Guest Blog: How to Live & Save on $40,000 a Year
Jarrett Solomon has been in wealth management for almost 15 years at some of the very best firms in the country, and is now a Partner at Connecticut Wealth Management. Jarrett's been published or interviewed in U.S. News World & Report, Investors Business Daily, Money, Hartford Courant, Wall Street Journal, & many more. He's been both a Connecticut Business Journal and Connecticut Magazine 40 under 40. He's also doubled as my best friend since I could walk and talk. Here Jarrett gives advice to young salespeople to help them navigate the challenges of living in a city and not getting paid a lot...
Just like sales, saving money when you're not making money takes diligence, thoughtfulness, consistency, and a process. If we're new to a city or new to living on our own, we have a tendency to want to spend to fit in and/or live past our means. You can always look to the future and say, 'I'll save when I'm making xxx...,' or 'I'll save when I have xxx title,' but you can do little things today that can put you in an even better position when you do get there. Here are some of the top tips, tricks, hints, and rules of thumb you can implement today to maximize the fun you can have...while also maximizing how you live and save:
PAY YOURSELF FIRST – try to save 10% of every paycheck. Move it out of your checking account as soon as it hits. For example, if you make $1000 every pay period, set it up so that $100 gets moved to a separate account right away.
OBSERVE RATIOS – while not hard and fast rules, the ratios below can be helpful to determine whether you are spending too much on certain things. If possible, try to keep: Housing costs less than 28% of gross monthly income, consumer debt (auto loans, student loans, etc.) less than 20% of net monthly income, total debt less than 36% of gross monthly income
SAVE INTO 401k – if you are offered a 401k through your employer, take advantage of it! Contributing will not only build up your savings but will also reduce your current income tax liability. How much you should contribute should depend on your cash flow, but at the very least try to do an amount that will maximize how much of your contributions are matched as this is one of the few changes for free money.
AVOID CREDIT CARD DEBT AT ALL COSTS – the interest on credit card debt is the silent killer. If at all possible, please make sure you pay your credit cards off in full every month. Not only will this prevent you from being subject to insidious rates, it will help build your credit and help you secure better rates when you apply for other forms of debt in the future (i.e. mortgages, car loans, etc.).
AS YOU GET PAY INCREASES, KEEP YOUR SPENDING THE SAME AND INCREASE SAVINGS – if you get a 3% cost of living bump to your salary, have that additional 3% go to savings (401k or elsewhere) and not spending. This is the easiest way to increase your savings and not impact the lifestyle to which you had grown accustomed.
MANAGE YOUR EXPENSES – take a hard look at your expenses and see what is a “must have” and what can be trimmed. Living on $40k in a city is tough but can be done if you maintain a laser focus on examining your expenses and breaking them into needs versus wants.
I don't want to pretend like all of this is sexy. It's not. This will take patience and determination, but it will make things like car ownership, home ownership, etc. very realistic despite making very little in comparison to the city you live in. You can always wait until you get into your next position to save...but...why?