This is a guest post from Pauline of InvestmentZen.com
Getting back in shape financially is just like going on a diet. You want to increase the difference between what you earn and what you spend, just like you would between how much you eat and how much energy you consume. And in both cases, it’s not easy. It even gets really hard if you are way out of shape. But despair not, there are ways to get there faster. Of course, that means drastic changes to your lifestyle. Are you ready for these?
The good news is once your net worth starts to grow and your financial habits improve, you will gain momentum and it will just snowball from then on.
Getting rid of your car
It is quite hard to live in the US without a car. If that means having to quit your job, forget about it. But before you shrug it off and say “can’t do, my job’s too far”, let’s see if it really is. If you are driving anywhere to make minimum wage, that’s not worth it. There are minimum wages jobs right around the corner. Don’t put mileage on your car for a $7.25 paycheck. Walk over to the convenience store, the burger joint or the coffee shop next door, and see if they are hiring.
If your job is worth the commute, how long would it take you to take the bus? Can you carpool with a coworker? Maybe you can use the gym or go for a walk when they finish later than you. The last option, walking or cycling to work, is my favorite. I mean, free exercise, a great way to gather your thoughts on the way in, or forget about your day on the way back home. I used to cycle to work even in winter, you just need a rain paint and a good jacket, so no excuses.
How much money can you save by getting rid of your car? Say you have a $300/month car payment, $100 insurance, $100 gas, and $100 annualized for repairs and maintenance, you are looking at $600 per month back in your pocket! Having a car is costing you $20 a day. If you can take a Uber for less than that, you can even be driven to work in style and save money!
Unless you live in a very walkable neighborhood you’ll probably need a car at some point. But if you can do without from age 22 to 27 and invest $600 a month at 7% annually for five years, you will have $43,229 in your nest egg for a house deposit or to pay off your student loans. Leave it there compounding and do not add another cent until age 60, and you will have $435,410. How’s that for motivation?
Moving back with your parents
I am all for independence and left home at 17 to go to college. There was no way you’d have sent me back at 25, after being used to living on my own for 8 years. My rent back then was around $500, and utilities another $100 maybe. Again, like the car example, that is $600 a month I could have saved.
I didn’t have student loans or high-interest debt that would have justified the sacrifice but considering the average 2015 college student graduated with $35,000 in debt, that might be of interest to you. One caveat to avoid is going out too much because you don’t pay rent. One night out at $50 three times a week, and your savings are gone. Instead, take advantage of your cash flow to wipe away your debt. It should take less than five years.
Relocate to the MidWest… Or Central America
No bias on any destination, well, I actually live down in Guatemala and life is awesome. You would need an online side hustle though, since earning minimum wage here will net you around $300 and that is not the goal of our drastic financial diet. But you can rent a basic little house for $250 and make it work making $1,000 or less.
If you are not the adventurous type and need to earn a living at a brick and mortar company, you can still consider relocating to a lower cost of living area, in your state or another one. According to CNBC, Mississipi was the most affordable state in 2015, and what better than the Hospitality State to start a new life?
It is a tough decision to move away from family and friends, and one to take very seriously if your only goal is to improve your financial situation.
- What will you gain (lower rent, lower cost of living, …)?
- What will you lose (parents nearby for free babysitting, friends for favors, lower wages…)?
- How often will you go back home and what is the cost?
The odds are not in your favor if you make a low wage in a high cost of living area. But if that is the case, you are likely to make roughly the same in a cheaper state. The minimum wage is $7.25 in Mississipi and $8.50 in Hawaii. That’s barely $200 more a month that will be swallowed by rent, before you even think about eating or putting gas in your car. Teachers salaries are pretty much similar state-wide. And so on.
Like with a diet, it takes motivation and a strong mind to persist towards your goal. But the numbers speak for themselves in terms of the results you can get.
Personal Capital will allow you to connect to all of your accounts like your bank, investment accounts, etc. This will not only help you see all of your accounts in one place, but it also has a budgeting component where it automatically categorizes your transactions. This is great because you see exactly where all of your money is going each month!