It’s not what you make, it’s what you spend (seriously)

Screen shot 2009-12-02 at Dec 2, 2009, 8.24.22 PMThe proof is in the pudding suckers… whatever that means. I did some hardcore number crunching over the weekend and realized something: I’m totally stoked on my financial progress over the last 12 months. Sometimes I get so focused on what lies ahead, I forget to take a little walk down memory lane and reflect on where it all started. Let’s take that “walk” now, shall we?

Since I posted about my net worth yesterday, it’s only fitting to start there. I currently have a NW of $27,389. Wanna know what my NW was one year ago? I was rockin’ a solid -$10,000 NW. That means in twelve months I have totally turned my financial situation around, to the tune of almost $40k. There are a few factors that have played crucial roles in this awesome change. 1) A big help in this increase is due to the rise in the stock market over the last year. 2) I got an $11,000 raise. I was making $39K this time last year and now I’m sitting pretty at $50k. In February I will be getting another raise to $62K so I can’t wait for that day to come. 3) Supplemental income. I’m obsessed with making money. I have found tutoring/odd-jobs to be quite lucrative. I think I’ve made about $6,000 this year in side work.

If you’ve been reading PDITF for a while, you know I am quite bi-polar when it comes to my student loan. I started the year paying double payments to Sallie Mae each month (about $330). In April, after advice from my readers, I decided to up the payments to $1,000/month. A few months later I got real crazy and decided to throw between $1,500 to $2,000 at it each month. Then, about a month ago, I decided to go back to just double payments. Although my payment strategy has been all over the place, I’ve made some pretty solid progress. In fact, I have reduced my student loan debt by $11,500 over the last year. I have another plan in my head as far as my student loans go, but I think I’ll save that for a future blog entry 🙂

I totally obliterated my 2009 savings goals. If you cruise to the “My Budget” page you will see on 12/31/08 I had these goals for the ’09 calendar year…

Checking: $1,500
Savings: $11,000
Roth IRA: $8,000
401K: $10,000
Total: $30,500

These are what my accounts currently look like…

Checking: $3,060
Roth IRA: $11,877
401K: $10,772
Total: $45,234

As you can see I exceeded my goals by $15,000. Do you know how awesome it feels to set goals, and not only meet them, but completely destroy them! It makes me one happy ninja.

Over the last year, I have improved my financial situation faaaaar more than I would have ever anticipated. The secret to this change is quite simple, and I’d be happy to share it with you: Spend less than you make. Period. End of story. This financial principle is not open to interpretation or debate. If you live on less than you bring home each month, you will have nothing left to do with your money but pay down debt, save, invest, and give it away. There are absolutely no excuses to live outside of your means (aside from medical emergencies). I am living proof that spending less than you make REALLY WORKS! I’m so glad I don’t have to live the paycheck to paycheck lifestyle. At  24 y.o. I’m totally stoked to see where I am ten years from now. Anyone else have any success stories from living within their means? I would love to hear them to motivate me even more.

21 thoughts on “It’s not what you make, it’s what you spend (seriously)”

  1. Spending less than you make is the golden rule of personal finance. 🙂 It's the basic law of math – if your top line is higher than your expense, you'll have something left over (i.e. excess capital). You can then rent out this capital (invest), and people will pay you for the privilege of renting your capital. If you spend more than you make, however, you must in turn rent someone else's excess capital. I find that a book called Naked Economics explains this very well. Capital is scarce – people will pay to rent it – but in order to have excess capital to rent to others you must save, save, save.

  2. Wow, you look at your numbers from last year, you've done really really well! It makes me want to go back and reevaluate my spending so that each dollar is accounted for and going to something productive.

    As for my "success story" it's not quite as impressive as your numbers but on a $37K salary in an expensive city (aka rent is ridick), I've managed to turn around my net worth by $11,000 in a year.

  3. Great work man! It's refreshing to read your blog – very entertaining even when you talk about numbers. I find a lot of the PF blogs these days seems to be going the route of "Oh look what I bought today! <insert justification here>". This seems to happen as soon as all the debt gets paid off, so watch out 🙂

    • Hmmm, I totally understand the difference between the two, but I tend to believe that often expenses are easier to manipulate than income. Some people can't find extra work or a higher paying job, so for them it is important to change their spending habits.

      If you have the ability to go out an earn a higher income, however, then I am all for that!!!!

      • I think we're all capable of earning extra income, just sometimes we don't want to pay the time cost of it.

        However, you also make over your income – with tutoring. =)

  4. Dear Ninja,

    I’m jealous of your awesome raises.

    I have a question:

    If you had the option-would you take out a Government (subsidized) student loan to pay off a private student loan?

    The difference of the rate is 1%, but most importantly-the interest is deferred (and not accrued) until I finish grad school (3 years). If I pay off Sallie with the Gvt loan, I free up my payment ($225) for savings. Thoughts?
    .-= Duddes02´s most recent blog ..Movie Date =-.

    • A few things to consider with the student loan. Better interest rate + not accruing interest for three years, is awesome. Also, getting to save that $225 payment will be nice, but only if you can be disciplined and not just blow it on things like shopping, etc.

      Downsides about the government loan (it is not bankruptable). I would hope you never have to face bankrupcty, but if for some reason that becomes your future, the student loan will remain with you….forever….until it is paid off.

      My only major hesitation to securing a govt loan would be if they force you consolidate your student loans and lock in at a high interest. I consolidated at 7% and am paying a way higher interest than those that graduated before and after me. Interest rates are scheduled to decrease over the coming years, so not being locked in to a high rate would be a good thing right now. Read this article I wrote about how stupid I was for consolidating….

      • Hmm, what do you mean force me to consolidate? Will they end up combining all my loans and creating one payment? I’ve been googling and it appears that if I consolidate in 2013 it might be alot better for me as the rates are “predicted” to be lower.

        Sallie Mae loans aren’t bankruptable either, as I understand it.

        Ugh, I wish I had enough guts to rob a bank
        .-= duddes02´s most recent blog ..Movie Date =-.

        • Consolidation just means rolling all of your loans in to one loan/one payment and it is almost always extended out over a 20 year time frame instead of a 10 year deal. If you haven't already, and they don't make you consolidate than I would definitely hold off for a couple years so you can secure a better interest rate!

          Sallie Mae loans, as far as I know, are bankruptable as long as they are not federally insured loans (stafford loans). Again, I don't think that bankruptcy is really in your future so it is a pointless concern, but something I wanted to note.

          • Private and Federal student loans are not bankruptable. A lot of people got way in over their heads with private loans that offer few payment options in hard times.

            • You are correct. I thought since private loans were unsecured (aka not backed by the gov) that meant they could be included in bankruptcy. After a little google research it looks like that was halted in 2005, so it is extremely rare to have the loans included.

  5. It sounds very obvious, but for many actually practicing that simple statement is very difficult. That said, I spend significantly less than what I earn, which has allowed me to increase my networth by about $11,000 in 8 months! One of the main drivers behind this is a piece of advice my first boss gave me: Learn to live on your first salary. In my first job, I made about $34,000. I set aside X amount every month for expenses and such and then saved the rest. Four months ago, I just got promoted and my salary is now $45,000. I am still setting aside X per month, and just saving the surplus amount (either by investing or padding up the E fund). Thank you first Boss! So, I can agree with SS4BC on making more than you spend, but I think that should also important to spend below your means!

  6. I like Investing Newbie's advice from first boss. Wish I followed that and wish I was as financially responsible as you! LOL. You've done a great job blowing your goals out of the water! Truly inspirational. Keep up the good work Ninja.

    I'm working to get myself out of a negative net worth, but when you're doing it as a family, it is not as quick to move trying to get everyone on the same boat. But we're working at it, thus the negative NW is slowly rising above treacherous waters. 🙂

  7. Mr. and I have been steadily increasing the amount between our net income and what we spend. Mr. has gotten two merit raises in the past year (lucky us, right?) and instead of running out and spending the new money, we either put part of it in the bank and the other part towards our car loan. Every time we pay something off, we take that money and 'snowball' it (as much as I am not a Ramsey fan, that is the easiest way to describe it) towards another debt.

    We're also refinancing our mortgage down to 5.375% (and Wells Fargo is taking care of the closing costs) and instead of spending the $200 a month that saves us, we're turning around and sending it to the mortgage payment. If everything works out well, our 30 year mortgage (and Mr's student loans) will be paid off in 15 years, essentially making us debt free just in time to help put Jr through college.

  8. What a turnaround from last year — excellent work. It's keeping at it that will be the hardest part. We're still working on Mr. Saver's credit card debt, but should be done with that in April-ish. Buying a house put a damper on our savings rate, but for us, it's worth it. We learned to reallocate and cut down other expenses even further to make it all work. It's all about living within your means. I like to look at a salary increase this way: it's more money for you to SAVE, rather than SPEND.

  9. wow – that's freaking incredible!!! I'm so impressed! and very impressed….

    oh – also – i think for the greatest success you need to combine spendin less then you make and earning more money 😀

  10. Good job. Though I must say you are fortunate as well – Alot of people your age haven't invested in the stock market yet – nor do they have a 50k/62k job. =)

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