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How I saved 50% of my income in 2016

In my last post, I explained how I spent $34,700 in 2016 – which seems like a lot! But I also managed to save 50% of my income and increased my net worth by over $40,000.

Here’s how I did it:

A new job with a new salary

IMG_1770In the fall of 2015, I started looking for a new job. I was thankful to the organization for giving me the opportunity to get my foot in the door of an industry I knew nothing about, but I felt like 1) I was underpaid, and 2) in a position too junior for my skillset with no room for growth. I wanted more of a challenge, and yeah, I wanted to make more money. :)

After interviewing with a few organizations, I finally accepted a challenging role with my current company – at a compensation level that I felt was more appropriate for my experience. It’s a nice feeling to finally feel like your pay grade and your responsibilities are in line with your skills.

Related: When it’s worth it to take a pay cut

Within 3 or 4 months of being with the company, I received a small raise (yay!), and a bit of shuffling in my organization gave me the ability to start banking a lot of overtime hours for use or for payout (which is one of the biggest perks of the job for sure).

I took advantage of my work benefits

My company offers a small RRSP match as well as the ability to take part in the corporate share purchase plan. Both these benefits force me to save more through automatic payroll deductions, and with employer contributions included, I ended up with $7,000 in the bank that I hadn’t been saving the year before.

I increased my retirement contributions three times

I started 2016 off by saving $950/month towards retirement. Then I increased it to $1,200. Then $1,350. Then $1,685 – which is where it sits right now. I basically ended up almost doubling my retirement contributions, and found that it really had no impact to my lifestyle at all.

Related: Can you save too much for the future?

This was possible because…

I sold my house and went back to renting

IMG_9424Selling my townhouse and moving in with RD freed up a significant amount of money every month. My mortgage, strata fees, and property tax was costing me $1,380. Add in $250 for gas and parking at work, and that’s $1,630/month I was spending to own my home in the suburbs. Now that I live right in Vancouver? I pay $825 for rent, don’t pay for parking, and only need to fill up my gas tank once a month.

Some of that extra money went towards lifestyle inflation (like traveling and entertainment), but most of it went towards increasing my retirement contributions. :)

I am actively engaged in my finances

Prepping veggies for dinnerOkay well this is obvious! But I truly believe that keeping track of my finances in my Excel spreadsheet helps me save more. I always know how much I’ve spent in any given month, and the process of inputting purchases into my spreadsheet is a bit of a shame mechanism when you have to see it there for an entire year. :) And getting to input my savings transactions just gives me such a thrill. Yes I’m a nerd, and yes I know that most people won’t be as active with the finances as me. But as long as you are being truthful with yourself and you know where your money is going each month, that’s all that matters. I just probably take it to a whole new level that may not be totally necessary.

But being active with my money constantly shows me new and different ways I can save more money. For example, I was pretty pleased when I saw that I spent an average of $251.31 per month on groceries, knowing that I could definitely trim that down even further since we ate out at restaurants way more than necessary for about half of last year.

Mutual financial goals

RD and I have talked a lot about the future in terms of where we’ll be and what we want to do in the next 10 year, as well as how we see retirement. We have lofty goals, and those goals require money. Knowing we are on the same page gives me so much motivation to save money and make good financial decisions so that our future together can be healthy and happy. It also helps that we have very similar spending habits (although, RD is probably definitely more frugal than me).

2016 was a good year for me financially, and it will be hard to top. 2017 will be interesting as I have a lot of travel plans, and we are both saving diligently for a down payment for something, somewhere. :)

Did you meet your savings goals for 2016?

The case for un-automating your finances

So many personal finance bloggers and professionals will tell you that automating your finances is one of the best ways to manage your money. Nowadays, everything can be automated if you want it to be – your pay cheques, savings, RRSP, investment contributions, as well as all of your monthly recurring bills.

But even though you may think you’re making your life easier by automating everything, you might be doing more harm than good. Automating all of your finances can lead to bad spending habits, because you aren’t conscious of where your money is going. And, when all of the work is being done for you, you might not check up on your accounts as often as you should be.

I personally only automate my retirement savings. Everything else – such as utilities, cell phone, internet credit card bills, and short-term savings – I make manually every two weeks when I get paid. Here’s why:

My income fluctuates

Even though I have a full-time job, my income can fluctuate wildly from week to week depending on how much money I bring in from my freelancing jobs. While it’s possible to budget and automate when your income varies, I find it a lot easier (and a lot less stressful) to manually pay my bills. Especially when not every company offers monthly billing cycles that end at the end of each month. I keep track of when my payments are due in Google calendar – that way I always know that I have money in my account to pay each invoice.

I like moving my money around

This might be the personal finance nerd in me, but is extremely satisfying to click a few buttons and see bills getting paid, or my savings account growing. It’s proof that my hard work is worth something, and it reminds me that my goals are real and attainable. It’s a feeling you can’t get when the bank does all of the work for you.

Don’t forget to read the terms and conditions

Sometimes life can get busy, and by the time you get around to looking through your cell phone bill, you might have already had the payment automatically deducted from your account. I used to work in a call centre for a company whose terms and conditions stated that receiving payment is your acknowledgment and agreement to all of the charges on the invoice. So it’s important to look through your invoices in a timely manner, as well as carefully read through your terms and conditions of service with each company.

It forces me to pay attention

Since I started taking control of my finances, I’ve made it a habit to log into my online bank accounts at least three times each week. Over the years, I’ve caught three different fraudulent charges on my credit card – one was for a larger sum so it was more noticeable, but the other two were for recurring charges of under $10/month. If my credit card bills were on automation, I would be much less inclined to check my accounts as often, or as closely, so I might have missed catching and disputing those charges.

Also, companies make it so easy to automate payments. From your Netflix account to your gym membership to those domain names you’ve never used that keep auto-renewing every year – sitting down to pay your bills might take an extra hour each month, but it really forces you to see where your money is going and what expenses you can cut. It helps you have a better relationship with your finances, and you might realize that you’re paying for a lot of things that you just don’t use.

What bills do you have on automation?

It’s not how much you make, it’s how much you save

2013-05-03 09.09.21Recently a friend and I were chatting over coffee about a mutual acquaintance who just got married. “She’s so rich now – combined her and her husband make over $240,000 a year,” my friend told me.

This bothered me. Not because I was jealous of our acquaintance’s healthy household income, but because my friend automatically assumed that because of the salary they were making, they were automatically rich. If there’s one thing I’ve learned since I started this personal finance journey, is that when it comes to money, you can’t judge how financially savvy someone is by their salary or their appearance.

The definition of the word “rich” means to have a great deal of money or assets. Well, if our acquaintance is making $240,000, but also spending $240,000, then she isn’t rich – she’s just living a $240,000 lifestyle. A big pay cheque doesn’t mean a thing if you have nothing to show for it, and we just didn’t know what their financial situation is to know if they are actually “rich.”

From 2006 to 2011 (5 years) I grew my net worth from -$20,000 to +$63,000. That’s a difference of $83,000 (or an average of $16,600 per year)! And I did that all on an average annual salary of $44,000. My salary was quite low, but my savings rate made me feel rich.

Now that my income is higher (I’ll earn around $85,000 to 90,000 this year), I’m trying really hard to curb lifestyle inflation. Because let’s be real, the more money you make, the more you have to spend (and the more you likely will spend). More money equals upgrading your housing, buying nicer clothing, more frequent Starbucks trips, and more vacations. I’m guilty of some of those things, but I’m trying the best I can. :)

Below is a chart based on an average month of spending for me in 2007, 2013, and 2016:

lifestyle_inflation2016

Related: Can lifestyle inflation be avoided?

Let me be the first to tell you that I’m not rich. I do not earn large pay cheques, and my net worth is only about $120,000. But my monthly expenses (as shown above) aren’t that much different than they were 9 or 10 years ago. My rent has only gone up by $100, and I feel like my groceries and entertainment budget have increased by a normal amount.

So while my $120,000 net worth isn’t much to celebrate now, that number will continue to increase every month. And 2016 could turn out to be a great year for me, as I have the ability to save nearly $40,000 if I stick to my budget.

I’ve blogged about it before, but I no longer aspire to earn more money. If it happens, it’ll be due to working hard at my full-time job or becoming more strategic with my freelancing. But I’m not going to sacrifice my lifestyle in pursuit of more dollars. :) So that means I’m never going to have a enviable salary that my friends can talk about behind my back. I’ll never wear high fashion brand name clothes, or fly first class, or hire house cleaners (but actually that’s mostly because RD refuses to let me). I just want to be comfortable.

My method of getting rich is by being smart with the money that I already earn. I want to save at least 50% of my net income this year, curb lifestyle inflation as best I can, and grow my wealth in a healthy and sustainable way. To me, this seems like a way better plan than trying to figure out a way to earn millions of dollars, or buying Lotto Max tickets in the hope of striking rich. :)

So whenever you hear of someone who earns the kind of salary you could only dream of, just remember that comparing yourself to others (while tempting to do) is never a good idea. There are always going to be people who make more money than you, but you can live a fulfilling life on your own terms by keeping lifestyle inflation in check and saving your money.

What are your savings goals for 2016?

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