Taking Action to Meet Our Savings Goal

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Taking action to save money

Lately I have been talking a lot about the importance of deciding exactly what you want for your money, setting goals, and making sacrifices to reach them.  This week I wanted to show that process in action, to provide an example of how this can work.

My savings goal

This year I set a goal for myself to save $22,000 toward the purchase of a home.  In order to do this, I have to set aside $875 from every paycheck, while still paying all my other bills, and saving for expenses such as health care, auto maintenance, etc.  So far, I have managed to stay on track, and have saved over $5,000 since January 1st.

Our savings goal may be too lofty

While I have been making excellent progress, keeping up with my goal every month has required all of my surplus income.  I have a $10,000 emergency fund, so this is not a critical problem, but it does mean that if I had to draw on my emergency fund, I would not be able to replenish it and stay on track with my goal.  Additionally, surplus income allows me to budget for discretionary purchases.  What this means, is that if an emergency occurred, or my wife and I wanted to buy something, we would not be able to meet our goal.

Our sacrifice to meet the savings goal

My wife and I talked it over, and decided that we would make a change in housing to free up extra money.  Most areas of our budget are already pretty tight, but we spend $700 month for our apartment, which is a little steep.  We have lived here for a year, and have no complaints, but we initially chose it simply because it was easy to find, which was important when we moved into the area.  I was sure there had to be better deals available, and a little research revealed an apartment of the same size for only $495/month.  After a phone call, and a visit, we decided to make the change, and are now just waiting for our move in date.

Sacrifices and Gains

There are pro’s and con’s to every decision made.  Here are some of the things we had to give up, and some of the things we gained by making this move.

Cons

  • Location.  Our current apartment is right across the street from where I work in a prestigious area of town.  The new one is not in a bad area, but it is older, and will add 5-10 minutes to my commute.
  • Perceived Security.  Our current apartment is a gated complex; the new one is not.  However, we have noticed that the gate to our current complex is frequently left open for long periods, either because it is broken, or to allow for deliveries.
  • Laundry.  This is probably the biggest one for us.  Our current apartment had a washer and dryer in the unit; the new one has an onsite Laundromat.  The actual cost is negligible, but we both enjoyed the convenience of not having to leave our apartment to do laundry.

Pros – Savings!

  • Rent.  We will save $205/month just on the face rent.
  • Water.  Our new water bill is included in the price of the rent.  This will save us $12-$15 dollars a month.
  • Gas Bill.  Our current apartment has a gas water heater.  This was the only gas appliance, and the monthly base fee for gas hookup is $15, making for an average $17 month bill (even though we only used $2 worth of gas).  Absent additional gas appliances, it makes sense to have only one utility bill, and the new apartment has all electric appliances.
  • Internet.  Our current apartment required that they provide any Internet service.  They charged us $45/month for the slowest service.  The new apartment allows us to get out own contract, and due to a sale, I will be getting faster internet for only $30/month (price locked in for 1 year, same as my lease)

Pressing on toward the prize

I have previously written that sacrifice is made meaningful by having a goal.  This is a perfect example, because my wife and I both hate moving.  It is uncomfortable; a lot of work, and there are some not inconsiderable downsides.  It would have been far easier to simply maintain the status quo.  However we do have a goal, debt-free homeownership, and because we kept that goal firmly in mind, we have the motivation to make a sacrifice that should net more than $3,000 dollars a year to propel us toward our objective, while also returning a surplus to our budget.  Additionally, this lower rent means we are more able to choose to stay in an apartment until we are prepared to buy.  Even with some annual increase in rent, we will avoid paying “as much as a house payment” every month.

Final Thoughts

I hope this helps illustrate how a concrete goal can lead to saving money, and maybe motivate you to meet your own goals.  If you have taken action to reach your goals lately, or plan to, we would love to for you to share your story with us.



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1 David H.

I do have to respect that you are putting yourselves in more discomfort in order to reach your goal. Especially since it is a team effort and not just a decision by yourself. I know I’ve unsuccessfully tried a couple times to get my fiance to drop cable so we could save an additional $100/mo for a very similar task that you are doing. We’re hoping to put 20% down ($32,000) on a house sometime between December 2010 – May 2011. Best of luck in the pursuit.

2 Robert Espe

Definitely is the kind of thing that has to be decided on together. We actually came very close to not moving, it took some discussion before my wife and I could come to a decision together.

3 Deacon Bradley

Wow Robert! Way to go! Y’all are intense! I appreciate this post because it talked about the pros, cons, and how you made the decision to save on rent even though it was difficult. Too often I see posts that just say “live someplace cheaper,” or “Cut the cable” (David, tough one!), but don’t talk about all the other things that go into that decision.

For me and my wife it helps to have our goals prioritized. To decide whether or not to cut the cable off we could have a good discussion about how that $100/mo impacts our reaching our goals. Sometimes we opt for the luxury, but other times we’re intent to reach our high priority goals.

Keep it up Robert! Very inspiring.

4 Awareness Home Funding

Congrats on thinking through your plan and then actually following thru with it!

5 Mrs. Money

I love these stories! I wish that we would have moved to a cheaper apartment to save money when we were renting. I know that you guys will be so much happier that you did in the long run!

6 myfinancialobjectives

Wow congrats! I’d say the move is a major improvement. Especially on saving just over $200 a month on rent. That will help out a lot. 5-10 minutes is hardly anything. I moved to achieve a lower rent, but added a good 40 min to an hour and half to my commute depending on the day. Yes it’s a pain, but I really am saving so much money, it’s well worth it!

Enjoy the new place, and congrats on the added savings!

7 Arthur @ FinancialBondage.org

Wow, you’re kicking butt on the savings Matt. Keep up the good work. 🙂

8 Simple in France

I like it! It’s far better to cut your biggest expense than to pinch pennies here and there with things that require much more effort.

9 Robert Espe

While true that it makes sense to target your biggest expense first, I am also quite the penny pincher. A little saved in many parts of your budget also make a big difference, I just spend so little anywhere else that there wasn’t much else to trim. I made $60,000 this year, and we live off less than 50% of my income.

10 MyFinancialObjectives

Wow now that’s impressive Robert! Congrats, I bet you’ve got either some serious saving or debt destruction going on! Nice!

11 Forest

I was talking about moving with my partner today for similar reasons…. We would have to go to an apartment with less desirable interior but we could still make it a home and comfortable.

Good luck with your move, I am sure you will write about it here 🙂

12 Neil

Wow, that’s a phenomenally low rent. I’d be hard pressed to rent a room for much less than that. Even a cheap 1-bedroom apartment here – at least a legal one that meets code – will run $750 and up. Maybe if I moved to a suburb, but then I’d have to drive my car daily, which would quickly eat the savings in gas, maintenance and increased insurance.

13 Budgeting in the Fun Stuff

Congrats on the money save…sorry you have to move (I hate packing and unpacking). You are kicking butt on your rate of savings! How do y’all pull off living on less than $30,000? I’d love to see your budget numbers. 🙂

My husband and I lived in a $395 550 sq. ft. 1-bedroom apt right out of college that helped us save up our 20% down for our current home. We made less than $25,000 jointly that first year, but we managed to save $5,000. We saved another $15,000 the following year when our income went up to about $45,000 jointly and our rent went up to $450 a month.

I completely understand what you are going through and hope everything works out fantastically for you and your wife!

14 Pamela

Just found your site when searching on meeting financial goals. I know it can be really tough sometimes and I applaud anyone with the conviction to see it through.

I just started seriously saving for retirement 5 years ago at age 41. I only had a couple of thousand dollars in my 401k even. I started by increasing my 401k contribution, and continue to increase it by at least my raise percentage each year. This year I will be at the max yearly contribution of $16,500. I opened a ROTH and have done max contribution each year. I put $340 per month into an employee stock purchase plan and whatever else I can into another brokerage account/mutual funds, try for $400 per month.

The only debt I have is my mortgage of $230k. My SUV is paid off and I only have incidental amounts on credit cards that is usually paid off each month. My standard monthly bills came up to a whole $515 this month.

I have $50k in 1 year CDs, one maturing each quarter, as the cash part of my investments. I am just about to hit $250k in retirement funds!

It’s been hard, very hard sometimes. I see people who have all these “things” that I’d love to have too. Sometimes I wonder why am I killing myself doing this? Then I think of my goal to retire at age 55 and I keep plodding along, one day at a time, one month at a time.

I recently spent $6k on a long arm quilting machine. I want to do this work, designing, making and selling quilts, when I “retire” so I bought the machine and hopefully will be good at that in 9 more years. I have 20 years experience making quilts but not machine quilting them so this is an investment in my future too.

Keep your eye on the goal and the relief and sense of accomplishment when you make it.

15 Robert Espe

Pamela,
Great job, way to stay focused. Glad you have been able to reach the caps on your retirement accounts. Remember that in 4 years (at age 50), you will qualify for “catch-up” contributions (an extra $5,500 each year in your 401k and extra $1000 in your ROTH). I think buying a tool like the quilting machine is a great way to develop a second income stream from something you love.

Just two pieces of advice:

Pay off your cards. You have the money, there is no reason to throw away any money every month on that interest.

Come up with an accelerated mortgage payoff plan. Normally, I recommend people not invest more than whatever is matched in an employer’s 401k before they pay off their home. However, if you intend to retire at 55, I wouldn’t want you to neglect your retirement fund contributions, as you can only make them as long as you have taxable income. That being said, you have 9 years until your retirement goal, and you don’t want to face the prospect of retirement with your home still mortgaged, it’s just too risky.

It will take about $2,200/month in principal payments in order to pay off your mortgage by your retirement goal date. I would for sure use the money you a putting into a taxable brokerage account. Even with a “good” interest rate on your mortgage it is almost impossible to earn higher returns in the market while paying taxes on your gains.

You say that is only about $400/month. I would squeeze what you can from other sources, then take the difference (+/- $1,800/month) from your retirement contributions. Which one depends on your situation.

If you are making ANY non-deductible 401k contributions, I would use those next. If you are happy with the investment choices in your 401k, and your contributions are all tax deductible, you may wish to lower your ROTH contribution, and maintain the tax-deductible 401k contributions that could be helping you save.

However, you already contribute significantly more to your 401k than you can to a ROTH, so you may want to take the difference from the 401k, simply to maintain a diversity in types of retirement accounts.

Hope some of this helps, keep pressing toward your goal, it is never to late to start doing things right!

16 Pamela

Robert,

All good ideas and I have thought about the mortgage. The reason that I am not pouring more money into it is the California housing situation. When I bought the house I paid $340k for it and put $70k down. If I sold it right now I could maybe get what I owe on it. I just can’t throw good money after bad. If I could get out of it without a loss right this minute, I would. I have thought of selling it just for what I owe, renting an apartment, and forget about the $70k. That’s a big hit to take and I’m not prepared to do that yet.

Another reason for my decision is that my sister has talked to my brother and I about getting a family home. They are 10 and 12 years older than me, respectively, and my brother and I are single. I think I would really like that. We will be getting older and it will be nice to have people around. My brother and I still work and if I can use some of my retirement nest egg to go in on a house with them and not have a mortgage payment, that would be fine with me. In the meantime I can be putting extra money into investments instead of into this house that I don’t want to be in long-term.

As for credit cards, it is just incidental amounts and I don’t usually carry a balance or pay interest. I bought the quilting machine on a credit card that I never used but they offered 6 months 0% interest so… I used it for the machine. I didn’t need to but why not use their money instead of mine? I then got a 5-figure bonus at work and decided to pay off almost all of it. The last $400 will surely be paid off before the 6 months is up in June but there is no hurry on my part.

I don’t pay much in taxes on investment gains as I do very little buying and selling. I have income generating funds like REITs in my ROTH and funds that are fairly tax-efficient in my taxable account including muni bond funds that are state and federal tax free. I’m happy with the choices in my 401k and have an overall portfolio allocation that suits me.

I have given a lot of thought to what is right for me and my situation but the house/mortage is a major sticking point. If I wanted to ruin my credit and be irresponsible, I would do what so many people are doing… walk away from a house that isn’t worth the amount owed on it.

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