A simple budgeting exercise helped me save $90K in three years

  Photo by  Jan Kahánek  on  Unsplash

Photo by Jan Kahánek on Unsplash

Disclaimer: I am not a financial advisor and don’t play one on the internet. Consult with a certified financial advisor before making any investment decisions.

Thanks to my uncle...

In October 2011, I signed a contract for $65,000/year plus a $10,000 signing bonus.

On the one hand, I was elated. I was about to graduate from Indiana University in May, so the most I had made to this point paled in comparison. Plus, this was to work at a prestigious bank in my dream city, Chicago.

On the other hand, I was nervous. I knew I wanted to save a lot of money, but how was I supposed to do it? What kind of accounts should I set up? How much would I even have leftover after taxes?

Once word about my offer got around to my family, individual members started reaching out to congratulate me. Fortunately (but not surprisingly), one of them was my Uncle Jeff.

“Hey Mammoo, congratulations on your offer!” he told me over the phone. “So proud of you.”

“This summer before you move up to Chicago, you should stop by my office and we can make a budget for you.”

I jumped all over it. My uncle has owned and led his own wealth advisory firm for years, so I knew it would be helpful to get some direction from him.

I did not know this would be one of the most helpful exercises I’ve ever done. Imagine that as a Finance major...

The most important principles

Before we get into the details, know that this is not about the actual numbers. This is about sharing strategies and principles that worked for me.

People avoid talking about money like it’s the plague, but understanding and managing money is one of the most important skills you need to live on your terms.

How are we supposed to learn if we don’t make it mandatory in school and we’re not willing to talk about it?

Back to the story…

That summer, I sat down one-on-one with my uncle for two hours. We started with a blank sheet of paper and by the end, I had my own personalized budget (pictured below) with exponentially higher confidence around how to manage my money.

Matthew Budget 2012.jpg

I won’t go through the budget line-by-line, but I do want to share the most important principles he taught me that day.

1. Details now, Freedom later

We laid out some line items that I wasn’t even thinking about, like Gifts for family and friends and Dry Cleaning.

We also budgeted for spending that I thought you’d just try to limit as much as you could (Weekend/Entertainment, Clothing) or that you could spend only if you had any left over (Travel).

This was transformational. Not only could I accurately predict my expenses, I could also spend money guilt-free on my favorite things like eating out, drinks with friends, sports and concert tickets and vacations.

Knowing it was all in the budget gave me incredible peace of mind.

2. Take free money

The bank I worked at had some awesome programs for its employees:

  • Matching your 401(k) contributions up to 5% of your salary each year 
  • A stock purchase program, offering employees the option to purchase company stock at a 15% discount

So 5% of every paycheck went to my 401(k), and every quarter I used 5-10% of my paycheck to purchase discounted stock.

Both of these added up to substantial amounts after three years.

3. Automate your savings

I’m 100% sure that without automating my savings activity, I wouldn’t have saved as much as I did.

There would have been some months that if I took a trip or bought a gift, I would have scaled back the amount I put away.

So in addition to my automated 401(k) and stock savings, we set up my checking account to automatically transfer $1,100 to a Schwab brokerage account every month.

In line with getting detailed upfront, I could spend my money freely knowing that all of this was happening for me automatically.

Create your own budget

Almost three years later, I had about $89K saved up.

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I had two big goals around money when I graduated:

  • Buy a condo in Chicago
  • Start a business

This exercise allowed me to do both by age 25.

If you want to create your own simple budget, click here to download a template we put together.

Or there are several apps like Mint that connect your actual bank and credit card accounts to track your spending and net worth.

Remember, my numbers aren’t important. What is important?

  1. Details now = Freedom later
  2. Take free money
  3. Automate your savings

Disrupt the Cycle

If work and life feel separate, if you get substantially more excited for life outside of work, it’s time to make a change.

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