One of my goals for 2017 was to have a savings rate of 55%. Considering the average person in America saves a measly 5.7% of their salary—or $5.70 for every $100 in after-tax income they make—it is fair to say that I am setting myself up for success.
I have written numerous times about the importance of having a high savings rate. If this topic was not so important I would not keep writing about it several times a year. It does not matter how high your income is, it matters how much you save. This is the ONLY way wealth is generated, unless you are fortunate enough to have a large inheritance.
Today I want to share some ways I am saving over 55% of my salary which will allow me to reach my goal of $24,000 in investments by the end of the year.
As an international working in the U.S., I do not have the luxury of living at home with my parents. While many millennials are realizing that living at home with their parents is highly beneficial due to the enormous student loans we are required to take out for education these days, I am stuck with paying rent.
Rent is arguably one of the biggest expenses on anybody’s budget. For me, rent accounts for roughly 20% of my after-tax income. Luckily, this amount is a fairly low percentage as I live with a roommate. Should I have lived on my own, my rent would be roughly $500 higher before I add in the cost of paying for utilities.
Having a roommate increased my savings rate by roughly 13% and added an additional $6,000 into my bank account!
Food is one of those budget items that people can easily blow in a month. When I lived in college I found myself buying food almost every day despite my house having a well-equipped kitchen. This habit came more out of laziness than anything else and it cost me hundreds in food expense on a monthly basis.
Ever since I began working and cracked down on my spending habits, food has been one of the hardest items to cut back on. I personally love eating a good meal, but what I have found is that you can cook a restaurant quality meal at home for half the price. Not to mention the quality of the food may also be better!
One of my roommate and I’s best purchases for our apartment was a slow cooker. That thing is simply amazing! I usually toss some meat in it overnight with the appropriate seasoning and when I wake up my food is ready to go.
By cooking my own food I have reduced my monthly food budget from almost $400 a month to $200 a month. This increased my savings rate by roughly 5% or $2,400 a year!
Entertainment is a very vague category. It can involve going to the bars, eating out or even a vacation. Just like food, this is a category that destroys your savings rate if you do not carefully monitor it.
Some of the best ways to cut cost in this category are to find free actives around you to go to. As I live in a city, there is always some cool events going on. When I was in college I went to a free concert that had bands such as Imagine Dragons playing, before they were famous, that was a ton of fun. Finding events like these can be just as much fun as a $100 concert and it is a lot easier for the budget.
Travel can also be a very expensive category. Whether it be local or foreign travel, try to see if there are credit card bonuses you can use. Mad Fientist has a credit card rating system with their reward value on his site that I recommend checking out as it can amount to hundreds in savings. I would also recommend visiting places where you may have a friend as it can substantially reduce your price of lodging.
I estimate that free activities and travel hacking will save me close to $2,000 a year or another 4% increase in my savings rate.
Just by cutting my cost in these three categories I am able to add an additional $10,400 to my savings and increase my savings rate by 22%. When I add in my 401(k), HSA, and IRA contributions, I should be well over my goal of 55%.
Challenge yourself and reduce your expenses; your wallet will thank you later!