In March 2010, I became debt-free. I had already been making small contributions to my retirement accounts for the previous 4 years, so I wasn't starting at zero. Best I can tell, I had about $5,000 in my Thrift Savings Plan when I paid off the last of my credit cards and my car loan.
So little work actually goes into successful investing, people who aren't in the right mindset will think you're lying. The key is to set aside as much money as possible from your paycheck BEFORE you receive it and have a chance to spend it. People call this "paying yourself first." If you're in debt, that money should go towards ensuring your freedom from bad debt, and if you're out of debt, that money should go towards your future financial freedom.
UPS hired me last December, and I started out making $10 an hour. I quickly did what I could to learn a skill (sorting by zip codes), which got me another dollar an hour. For the first seven months I was there, I was making roughly $800 a month after taxes. Since my rent is $500 a month, and food is included, you'll probably guess living on $800 a month is possible, but not very pleasant. You'd be right. I did manage to survive on that money without having to dip into my savings, but only because I did absolutely nothing. I went nowhere, and only bought the absolute necessities, taking the bus to save on gas sometimes. Every additional penny spent was scrutinized for practicality and necessity.
Many people in my position would have gone ahead and used their savings to maintain their "quality of life," but I was determined not to cheat my future self. I also knew that this low level of pay was merely temporary until I could land a better position. That position ended up being part-time supervisor, which effectively doubled my salary. As you can see from a quick calculation, it's still not very much, but I now had enough money to buy myself small luxuries such as fast food and hour-long leisure drives to visit friends without having to really worry about spending more than I earned.
I also now had extra money with which I could fund my retirement, so I opened a Roth 401(k) and set aside 10% of my income to go towards that. This is money that would get pulled out before I got my paycheck, so I wouldn't have an opportunity to miss it. To many people, 10% may seem like a lot, but keep in mind my paycheck was still 80% higher than just a few months prior. If I could survive on $800 a month, $1,440 would still be a fantastic raise.
Now we come to the main point of this post. After I realized that I was still doing fine on a 10% contribution rate, I increased it to 15%, then 20%. Every time, I would wait a month or two and see if my living expenses were covered. What you want to do is drive up your savings rate until it hurts, then ease back just a little.
At work, I encourage many of my co-workers to start saving, especially the younger ones. They don't really listen, because at 21, all you really care about is having fun, not thinking about the future. Putting money in a retirement account means less money you can spend on awesome stuff today. And even if they don't spend very much, there's always an excuse as to why they can't start right now. They're content just coasting. I am not.
I make no excuses. I just do it. My 401(k) currently sits at $1,460 or so, including the 3% matching contribution that UPS gives us. That's $1,460 more than my co-workers have saved. We both started at zero, but I bought one less restaurant meal, or went on one less trip, and instead put that money to work for me.
You can too. Start saving today. You'll be amazed at how little you can live on when your priorities are straight.
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