Saving Half My Income on Less Than a Six-Figure Salary

Tiffany's window

Everyone in New York is richer than you. Or so it seems.

Take today, for example: on my way to work I made note of all the usual signs of wealth. The latest Gucci fur mules on the subway. Twenty-three-year-old co-workers living alone in the Meatpacking district. Facebook friends posting pictures of dinners from Eleven Madison Park, a restaurant where the tasting menu costs almost $300 per person.

This is the norm, not the exception. Trust me, you get used to it.

But our perceptions don’t always get it right. Having a lot of nice stuff does not automatically equal “wealthy”. Because true wealth is not about how many Gucci loafers you have, or how fat your paycheck is—it’s about how much money you’re KEEPING. We all know people making amazing salaries but still living paycheck to paycheck.

So then, inquiring minds want to know: in an expensive city, if you have an average desk job, is it even possible to have a luxe lifestyle AND save at the same time?

Short answer: YES.

Today I’m breaking the ice on how I do money, because seriously, if no one ever talks about how they’re doing money then no one’s ever gonna get better at it. For the past year or so I’ve managed to save over 60% of my income, and here’s the breakdown on how I do it: no extreme couponing, reusing Ziploc bags or shopping bans in sight.

Everyone has a different way of defining savings rate. Here are the numbers and formula I use:

  • Savings = 401k contributions + Health Savings Account (HSA) contributions + Roth IRA + Other Investments + Cash Savings
  • Take-home pay = Gross pay – taxes
  • Savings Rate Formula* =
    ((Take-home pay – Spending) / (Take-home pay)) x 100
    Formula tweaked from Mr. Money Mustache.
    *I don’t count my employer contributions because I’ll only be fully vested after 5 years. As you can see below, I have a history of jumping ship within 3 years 🙂

My monthly spending generally looks like this**:

Monthly Spend Category
$950 Rent
$450 Food
$300 Travel
$170 Shopping
$95 Utilities
$70 Personal Care
$60 Home
$40 Gifts
$40 Entertainment
$33 Phone
$20 Alcohol/Bars

$2,228 Total Expenses
**Healthcare and commuting costs are paid with pre-tax monies.

Doing the math, I’m saving 61% of my income.

As for the actual percentage, here’s the funny thing: I never had an arbitrary savings amount in mind as a goal. Instead I approached it more like, “What’s the most I can save without sacrificing my lifestyle?” I kept saving until it hurt a little. Testing and tweaking is how I roll.

So, how do I do it?

Am I a financial unicorn who’s been saving since she was 15? Nope. Like most people I’ve spent entire paychecks on stuff I didn’t really care about. I didn’t start saving seriously until I was 26.
Am I making an insanely high salary? Nah, not part of the six-figure club yet. NYC is a bubble, and with median incomes between $45,000 and $134,000, here I’m solidly middle class.

Some of these things are a result of the choices I made; some are straight-up lucky breaks.

I don’t have debt.

When I was little, I didn’t know a single rich person. Since I didn’t have a template for being “rich”, and everyone around me was poor, I assumed I’d always be poor, too.  When I was a teenager I told my friend, “You know, I’m not going to be rich when I grow up, and I’ve totally accepted that.” I mean, I grew up without a ton of toys and little adult supervision, and I turned out fine, right? So when it came time to pick a college, and the private college I wanted to go to didn’t offer a full ride, I had no clue how I would pay for it. The private school did offer me a 75% scholarship, but my mom didn’t have much money, and I knew the loan amount would increase every year. I would have owed at least $40,000 after graduating, which sounded horrifying to 17-year-old me, especially as I knew a rich-person job wasn’t in the cards for me. So that’s how I ended up choosing a much less expensive in-state school. I remember crying in my bed because it seemed unfair I had to “settle” on college because of money. But looking back, I would have turned out OK no matter what school I went to. Even at my state school, I graduated with $17,000 in debt. I also racked up $6k of credit card debt, but both were paid off years ago.

I automate my savings.

When I got a paycheck, I used to pay everybody else first (credit cards, bills, etc.), and save for myself last. Now I do the exact opposite.

On the 15th and the 30th every month my paycheck lands in my checking account. I’ve set it up so on the 19th and the 4th, $925 automatically goes away into my savings and brokerage accounts. That’s $1,850 a month that I don’t see. You know that saying, ‘Outta sight, outta mind’? Well, it totally works. If I don’t see the money I don’t feel compelled to spend it. And I get to practice living on the smaller amount, over and over again. Over time, saving is just like muscle memory, where I don’t even have to think about it. It just gets done.

I refuse to spend what I can “afford” on rent.

I’m saving $1,000 without breaking a sweat. How?

Think about what your biggest money suck is each month. For most people, it’s rent. I’ve lived alone before, but when I moved to New York I always had roommates. While I valued the experience of living alone, I didn’t find it worth giving some faceless landlord an extra $1000 a month. When you ask old people their regrets in life, no one ever says, “I wish I didn’t have roommates when I was younger.’

I’ve seen it time and time again—people making less than me, yet spending more on rent. If you want to prioritize your living situation, that’s fine, but you have to make concessions somewhere else.

I looked on Craigslist just now, and in my old neighborhood a 1-bedroom costs about $2,000 a month.

Gross.

But you know what sounds sweet? Saving $1,000 a month ends up being $12,000 A YEAR. That’s not chump change. Can you cut your Starbucks habit, $4 Korean face masks, and other small expenses to add up to over $12,000 a year?

Even now, sharing a space with my partner, we can “afford” to rent a place that’s twice as expensive, but we stay where we are because our savings is more important than having stainless steel appliances and a gym in the building. Because I focus on the big wins, I can bank $1,000 a month, easy.

I never stayed at a job for more than 3 years.

Pop quiz: what’s the quickest way to make $10,000? If you answered “negotiating your salary for a new job”, then you win a prize. It’s a million times easier to get a raise for a brand-new job than lobbying for one at your current job. I’ve gotten a raise 90% of the time—all you have to do is ask. And while I never left a job for money reasons per se, the pay bumps were definitely a nice byproduct of jumping ship.

I made a plan for my raises.

As my salary increased, so did my 401k contributions. Every time I got a raise, instead of thinking of what I’d buy next (OK, I’ll admit, there was a little lifestyle creep) I’d first fire up a little budget in Google docs. I’d go onto Paycheck City, calculate my new take-home pay, and then increase the 401k line item in my budget. Until it hurt. If you want to try to make your own, see below for an example of line items from an old budget I used.

Old Budget

I saved even when I wasn’t making much.

I’ve been saving for 8 years, and only about three years ago have I been able to bank more than half my income. Those other 5 years? Those were practice. When you first start doing something you can’t expect to get amazing results immediately. This is where a lot of people give up. It’s like how you’re not going to get a 6-pack just by hiring a personal trainer. You have to show up. And you have to do the work. The personal trainer, like the high salary, seems like a shortcut, and it can be, but really, the critical factor is the CONSISTENCY. For me, the work was starting at a $33,000 salary and saving 15%. Then making $38,000 and saving 20%, etc.

A few years ago, I told my roommate I was putting away $1,500 a month. I was making $54,000. She said, “I don’t think I even HAVE $1,500 leftover each month to put away.” The truth is, depending on a number of things like salaries and healthcare, it might not be possible to save 50%. But instead of giving up and doing nothing, I figured out how much I COULD save instead. I wasn’t afraid to experiment: I tried 15% at first, then let it go a couple of pay cycles to see how it felt. If it was easy, I increased it until it hurt a little. And that’s how I found out my threshold. When it got to a point when I had to transfer money from my savings account to cover my credit card bills that’s when I knew I had two choices: either stop increasing my savings, or reduce my expenses.

I recognize that it will never be easier than it is right now.

Saving just to save isn’t going to get anyone far by itself. You’re gonna need a healthy dose of motivation. Here are a few of mine:
I have a sliver of a thought about having a baby some day. I look around and I see siblings and friends struggling with obscene childcare costs–in New York City I’m gonna need at least $24,000 a year. My brain started to connect the dots: baby = money. That tiny thought was enough to scare me straight. Where is that $24,000 going to come from when the time comes? Just drop out of the sky? If I don’t start saving for it now, then when? Because no one has time to figure out how to cut expenses when they’re focusing 24/7 on how to keep a new little human alive. I could tell myself I’ll figure it out when I get pregnant, but damn, 9 months is not an ideal amount of time to save. For me, if I need to save $24,000, then saving $700 a month for three years is way easier than saving $2,700 a month for 9 months.

I read this eye-opening article about a 46-year-old’s actual medical costs for cancer. And those are costs WITH insurance. Besides being a heart-breaking story, it goes to show that health issues can happen to anyone, regardless of age. Remember when Lance Armstrong got cancer? Yeah, if the fittest guy ever got sick, then I expect the same thing to happen to me. And money for healthcare is not just for me; I’d pony it up for someone I care about, no question.

The other day I got pissed off because the Internet wasn’t working on the subway. I’m single (for a few months more), with no kids or any health issues. I have ZERO real problems right now. The time for me to save is right now. Because it will never, ever get easier. Saving just gets more complicated as life happens. Because life WILL happen. And it has a funny way of happening at the least convenient times. And being prepared to handle almost anything financially? Well, that’s pretty damn priceless.

How much are you saving each month, and how did you make that happen?

Image: Unsplash

You May Also Like

  • Wow that’s way less (your expenses) than what I would have expected for someone living in NYC! My current town is nowhere near the cost of NYC but I’ve got quite the same expenses .. I think that’s a big fail for me 🙂 Also, I completely agree with you on the pay bump when you switch job, it’s been 5+ years since I started working with my company and definitely won’t be seeing much changes unless I switch to another employer.

    • Which expenses are the same? I kind of hesitated about the entertainment cost, because I thought I might look like a “loser” spending so little. But honestly, there are so many free things to do here I can’t think of much I have to pay for, except for concerts. Most entertainment is eating out with friends, anyway.

      Yeah, if I want a better salary now, I definitely have to go find a new job. I also don’t get yearly cost-of-living raises anymore and I forgot how that makes a difference, too.

      • I meant the overall amount 🙂 And yes there are definitely so many free things which are available that’s not being a loser to benefit from it!

  • Jane @ Cash Fasting

    YES. Especially this: “If it was easy, I increased it until it hurt a little.” I know this feeling sooooo well. I definitely reached the point where I had to withdraw from my savings account to cover credit card bills.
    I’m saving over $3K a month if you include retirement (a little less than you, but close!), and I credit that to not living in Manhattan. As nice as it would be to be in the East Village, I can do just fine living across the river.
    The reason I’m able to put that much away? For me, it was giving myself ground rules when I moved up here. Luckily for my budget, I moved in with my boyfriend so rent is really cheap for me. Aside from cheap rent, I tricked myself into thinking that I made less than I thought, by moving money into savings account every payday. Now, months later, I’m used to living on less and can think about how I can increase my savings rate even further.
    Great post! I can relate to your content so much because I feel like I’m in a similar place, not just physically, but financially 🙂

    Check out my recent post on Cash Fasting:
    https://cash-fasting.com/when-it-rains-it-pours-i-had-to-choose-between-a-new-job-opportunity-and-a-great-counter-offer/

    • Yeah, that happened a couple times to me too where I had to draw from my savings to cover my bills, and I was like, ooooops, then just dialed back the automatic savings.

      You’d have to pay me to live in Manhattan, but I’m not in my 20s anymore, so I’m all about more chill neighborhoods now. I always gotta live on the F line, though. That goes to everywhere I usually go.

      You’re doing so amazing for your age–in a few years you’re gonna blow my savings out of the water no doubt! And I think you made the right choice on the job. Good bosses and company owners are worth their weight in gold, way more than salary increases.

  • Terrific budget you’ve got going here! Keeping those living expenses low (for NYC at least) is definitely huge. We did the same thing. We could have easily afforded living in a luxury apartment like every other young professional. but that would have come at the expense of paying off my debt, which I valued more.

    The thing is, you eventually just get used to where you live. What really matters more anyway is just being in a decent location.

    I know two Physician Assistants who are terrific with their money. Combined, they probably make close to 200k a year. Yet they live in an apartment paying $800 a month. It’s in a great neighborhood, but it’s an old and definitely not a luxury apartment. I guarantee most of their colleagues live in much fancier places.

    • I don’t think people realize how hard it is to resist renting the place with the manicured rooftop and sexy all-glass windows. It’s like the kids and the marshmallow experiment. And of course all the realtors say you can “afford” a place that’s 40x your salary, so people just pull the trigger without thinking much about whether that ratio makes sense.

      Not like I live in a crack den anymore, though. I’ve always prioritized a neighborhood that makes me happy first, then the actual place second. Sure I could have lived alone without paying much more, but I would have literally stayed in my apartment the entire time with no amenities nearby. No grocery store, cute cafes, parks, etc.

      $800 a month rent is crazy! I’m sure their colleagues are making fun of them for it, but guess who gets the last laugh?

  • DJ

    Wow, you’ve got this worked down to a science! Great work. I totally agree with you to save until it hurts. Until you get to that point, you’re just not quite there yet.

  • Thanks for sharing! This is a great budget that shows how all people can prioritize and make things work.

    I also prioritize things like travel and clothing. My wife enjoys shopping and I don’t mind spending the day shopping with her. We budget for it so it doesn’t become a point of contention. Sure we sacrifice a nicer house or an extra car, but that isn’t important to us.

    We also bought a foreclosure home that is not fancy by any means. We are definitely one of the smaller and older houses on the block. It is a great location and easier on the wallet. We can also upgrade at our own pace instead of keeping up with the Joneses.

    Finding free things to do is awesome. I can imagine in NYC there are many temptations pulling you to spend large sums on experiences. Being able to seek out the free things is a credit to you!

    • Totally. I think a lot of people don’t realize they have more choices. Just because the average studio costs $3,000, doesn’t mean there aren’t other decent choices that cost half as much. You just have to dig around and find the gems.

      Agree that location is more important than the actual house itself. Not like I’m living in a dump, though (at least, not anymore). Our apartment isn’t new, but we get neat details like tin ceilings, exposed brick and crown moldings. I’ve come to value those details over a brand-new “box” with less personality.

  • Melanie at Mindfully Spent

    “Since I didn’t have a template for being “rich”, and everyone around me was poor, I assumed I’d always be poor, too.” …I can so relate to this! I really enjoyed this post. Compelling advice. I have also been researching savings rate formulas. We’re starting to make the switch from debt payoff to investing this year. It’s been difficult to find one that seems to fit since I make contributions of almost 10% to a government pension. Let me know if you came across anything in your research that might help! 🙂

  • When I started working in NY I was making 50k, post tax that was about $2800 a month. My coworkers and I all started in the same new grad company program with the same salary and there was a girl paying $2200 a month for rent. I always wondered how that was possible!

    Damn, $950 rent is amazing! I used to pay $975 splitting a 1 bedroom (one where the living room and bedroom are separated by the kitchen) with a roommate and I had to build a closet, shelves, and a fake door to make that one work!

    I was never sure how to calculate my savings rate when it comes to pre-tax contributions. I guess it makes sense to include it against the take home now that I think about it 🙂

    • Hey Jing!

      Hmm, either that girl didn’t eat, or she had some sort of side hustle going on. I make more than 50k, but for some reason, I could never really stomach prices that high. My $950 was a 3-bedroom split in a great neighborhood. I prioritized the neighborhood over everything else, because if my roommates were annoying me, I could at least go hang out in a cute coffee shop. Now I live with my fiance and I pay the same rent because he makes more than I do, and we pro-rate. And ha, I’ve totally done the “roommate-living-in-the-living-room’ thing. It’s almost a rite of passage in the city!

      Yeah, I ran into the same problem re: pre-tax savings. There just didn’t seem to be a clean way to go about it. I chose to not include my employer contributions but if you add it in, just remember to add it in in the take-home pay, too.

  • Finance Patriot

    This is a very inspiring story. I never grew up with nice things, so I never craved them either. To this day, I can’t understand how grown adults crave so many expensive things, and are so wasteful with their finite resources. Whether you make $10,000 or $10,000,000 per year, you have finite resources. Always live within your means.

    When I graduated college, I had two roommates. My share of the rent was $250/month. It was fantastic, and I had great friendships because of it. My social life was solid everyday.

    The only thing I would suggest is, if you qualify to make traditional IRA contributions, do those instead of the Roth. You will always come out ahead because your tax rate working will always be higher than your tax rate retired. Always, always, always, I bet no one has ever told you that before. Living in NY, you will also save additional funds on state taxes, which are also progressive. Do this only after maxing out your 401k first. When I say max, I mean the IRS maximum of $18,000 per year. The reason to contribute to your 401k first is because it will increase the chances of your ability to make traditional (deductible) IRA contributions. 401k contributions lower your adjusted gross income, which in tax language, means making your whole tax life easier and the taxes you pay each year significantly lower than your peers (a key component of an early retirement strategy).

    • Thanks for the advice on the Roth. I actually switched it recently to trad. IRA because I found out that my marriage is going to make me ineligible for the year. But yeah, when I was younger, everyone was like, you need to get a Roth, etc., but I’ll totally enjoy these tax breaks from now on. Make sense to do traditional IRA since yeah, my income will be lower in theory in retirement, although we don’t know what taxes will be like then. And yes, I do max my 401k! Feels so good to do that and hide money from myself.

      Solid advice!