little longer before replacing. 
* When you get a raise, deposit that little extra bit each paycheck. If you don't plan to save it, you'll quickly adjust your spending to use it all.
* Buy goods (groceries, clothes, household items) on sale and deposit the savings.

It may not seem like it, but these tiny amounts add up. If you use $10 worth of coupons per week, that is $520 a year. If your car gets 20 mpg and you commute 4 miles each way by bike, you'll save 2 gallons of gas a week ($4/gallon currently) for a savings of $32 a month. Several tips can quickly add up to a sizable deposit and get you closer to something that means a lot to you. 

So how does this work in real life? Actually, pretty well.

Three years ago, Trucker and I decided that we wanted to buy a house. We wanted space, hardwood floors and a huge backyard for gardening. We spent this time stretching our dollars to the limit. We deposited money into our savings account as soon as I got paid, and learned to live on what was left. Sometimes we didn't go out to eat when we wanted to. We learned to enjoy cheaper or free entertainment. Any extra money we received was deposited into our savings account. Sometimes it was hard. Sometimes we felt like we'd never save enough for closing costs and down payment.

Yesterday we closed on our house. It is roomy, and has hardwood floors and a big backyard for me to plant veggies. We were able to reach our goal through hard work, even while our income was well below the $25k mark. 

Don't wait until you get a better job to start saving for your future. Start now to work towards the things that matter to you.

So let's hear your story. What savings goal have you met? What did you do to make it happen?


  1. Here's something I've done: For one of my part time jobs, I opened up a separate account that has no fees and my checks are direct-deposited into that account. The account is in a different bank than the one that has the the account I normally use. That way, the little bits are stacking up and are away from where I can easily get at them.

  2. That's a great idea. Making it a little more inconvenient to withdraw money gives you plenty of time to change your mind. :)

  3. My husband makes about 14-18K per year and I make about 7-8K per year while going to college. We closed on our house back in July. In order to do this, we pinched pennies on groceries, buying only what we needed. We found ways to save on everyday goods, often making our own or making do without. We handwash clothes and line dry them, making our own laundry detergent. At the time we decided to buy a house, we were living in a basement apartment that was $450/month. To save money, we moved in with my mom, paying her $280/month. We got cheap cell phones (tracfone monthly value plan), and didn't bother with cable TV. We had dinner out less often. We didn't even live with her a year before we closed on this place. Since then, we've gotten rid of the truck and started riding the bus (buying monthly passes for the discount) and biking everywhere.

  4. That's great! You sacrificed the things that weren't as important to you as a house and it worked! When we were saving for a house, I liked to think "Do I want this ___(latte, book, pizza) more than a house?" The answer was, obviously, "No!"

    Congratulations on your house, Angela!

  5. Thank you very much and will look for more postings from you.


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