I apologize for the long wait; life has been crazy (fortunately for good reasons)! We just got back from a trip to Venice for a cruise through the Greek Isles, which was amazing, and I thought it would be fitting to finally tackle your much requested subject of budgeting.
As we sipped on our cocktails staring out at the beautiful view in Mykonos, it occurred to us that we live our life together very differently than anyone else we know. Surely, we had it easy growing up thus setting us up for success in adulthood, but nothing is as simple as it seems. Just because our parents are successful and they taught us the value of a dollar does not immediately mean that we will be successful and that we will know how to budget, save and spend money. Finances are easily taught in theory, but everyone must learn in practice how to not overspend.
So how do two 22 year olds live comfortably off of one lower-middle-class income and save for a new car, a home, children, and retirement all while traveling the world and having a rainy-day fund?
By being extremely money conscientious, that’s how!
First off, start saving for retirement now. It does not matter if you can only put a little bit away, everything helps. And seriously, the sooner the better. In her article, 10 Bits of Financial Advice for Millennials, Barbara Whelehan from Bankrate suggests putting away 7% of your income automatically beginning with your first job, and increasing that to 15% as soon as you can afford it. Whether you save through the company you work for or independently, set up automatic payments to your retirement fund and forget about that money. As far as you are concerned, your only income now is what you have left.
We have only looked into how much we have saved for retirement a few times. We know the money is there, and we like to know generally how much there is, but we will never touch it unless we ABSOLUTELY need it so we do not view it like our bank accounts or other investments.
Secondly, we do not rent a home larger or nicer than necessary. Being in the military we do have housing paid for, but there is only a set amount that we are given depending on rank and time in service. I have met quite a few people who have decided to rent places that are outside of their housing allowance (OHA). I would understand this if we were not allotted enough money to rent a comfortable home, but that is not the case. We have a spacious 2 bed, 1 bath with a new kitchen and a nicely sized fenced yard in a fantastic location without coming close to maxing out our OHA. Spending any money on housing above what is given to us is just a total waste. Be reasonable, and be willing to compromise. The homes we live in throughout our twenties and even thirties are probably not the homes we are staying in forever so they do not need to be perfect or dreamy. They just need to be functional.
Adding to not spending too much on rent, it is important to be conscientious of your bills. Try your best to turn your lights off when leaving the room. Keep your house a little cooler in the winter and warmer in the summer to save on heating and cooling. If you have radiators, remember to turn them off when you leave. Even opening the blinds and letting in the natural light to heat and illuminate your home can make such a huge difference. Also, be aware of how long your showers are if you have a water bill. Unplug computers, televisions and gaming consoles when they are not in use or are fully charged. It can be surprising how much money you can save just by making these small actions habit.
Next, be aware of how much gas you are using. Because I am not working, it is wasteful and unnecessary for me to drive to base every day. Unless I have errands to run, I stay home. That means that unless I have a legitimate reason why I need to travel to base, I am not going to the gym anymore. Instead, I have been pushing myself at home by doing Insanity videos and running outside with our dog, Augi. It is amazing how much money we save each month on gas now that I only need to fill my car up occasionally.
AVOID DEBT LIKE THE PLAGUE. This has helped us more than anything. We have no debt. No credit card debt. No car payments. No student loans. Nothing. That means, instead of paying off all of the money we have already spent, we get to save for all of the things we would like to have in the future. Now, you are probably thinking, not everyone has parents that can pay for their college! Okay, yes – we have parents that have helped us with college. But no, they did not pay for it all. I worked my ass off in high school to earn a pretty hefty scholarship and my husband still has an unused GI Bill because he has used tuition assistance and FAFSA to help fund his Bachelors which will be completed very shortly.
Through scholarship, tuition assistance, financial aid and grants, massive student loans ARE avoidable. Doing everything you can to reduce your loans to as little as possible will help you so much later on in life. Also, swallow your pride and go to a less expensive school if needed. I have been looking into graduate school lately, which varies GREATLY in cost. I have found a few programs that I like, spanning from an expected $20k to over $70k total for obtaining a Masters. Yeah, I want to go to the school that will cost $70k, but no I am not going to because that is just a ridiculous amount of money for us to spend at this time.
Furthermore, we pay off all credit cards in full each month and we do not finance cars. For some reason many of our peers have argued with us telling us that we need “good debt” to have a good credit score. From someone who currently has a 780 FICO credit score and has never had any “good debt,” I assure you that this belief is totally bogus. That being said, why do so many people think that it is affordable to make a car payment? It has not made much sense to me that so many people choose to pay interest on something that is going to immediately depreciate in value. Why not buy a used car for a few thousand dollars in the beginning, owning the car completely, and then make payments to yourself instead of a bank to save up for your next car? Okay, no you are not going to be able to get that brand new pickup truck, but do you really need it? Or do you just want it?
Speaking of need versus want, we keep a “strict” budget. Take your monthly income and subtract how much you pay for all of your fixed bills. Rent, monthly payments towards debts (cars, student loans), phone, Netflix, gym, internet, etcetera. Next, look at how much you have paid on your unfixed monthly bills, such as electricity, gas, and water. Budget a higher than average amount for each of those and subtract that from your monthly income as well. Hopefully you have something left for food, household goods, gas and spending money. We have a whiteboard that we use to keep track of how much we are spending in each of these categories, plus a category for travel. We have a budgeted amount for each; if we have money left we write the number in green, and if we have gone over budget we write what we “owe” (to our own bank account) in red. I put “strict” in quotations because we believe that it is important to have some wiggle room and we allow ourselves to go over budget when needed. However, we have a contingency built into our budget by low-balling our monthly income from the very start which alleviates us occasionally going over budget.
Keeping track of our budget this way has helped us recognize the difference between what is needed and what is wanted. For example, we want a butter dish, larger cereal bowls and a few serving bowls, more curtains for privacy and a new vacuum since ours has pyrotechnically deemed itself unsafe. However, we have already gone over our household goods budget for the month because we needed to buy new lightbulbs, detergent and cleaning supplies. We really do not need the dishes, we can use the German rouladen shades for privacy, and we can beat the two rugs we own out when necessary until we are able to buy a new vacuum. That is at least $200 in savings right there.
Save on your phone plan. We actually do not even have a phone plan right now. We pay for minutes so that we can make phone calls and texts, but we have no data and no monthly bill. There are so many places that offer free wifi, and we have a GPS. It is a rare occasion that we actually miss having an unlimited plan; it took some adjusting to but we save an exuberant amount of money this way. Throughout the past 6
months we have maybe spent $75 on our phones, which is less than what we used to pay per month.
Make friends with other pet parents to avoid paying for a kennel. We have developed a great relationship with one of our neighbors who has a dog the same age as ours, and let me tell you, they are the best of friends! Whenever we leave town, our neighbor is more than happy to let us drop Augi off at her place – and we do the same for her.
Do not pay for a gym that you will not use. Firstly, if you are in school, do not pay for a gym. You are already paying for the gym on campus through your tuition, so why pay even more money to have to drive somewhere off campus to work out? Surely, the university gym can be crowded, but it is already paid for and a little patience cannot hurt. If your school, workplace or apartment complex does not have a facility for you to use, do not opt for the biggest, flashiest gym either. Pick one that offers what you are looking for and do not pay for the extras you will not use. If you just want a place to get a good workout in and that is all, do not pay for Lifetime Fitness. If you are never going to go to classes, then look for a gym that has a cheaper monthly rate that does not include unlimited fitness classes. Finally, if you are not going to go to said gym at least three times per week, do not pay for it at all. You do not have to pay for exercise, you can work out at home.
Do not go out to eat or to the bars too often. I do not have to tell you that eating out and partying on the weekend is expensive. Instead of eating out, learn how to cook some of your favorite dishes at home, and instead of going out to the bars, have a house party with your friends. Of course you will want to treat yourself from to time, and you should! But you should not be eating out more than once a week or going out more than once a month (we probably eat out once every two weeks and go out once every quarter). If you are used to spending a lot of money on restaurant bills and bar tabs, you will be pleasantly surprised with how much cutting back can save you!
And Lastly, Travel Smart. We love to travel, but we cannot afford to go everywhere and do everything. In order to afford to travel like we do, we must make compromises and be honest with ourselves. For example, we do not spend too much time in one place. We know ourselves, and we know we do not care to see every landmark and every museum. Just because Rick Steves (not knocking him – I love his travel books) tells us it is a beautiful important cathedral, does not mean that we are going to take the time to go to it. I have done the museum thing, the castle thing, and the cathedral thing many times. I love them. They are beautiful, but after a few, they are all the same. We no longer feel the need to fall into every tourist trap when traveling, which has helped us save time, money and have more memorable vacations.
Additionally, we take advantage of budget airlines and hotels – you can even save more money if you are willing to stay in a hostel. We also book in advance as much as possible. We know that we like to cruise, and we were able to save a lot of money by booking months ahead of time. We even have one scheduled for next year already. We also only cruise with Royal Caribbean International 1) because we believe they are the best, and 2) because we want to take advantage of their rewards program. We do like to kick back with a beer, cocktail or glass of wine, but as you probably already know, an alcohol bill can rack up rather quickly. We have our eyes set on that Diamond Club (which we will achieve by our early thirties) and we will never need to pay for an alcohol package on board again! No, we are not saving that money now, but we will be very thankful when we are a bit older.
One thing I do struggle with is shopping. I know how to shop for sure, and I could spend a lot of money on little mementos if I had it. In order to avoid this, I budget for a souvenir and have adapted the hobby of collecting christmas ornaments from everywhere I travel. This not only satisfies my need to shop for a memorable trinket, but also makes it so I have one of the most beautiful and meaningful trees during the holiday season (not to mention I do not have to spend money on other random ornaments which can be very pricey).
How do we live such a comfortable life and get to do all of the things we do? We save and we don’t spend money where we don’t need to. Saving is our number one priority, and traveling while we are in Europe is our second. We have our eyes set on the American Dream with a huge dose of Wanderlust. We want it all, and we will have it all because we are willing to make sacrifices when we are young.