Save Until It Hurts

Then Save Some More

You might know (based on a few previous posts) that we have been changing our basement into a home gym (saving ~$75/month in gym memberships).  We’ve now been using our home gym regularly for a couple of months.  As I’ve been in the basement lifting weights, I can’t help but see the parallels between lifting, and our experiences in saving money.

The Wrong Way to Save (and lift weights)

A few years ago, we felt like we were not donating enough.  We know how fortunate we are to make as much money as we do, and we feel obligated to give back to our community.  In total, we were donating <2% of our pretax income to various charities (our church, a local environment focused charity, United Way, Wikipedia, and a couple other local organizations).  One Sunday we were struck by a community initiative at our church and wanted to dive in head first and offer monetary support.  We immediately calculated 10% of our pretax income, and made those weekly contributions to the cause.  Unsurprisingly, we failed magnificently.

It’s the same as lifting weights in my basement. When I decided to start lifting, if I just slapped 315lbs (140kg) on the barbell, I would fail miserably (and probably hurt myself). It takes lots of time, hard work, dedication, and small steps to achieve that lift.

As for the donations, we should have taken our time and made small steps towards 10%. Unsurprisingly, because we lacked a strategy we failed, cancelled the weekly donation and re-initiated it at a much lower level. 

Our New Donation Strategy

We came up with a strategy together to increase the total amount we donate by 1% of our pretax income every year. After we file our taxes (which we did this year on 1/25) we increase our donations based on the previous years’ pretax income.  For instance, we just stepped up our donations to 6% of our 2018 pretax income (an extra $46/week). Here’s a graph of how the previous 5 years have changed with our strategy:

Our rate for 2018 missed 5% due to our income being a bit higher than we thought it would be. If you base it off of 2017’s income, we came out to 4.99%.

You would think that we would have learned the lesson of using small steps instead of diving in too hard too fast when it came to saving money. However, I am not that smart. 

Our 401k Oopsie

Soon after we looked at our donations, I started getting into finances.  I was gobbling up blogs, books and podcasts.  I immediately took big steps, made drastic changes, and jumped head first into the world of Financial Independence.  Right away I more than doubled my 401k contribution from 7% to 15% to maximize the annual contribution. It should have been obvious to me how this would turn out (see the gif above). In ~5 weeks, we started missing the money. Without a clear plan, our spending didn’t change and we were seeing signs of not having enough to support our lifestyle.

Consequently, I reduced the 401k contribution back down… but not to 7% like before… but, down to 6%, a 1% decrease from where I was before!  I was so desperate that I would have reduced it even further, but 6% was the minimum contribution to get the company match and I wasn’t going to give up free money.

A Better Approach

When you lift weights, you add extra weight slowly over time; building up strength is the same way you should save (if you want to increase your chances of success).  The weight you lift should increase gradually, each small increase causes a bit of pain and requires you to strain and push yourself.  But eventually, you lift that bar and lock out your arms, you did it!  Afterwards, you rack the weight, high-five your spotter, and start thinking about your next lift with a bit more weight.  Eventually, the weight you previously strained and pushed yourself to make isn’t hard at all. Today you are stronger than you were before, because you pushed yourself through the pain.

Saving money can be the same way.  You pick out your goal: max the 401k/IRA/Emergency Savings (check out my previous article on where to stash your emergency fund: here), and you start making steps towards that goal following your SMARTER goal plan.  You gradually ramp up towards your desired savings, simultaneously you cut wasteful or unnecessary spending.  $50 off your monthly grocery bill here, $100 off your cable bill there.  You struggle, and strain and push yourself until you adapt.  Finally, after the struggle you hit your target.  You high-five your spouse/partner/pet/self and start thinking about how to “lift” another $10 from your budget into your savings goal next month.  You struggle and strain and push yourself further and further passed each new goal.  Eventually, you look back on your previous goals which are nothing compared to the goals you have ahead of you.

Aim to Save 1% More Every Year

For a person earning $50,000 a year, that’s an extra $500 per year – about $42/month.  If you need some ideas on how to reduce your spending by $50 each month, check out my previous post with a few ideas (here).  If cutting costs is out of the question, earn more money by finding a small side-hustle. You can easily net an extra $50 per month.  Here are 5 ideas you could do “today” to earn an extra $50/month easy:

  • Drive for Uber/Lyft – you could get your $50 in 1 Saturday evening
  • Walk your neighbor’s dogs – Dog walkers are paid $15-20 per dog per 20 minute walk
  • Donate your plasma – you can be paid $20-50 each time and can donate twice in a 7 day period
  • Task Rabbit – do tasks for your neighbors, pick the tasks you want, make $50 in as little as 1 task
  • Fiverr – Use some skill you have and take enough jobs in a month to make your $50

Progress not Perfection

As I head down this journey of financial independence, I am realizing that it is about the journey and not the destination. Small steps towards a bigger overall goal has helped me be more patient in other areas of my life. I don’t have the same draw towards instant gratification that I used to. This methodical process has helped to increase our net worth by ~$100,000 in 18 months.

Be Proud of the Journey

I started lifting weights and focusing on my health on December 17th. I didn’t have much of any experience lifting with barbells or following any program. Because I started with just the bar (admittedly it felt silly at first) I haven’t gotten burnt out or discouraged enough to quit. Because I’ve been taking slow steps, I’ve stuck to this program more consistently than I have ever before. As long as I stick with the gradual steps, I will see results that I have never achieved. Here is how my last 2 months of lifting looks:

I’m proud of the consistent, small increases – this graph is illustrating the process

If I was able to pull my 401k contribution increases, that graph would look similar to the one above. Over a 16 month period, we increased my 401k contribution by 1% every two months. After each small increase, we adjusted our spending and became acclimated to the new level of income. After two months, when we had become comfortable with our new money situation, we increased another 1%. Eventually, we reached our goal to maximize our annual 401k contributions. Something we tried and failed at a couple of years earlier was possible because of the small steps we made as we followed our plan.

We have 4,155 days until we hit our $1M retirement account goal. During those days, we should see our donations hit 10% of our pretax income, which will make reaching our retirement goal even sweeter because we did it while supporting our community. Maybe during that time I’ll hit a 315lb deadlift… it seems crazy to think now, but 5lbs at a time, I know I can do it.

Happy Valentine’s Day!

MB2030

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.