Wednesday, August 03, 2005

How I Did It

A commenter asked how I have managed to save the money I have. Here are a couple of short answers:

  • I started contributing to a 401k as soon as I could, and have always contributed the maximum level. I've also opened Roth IRAs.
  • During maybe half of the years I've been working, part of my compensation has been in a bonus, anywhere from $1000 to $25,000 a year, (which was sometimes as much as half my total yearly earnings paid in one lump sum). I've always tried to put most of it straight into savings.
  • With my first big bonuses going to the downpayment, I bought a home with a partner at a fairly young age (mid-20s). It was right before real estate prices started going through the roof-- the best timing I've ever had. When I moved out and was bought out, my share of the equity was $50,000, (a return on investment of about 500%!) which went straight into savings and investments. (Of course I should have put it straight into another apartment...)
  • As for where I live now, I was lucky enough to find a cheap but very small apartment that most people might not be willing to live in just because of the size, though it's actually rather cute and gets great light.
  • And basically, I've just kept my lifestyle in line. From when I first started working, I tried to keep my spending lower than my earnings. It was hard at first, but as my income has grown through a few job changes, I've kept my level of spending roughly the same. And if I earned a lot more, I would still probably live in a similar way. I don't feel deprived-- of course there are things I would like to have someday that I don't have now, and I can have my envious moments when I see how other people live, but for the most part, I feel like my life is pretty good.
So, some of it is due to luck, some due to strategy, or just common sense. Of my net worth, about 53% is my retirement savings in a 401k and Roth IRAs, 21% is the real estate windfall (if you don't count the interest it's earned), and the remaining 26% is savings from bonuses, regular earnings, investment gains and interest.


Anonymous said...

Hey thanks for the explaination. Your experience echos mine. I'm a bit over 40 and hit the million mark before 40. Much of that has to do with the fact that I'm in a much higher earning field than you. But I'm also a late-bloomer. For much of my 20's I did not earn much and racked up considerable debt (consumer debt and education debt). It wasn't until early 30's that I really got started on saving and investing. As my income grew, I tried to keep expenses in line. Also, you could say that I married well - As in I married someone who is extremely focused on saving, investing, and budgeting (no inheritances for me). And real estate has been very good to me. I too cashed out of my 1st apt making an unbelievable amount of money, something like a 15 times the original investment. I pumped my r.e. gains into buying a building in Park Slope w/rental income and you can imagine what that's done over the past few years. And bonuses are like magic. They force you to live below your means and act like a windfall when you get them... well at least that's how it used to be when my life was less complicated. Nowdays, I do need the bonus to make ends meet.

Our next investment will be in my wife's new business (which I can't discuss). But, while it may cramp our savings for awhile, hopefully it will set us up for many years of income in the future.

Keep up the good blogging.

Anonymous said...

Love the explanation of how you got where you at. I think living below your take home pay is a huge thing.

My wife and I have one $1,500 limit credit card that we pay off each month. That keeps our budget in line. If we splurge early in the month, we just deprive ourselves of luxuries at the end of the month! (For all you FICO concerning people, we have another credit card that has a $35,000 limit with no balance).

I love your 401(k) story. I remember when I got my first job, I asked one of the new hires in orientation what I should do about my 401k election. He said that he just elects the max percentage available and lives with the rest of the money. I've done that ever since and it's working great!

Anonymous said...

I agree with the 401k advice: start slow if you need to, and ramp up to max over a few years. You will learn to live without it and never regret it!

Anonymous said...

Similar to mine.

Married in 1997, bought our house in 1998. And I and my wife have been savers in 401k and Roth ira's.

We also splurge and like to travel and eat out. But we also save.

Our net worth is around 700k if you include about half of that in real-estate appreciation.