After my first summer job as a day-care assistant in high school, I followed my father's advice and opened a Roth IRA with a $250 deposit and rosy dreams of retiring at 30 years old (hey, I was 16!).
Being somewhat of a perfectionist, I didn't take this responsibility lightly. I knew from my dad's ongoing retirement lectures that to retire at all, I would probably have to contribute significant money for years to come.
With that in mind, I made a promise to myself: As soon as I got my first salaried job (that would of course net me six figures per year and be hopelessly fabulous), I would start maxing out my Roth IRA. Between the time I opened the account and the time I started that job, I would contribute what I could, which ended up being another couple hundred dollars each year. While it wasn't much, every dollar was a dollar closer to being able to retire.
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Flash forward seven years, when I landed my first salaried position as a PR associate for a gross income of $28,000 — which, after taxes, left me with just under $2,000 per month to live on. Needless to say, my career was anything but "six figures and hopelessly fabulous."
It's hard enough to just get by on $28,000 per year in Atlanta — even harder to save the just around $420 a month it would take to max out my IRA at $5,000 per year. (The 2013 limit is now $5,500 per year.) I knew that I'd have to put forth herculean effort to achieve this goal, but I somehow made it happen, and I've managed to max out my Roth IRA three out of the past four years. And, despite the fact that my salary is nearly double what it used to be, I still live my life by the principles I share below.
If you feel like I did — like you couldn't possibly save for retirement, because you just don't have any money — you aren't alone, and it isn't impossible. This is how I did it, and how it may be possible for you too.
1. Change your priorities
The truth about living on a small salary is that you should prioritize what you truly need and want, because a limited amount of money only goes so far. If you don't prioritize actively, you will probably do it subconsciously, meaning you're likely to prioritize what feels good and is convenient, rather than things that require greater planning.
For my first year in my salaried job, my priority was to max out my Roth IRA. This was no mere dream, or a hope that the money would show up somehow. It was a deliberate choice. Making saving a priority (the priority) meant that not only did I cut back on the obvious financial drains like dining out and clothes shopping, but I had to overcome my subconscious priorities, the ones I didn't even realize I had — like maintaining appearances.
Six months into my new lifestyle, one of my girlfriends got married out of state and invited me to the nuptials. I totaled up the cost of the weekend affair, including plane tickets, hotel room, rental car, food, and gifts: Roughly $1,500. It would have been so easy to say yes, suck up the costs and go have a good time. I wanted to do what was expected of me by the bride, my friends, and my ego. But I also knew that it would take away from honoring my priorities.
So I didn't go. I saved instead. The bride was understanding, but it didn't soften the blow I felt to my ego. With mixed emotions, I sent along a card and a gift certificate to a store on her registry, knowing in my gut that it was the right thing to do. When you have decided that saving is a priority, your goal may come at the expense of some obvious — and some not-so-obvious — lifestyle choices. You should prioritize saving anyway.
2. Develop a healthy obsession with budgeting
I inherited an interest in personal finance from my grandma and had picked up a few books on the subject, so as soon as I got my first biweekly paycheck (which totaled less than $1,000), I knew that I had to start budgeting or I would be in a world of financial trouble. I didn't love the idea, because it sounded tedious and restricting, but with that check in hand I suddenly understood how necessary it was when living on a small paycheck. I set up my budget online in a program similar to the Money Center and developed a daily obsession with checking my financial health.
Online budgeting was a revelation. I could see in real time how much I was spending, what percentage of my paycheck went to various categories, and how one irregular bill or spending spree could pull me off my path for months.
Prior to starting a budget, I assumed that my checking account could handle an unexpected purchase. But even though I had never overdrawn before, I had never had such aggressive savings goals. Turns out, my checking account was just as finite as my income, and knowing what was going on — bills, rent, food, and other expenses — prevented a few financial upsets.
The real benefit of budgeting, to me, was the clear structure and accountability required to save $420 per month for my IRA and keep my nonessential spending around $200 per month. When I made a mistake, I could see it immediately, and I could see its impact on my goals.
If you have a major goal that requires saving a large percentage of your income, active budgeting may bring a new sense of mindfulness to your spending patterns.
3. Make saving automatic
Knowing that my willpower is sometimes lacking, and that goals like mine take months of consistent action, I couldn't leave it to chance to remember to make a monthly contribution to my Roth IRA.
That's where automatic transfers kept me on track.
I set up an automatic transfer from my checking account to my Roth IRA for that $420 a month. It made the saving process effortless — once I set it up, I truly didn't even notice the money leaving my paycheck. It was also fun watching the account tick up over time, because seeing progress feels good.
If you're aiming to save for any goal — retirement, a down payment on a home, your child's college fund, or even a covet-worthy car — you should make the savings automatic. And most important: Once the transfer is made, you shouldn't touch it!
4. Simplify your life
The final thing that really kept me in sync with my savings goal was to avoid shopping — not because it was a budget-buster, but because it fostered a sense of not-enoughness. I tried a stint at being frugal; shopping the sales and searching out deals on food, entertainment, and other activities. What I discovered was that a lot of deal-hunting activities are attempts at "keeping up with the Joneses on less," and, not surprisingly, they made me feel like a lesser version of the Joneses.
That feeling did not make me want to save money for my future — it made me want to spend more money on "deals"!
Instead of succumbing to the pressure to look like the Joneses with (discounted) designer clothes, (daily deal) fine dining, and (flash sale) resort packages, I decided to radically simplify my life and appreciate what I already had. In order to rid myself of this trap, I unsubscribed from virtually every "deal" website, including the daily deals as well as weekly coupons from my favorite retailers.
For most of a year, I let my hair grow out, I made new outfits with clothes already in my closet, I rearranged my home decor to change my surroundings, I reread old books that I loved, and I got comfortable with living on less.
Deprivation is certainly no easy feat, and I often felt like I was staring down a dark, hard road that wouldn't end for 40 years until I retired. I wondered how other people seemed to be buying music festival tickets, traveling for weeks in Europe, and living in chic, well-decorated apartments — while I stayed home on my 25-year-old couch and made yet another meal out of boxed mac and cheese. And more profoundly, I resented the life choices I made that landed me in a job with so little pay and so few opportunities for advancement.
Despite that, I knew that I had to choose — out of desire and not out of necessity — to pass up all of that to do what I genuinely wanted to do.
One thing I did to ease this pain was to start a regular yoga practice. I can hear the eyeballs rolling from here, but a studio in my area offered $5 community classes and I went twice a week for that whole year. There, I learned to accept the moment, appreciate what I had, and find peace in simplicity.
Now that my income has nearly doubled from that first savings push four years ago, I can afford a lot of the things I once coveted. I can say yes to concert tickets, and I can join weekend trips without worry — all while staying on track for retirement.
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