Every Penny Counts
I loved this piece, “Every Penny Counts” in The New York Times Real Estate section on July 29. It profiles four new homeowners who came up with downpayments to buy co-ops and condos in Manhattan by super-saving.
All of them made significant lifestyle changes in pursuit of their homeownership goal – giving up smoking, cooking instead of dining out, taking advantage of free cultural events, eliminating spontaneous purchases over $50; one even sewed her own clothes. Over a period of several years, they managed to save from $17,000 to $98,000, on salaries of $85,000 to $100,000.
I saved for my home downpayment the same way – walking to work, taking the subway instead of cabs, brown-bagging my lunch, shopping sample sales for clothing, getting the best deals on vacation flights and hotels (or scheduling vacation days around a business trip). Frugal habits tend to become ingrained, which is a good thing, since now I’m saving for my kids’ college educations.
The story underscored a couple of key lessons for would-be savers:
Get a mantra. When tempted by a purchase, new homeowners Janey Lee and Pablo Aguero would ask themselves: “Do I want an iPod or a house? Do I want a latte or a house?” Believe that every penny counts.
Make friends with people who support your goals. One of the men profiled, Obi Onyejekwe, moved from Atlanta to New York, and talked about how difficult it was to save after making new friends. He said he found himself going out three or four times a week, and when he relocated to be closer to his friends, his rent went from less than $800 a month to $1,350.
How did he get back on track with savings? By making friends with people who were also obsessed with owning real estate. Together they found fun, affordable dance parties and restaurants. All eight of his co-workers were able to buy apartments as well.
Frugality is not about denial – it’s about creativity. It’s also about admitting we’re not Bill Gates – we can’t have everything. We have to make choices about how we’ll spend the money we have, and the best way to do that is to set goals based on your values, and prioritize them – whether it’s paying off debt, buying a house, or saving for college. Then be creative. Mr. Aguero described it as a mind-set: “If you want to own a place, you have to do everything to own a place and everything else comes second.”
Click here for ten ways to cut costs and save money for your goals, and here for an overview of savings accounts. Did you fulfill a dream by saving carefully over a long period of time? I’d love to hear how you did it.
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August 1st, 2007 at 1:20 pm
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August 1st, 2007 at 8:29 pm
Hi Laura -
love this post. That’s EXACTLY what I did when i was saving to quit my corporate job. “Bag of popcorn or freedom? new jeans or freedom?”— with little and big economies I managed to save $20,000 (on a salary of $85,000) and quit my corporate job. Self-employed for 10 years now I’m a master of frugality. I love the freedom! thanks for a great blog.
diane
August 3rd, 2007 at 3:37 am
“Over a period of several years, they managed to save from $17,000 to $98,000, on salaries of $85,000 to $100,000.”
Let me get this right, they saved up to $98,000 over several years with a salary of $100,000 a year? and this is great? lets say several is 5 years, so they saved about $20k a year… My dad makes maybe $20k a year and he is able to make it fine. Give him a salary of $100k and he could have $80k a year saved. Over 5 years that would be $400k in savings…
Now, some of your advice is good and all, but the examples aren’t that great or impressive… especially that $17k one.
Seriously though, if you are making that $100k and you are truely saving and trying to put a lot of money aside to invest in a house you best be putting $50k aside a year, that won’t be too hard…
Hi Pawkster: Thanks for your post. The only difference is these folks all live in New York City. It would be really hard to make it there on $20,000. Having lived in Manhattan for 15 years myself and moved out, I recognize there’s a huge difference in the cost of living. It’s not just rent, but everyday things like groceries and diapers. That said, I lived in New York while I did all my saving for my home.
August 3rd, 2007 at 3:49 pm
I realize this, but I don’t think it costs 60k more a year to live there. The cost of living difference is not from 20k to 80k per year. That’s why I said in the last paragraph putting aside $50k a year. That means you are spending $50k a year for living which is $30k more than my dad is surviving on (and he does waste some money here and there).
September 28th, 2007 at 11:56 am
Let’s look at the big picture. If someone makes $100K, after taxes, social security, health insurance, life insurance, etc. you are looking at around $70K. Then if you contribute to a 401K (let’s just say 10% or $10K/year) you are now down to $60K take home.
After mortgage, car payments, food, and maybe tuition, you are now down to about $20-30K.
So if you are making $20K and doing fine and then all of a sudden get a $100K/year opportunity, then yeah saving $80K may be easy. But a person earning $100K this year worked their way up and being the way we are, we usually expand our budgets to the income we receive.
It’s expensive living in big cities and everything costs an arm and a leg. It’s not how much you make it’s how much you keep (from Rich Dad – Poor Dad).
September 30th, 2007 at 9:33 pm
Hey Laura, you rock! I am a big fan. Want to ask you for advice on dealing with my spouse on money.
I’m a typical man, married with kids, and make a decent salary. My wife works too. Together we make a comfortable living and save regularly and pretty aggressively for retirement and the kids’ education, taking full advantage of the tax friendly accounts. My wife and I don’t really see eye to eye on money and we are somewhat resentful of each other on the subject of money. My wife is money-blind, doesn’t care about money (she definitely admits). Don’t get me wrong, she is by no means a big spender. Rather, she is simply not smart on money, doesn’t value money, and therefore rarely gets any good value or joy out of money spent. In fact, I manage everything financially, from all investments including her 401k’s, Roth, to all Bills including her credit cards (she’d pay late fees and get service disconnected!). We are the same age, but I feel we have some generational gap. I’m a common sense guy, want to take good care of my family for today and tomorrow. How can I bridge this gap? Obviously she is not a fan of money nor of my preaching.
Hi Skyglider: Thanks for writing. What do you expect from your partner, financially speaking? It’s a question we don’t often ask. It seems crass. You didn’t marry for money, after all. But honestly confronting that very question can rid us of false expectations and assumptions that lead to marital trouble.
First, find a low-stress time to discuss money. Don’t have the conversation while you’re paying bills or doing taxes. Olivia Mellan, a money therapist in Washington D.C., suggests that couples talk about what money was like in their families of origin — what money messages you might have gotten from your parents growing up, and how it might have affected you up until today. What is your earliest memory of money? What is your wife’s? Maybe your wife’s experiences in childhood gave her a fear of money, or an impression that it is something to be avoided. For instance, I have a friend who as a child saw her dad get really angry and upset every time he sat down to deal with the bills; as an adult she avoided dealing with finances (associating it with emotional upset); she racked up credit card debt and threw the bills in a drawer.
Try to really listen to each other. Then share your fears and hopes and dreams. Separately create lists of your short-, medium- and long-term goals, then come together to harmonize both lists. Maybe this will help your wife view money as a tool to help achieve your mutual goals.
It’s okay if one person in the relationship assumes the role of chief financial officer – you, in this case. Just be sure to sit down once a month and review everything together. Tell your wife that it’s important to you that she have a good handle on your family finances in the event something happens to you; you want to be assured that she can take care of herself and the kids. An open discussion and a little planning go a long way toward eliminating money-related marital strife.
November 5th, 2009 at 10:47 am
[...] on your debit or credit card and write your goals on it to prevent thoughtless spending. Recruit like-minded friends to support you in your efforts. And most importantly, automate your goals, so the money is swept [...]