I like to think of myself as an extreme saver. I began part-time work at age 14, and have worked to some capacity ever since, starting full-time work for the first time at the start of last year (age 25). Here I will tell you how I have saved over 120k by age 26.
Some important points to note first:
- I lived at home until I was 22. This has contributed significantly to my ability to save, and is not an option for many people. Notably, this was when I was a student, working only casually on weekends.
- Although I chose to work through high school (which now feels highly unrelatable tbh), I didn’t need to work. I am incredibly grateful for my privilege. I grew up in a middle class household with two older brothers, and although my mother was a single parent, we were never financially stressed.
1. Saving a consistent (and high) proportion of my income each month
I have consistently saved some of my income each month. When I was working through high school, this was only about $200. I made sure that I persevered by setting up an automatic transfer into my savings account each month. Despite being a small amount, this regular saving habit stuck over time, and my savings began to grow. Now that I work full time and I’m on a higher income, I can afford to save a higher proportion of my income. I’m currently saving over 60% of my income (which I have to stress was absolutely not possible while completing my PhD on 25k a year). I manage to save over 60% of my income by prioritising my needs and savings above my wants, as explained below.
2. Creating a realistic budget based on spending history and saving goals
I track my spending using my bank’s app spending categorisation system. Over time, I’ve learned roughly how much I spend on ‘needs’ such as housing, groceries, petrol, car maintenance, and health each month. I downloaded the Fudget app to create an extremely simple budget, incorporating this information, my monthly income, and the amount I want to save each month (which I can update as needed). I then determine my ‘wants’ budget (e.g. shopping, restaurants, drinks out) based on the remainder. If interested, look out for a future post detailing the breakdown of my budget!
3. Planning purchases and shopping for deals
Listen, I know this is potentially an annoying personality trait, but I’ll very rarely buy something the first time I see it for sale somewhere. I avoid impulse buying in general and tend to research purchases. This is to ensure quality of the items I do choose, and also ensure I’m getting the best price for the item. Often, you’ll be able to get the exact same item somewhere else for cheaper, or can wait a few weeks or months when it inevitably goes on sale (extra tip: if you leave something you’ve been eyeing off in your cart when online shopping, the company WILL send you discount codes to follow through with the purchase).
4. Depositing savings into a high interest savings account
There’s a really great publicly available tool which tracks and compares Australian savings accounts and the interest they earn here. As you’re probably aware, interest rates at the minute are extremely low, so none of the options are looking particularly amazing. However, prior to 2020, I was able to earn 3% on my savings annually from my savings account. Although passive investment returns are much higher than this (at ~8-10% annual growth), it’s always good to have some cash liquid. Keeping this cash in high interest savings accounts is the best way to make a little bit extra from your savings.
5. Living below my means, resisting lifestyle inflation
As my income has increased, I’ve made a conscious effort not to let that flow on to my spending. I still have the same old car, I still look for deals and discounts whenever I can, I still walk everywhere within 30 minutes and I still rent an apartment I can easily afford. The only thing that has changed since earning more money is that I now have a slightly higher budget for eating out at restaurants/cafes (twice per week), which is something I truly love to do and couldn’t afford as a student. Other than this, if it worked for me then, it works for me now!
Extra: something I didn’t do but would have helped me to save money faster
I didn’t start investing in Exchange Traded Funds (ETFs) until a year and a half ago. Even now, I only have about 30% of my funds in ETFs as I am looking to purchase a home soon. If I knew more about passive investing at a younger age, I would have been able to make much higher gains on my savings than I did through savings accounts alone.