I’m am always taken back when I meet people who make a decent $50,000+ salary and claim it will take them 30 years to pay off their $30,000 student loans. Many of my co-workers live at home but are constantly in debt, financing Coachella tickets a year in advance, purchasing fancy Casper bed mattresses on credit, buying brand new Subaru Impreza WRX cars and even financing their vacations. I honestly didn’t even know you could do that!
When I first started my career in 2010, I made $43,000 a year and over three years my salary grew to $56,000. This entire time I lived like a Rockstar, maximizing my life experiences living at the beach, driving an Audi, buying surfboards and taking international trips whenever I had free time. How did I successfully live within my means while doing all of this? I used the Starve and Stack strategy to minimize expenses and invest a good chunk of my salary while still enjoying life to the fullest. What follows is a real life example of how I was able to accomplish this.
I worked in LA but my heart was at the beach. It turns out rent, gas, and food was also cheaper by the beach, so I made the decision to live where I loved and suck up a two-hour commute (each way) four days a week. I was lucky enough to be able to work from home on Fridays. I worked hard, half of the year I was able to get away with 45 hour work weeks and the other half were 50 to 70 hour work weeks. Lucky for me the slow down was during the summer so I could take full advantage of 9pm sunsets.
Savings and Retirement
First up I made sure I paid myself first, I contributed to my 401k to get the maximum company match, which totaled about $9,000 a year. Six thousand came from me and $3,000 from my employer. I also used section 6 of my employer’s W-4 form to withhold an extra $25 from each of my paychecks. Back then, I got paid on a weekly basis so this totaled up to $1,300 a year I would get back on my tax return. Some say it’s stupid to give the government a free loan, but let’s be honest I wasn’t going to invest $25 a week or $100 a month. I would have easily pissed away that money if I didn’t hide it from myself. Even if I did invest that money every week or month, it would have made me less than $100 of extra income. I could have worked 3 hours of overtime and made up the difference.
Back then I did not intentionally save money. My goal was to keep my expenses as low as possible and whatever was left over I saved to buy surfboards and go on surf trips to Bali, Hawaii, Japan, Baja California, and mainland Mexico. This was my biggest mistake. In hindsight, I should have been maxing out my 401K to $18k a year back then, but no one ever told me to do this. It is my biggest financial regret because I would be over $100K closer to early retirement today.
Initially, I identified that I was not willing to pay more than $600 for rent and my best friend and a friend of his were in the same boat. We searched for over a month and finally found a place that fit our budget. We each spent $600 a month for a 3 bedroom house across the street from the beach for a total cost of $1800/month
We spent $200 for a used couch and table for the community areas of our house. For a coffee table, we filled two large boxes with old magazines and books, taped them together and draped a tablecloth over the boxes. It was so sturdy you could stand and dance on it. For my bedroom, I slept on an air mattress that served me well for over two and a half years until a friend of a friend moved away and offered to sell me his queen-sized bed and mattress from Living Spaces for $100. I’m still using that bed seven years later. It’s the best bed I have ever slept in and I’ll never give it up! I decorated my room with used Ikea bookshelves I bought on craigslist
We kept our utility bills under $20 every month by limiting power usage without compromising on convenience. If a room had four light bulbs in a fixture but one or two light bulbs provided enough light to sufficiently light the room, we would unscrew the other light bulbs. We also used energy saving light bulbs, and if no one was in a room, we made sure we turned off the lights.
If the refrigerator was half empty we filled the empty space with one-gallon bottles of water or cans of beer, because liquid stays cold and requires less energy to keep the refrigerator cold compared to an empty refrigerator filled with air.
We purchased our groceries from Costco and local Asian and Mexican supermarkets that were significantly cheaper than conventional grocery stores. Our house was part of a community of six 2 and 3 bedroom houses on a private plot of land with a private road. We built a community with all of our neighbors who were all of similar and living the beach dream. Our neighborhood mix consisted of young professionals, teachers, ex-military, lifeguards, IRS auditors, hair stylists, technology sales reps, etc. We were a close-knit community and openly shared bicycles, surfboards, food and whatever else we had available. No one ever locked their doors and it was normal to have a neighbor just walk in the front door sit down and hang out.
At least 3 nights a week, we would cook together as a community. One house might start a BBQ and purposely make enough food to feed the neighbors or have leftovers. As the other neighbors arrived home from work and saw we were cooking they would pitch in by cooking up rice, fish, pasta, whatever they had access to. By pooling our resources we brought our average food expenses to around $1 to $1.50 per person per meal. By doing this we not only built a relationship with our neighbors but we created an extended family of close friends for life.
Also when you live by the beach all of your friends who don’t live by the beach want to come stay at your place on the weekends. Friends were always more than obliging, pitching in for groceries and alcohol to the point where most guest always over bought and we always profited from extra food and alcohol left at our place, come Monday morning.
My roommates and I bought one of our bicycles for $30 off of craigslist, the other two bicycles we found in a trash pile on the side of the road. They were rusted out and looked like junk. We borrowed a disc grinder and took off all of the rust then spraypainted the bikes bright orange. The cost for spraypaint was less than $10. I still have two of the three bikes to this day and ride them frequently.
Our community took part in a good bit of weekly binge drinking. We purchased all alcohol from the local liquor store one block away and made friends with the employees and owner of the store. If we were cooking and needed beer, you could be sure we were taking a plate of food for the employees. This paid off handsomely as the clerks always gave us a discount or free product.
PBR, Coors Light and Bud Light, were our friends, micro-brews were a luxury at this time of our lives. On the weekends, we would drink at the house before heading out to the bars, that way we only had to purchase one or two drinks out at the bars and we always rode our bicycles. Ever seen a peloton of drunken degenerates riding bicycles down the street? Come to the beach, it’s a normal event and quite fun. During tourist season we limited our ventures to the bars unless is was a local dive bar off the beaten path. Why? Because the bars increased their prices during tourist season. That $5 drink is now $8 to $10? Yeah, ummmm, thanks but no thanks.
We lived at the beach, so our primary entertainment was surfing, swimming, kayaking, fishing, lobster hunting, bicycle riding, and plenty of drinking. Also when you live in a neighborhood with 18 kick ass single guys and girls in their 20’s, it is easy to entertain yourself and maintain a social life. One of the neighbors made a beer pong table and another neighbor made a cornhole set. Our house and another neighbor had TV’s so everyone would come over to either house to watch movies or Netflix. We limited our actual movie theater experiences to the dollar theater for the most part, unless there was a really good movie we absolutely had to see immediately.
Prior to getting a real job I spent two years aimlessly travel hacking my way around the globe, so traveling was never a major expense. I primarily used my United Explorer credit card to earn points by paying my all of my expenses (including rent) through my credit card. My job paid me on a weekly basis so I paid my credit card bill every week as well, so there was never any risk of me being late on a payment. I practice this habit to this very day, I get paid I pay my credit card. My roommates did not have credit cards, so I would pay for all of our housing expenses and they would reimburse me in cash, immediately. It’s great when you have trustworthy friends.
Trips to Baja California were easy, we would drive 3 hours to the border, another 6 hours down the coast and camp for free. For mainland Mexico, our friend’s grandfather had a house we could stay at for free and we could find round trip plane tickets for $180 dollars. One year we decided to spend new years in Bali. I used my credit card points to purchase my airfare and flew on Christmas day. I found out that my return flight had a layover in Japan, and because I always wanted to visit Japan I asked the airline to extend my layover for 10 days, which they did at no cost.
When traveling abroad I used cheap hotels for $4 to $20 a night in places like Bali, campgrounds, friend’s houses or free hospitality from members of Globalfreeloaders.com I have been using this website for free accommodations to sleep since 2003. It precedes AirBnB by a decade and is absolutely free!
As I said earlier, I was not purposely going out of my way to save money at this time of my lif, but over time I unintentionally saved up $10,000. Instead of investing the money, which is what I should have done, I learned that I could buy a 4-year-old used Audi A4 for this price. I put $4,000 down and took a loan for $6,000 so I could maintain money in the bank to live my lifestyle. My minimum payments were around $107 a month on a 5-year loan and I made regular payments of about $150 a month to pay it off early. It turns out there is a reason luxury cars drop in price so rapidly. This was the stupidest purchase of my entire life, but one of my biggest financial lessons. My daily commute to work was 90 miles round trip and the car required premium gas an oil. I averaged about $90 to $120 a week in gas. An oil change cost $300 at the dealership and $120 if I did it myself. I did the oil changes myself. One month after I purchased the Audi, something broke and I had to spend $1,000 in repairs. A few month later there was another problem and another $1,500 in repairs. Over the next 10 months, I spent more than $6,000 in repairs. Unfortunately/Fortunately, I ended up falling asleep in traffic and totaling the car. Luckily no one was injured. I then used the insurance money to purchase a reliable Toyota Prius from a used car dealership that sourced their cars from salvage auctions. The price was around the same and my monthly payments on the new loan were about the same. The Prius never once had to see the mechanic, and I drove it from 50,000 miles to over 250,000 miles with no problems. I used my annual tax returns to make huge lump sum payments against the principle of the loan and paid off the car in less than 36 months.
My student loans totaled $25,648. My minimum monthly payments were $238 per month. I paid an average of $290 each month to pay down the loan faster. Once I paid off my Prius, I transitioned that extra money over to my student loans. After two and a half years I ended up unintentionally saving up $10,000. I decided to throw all of this money onto my student loans, which left me with $6,000 remaining. My family offered to give me a zero-interest loan to pay off the remainder. It was at this point that I began to intentionally save money because I do not like to owe money to friends and family. I was able to save the $6,000 over six months and paid my family back. I technically paid off my student loans in 35 months but it was actually 41 months when you include paying my family back. Once I paid off the student loans I was debt free and started saving and investing money for my next Prius 2 years out. By doing this, I was able to pick up a free, YES FREE! (sorta) Prius in October of 2016.
There you have it, that’s how I lived my life to the fullest without getting into financial trouble when I was not making much money. My advice to anyone who is living in an area with high cost of living is this, suck up a longer commute if it makes financial sense for you, minimize unnecessary utility expenses, entertain yourself close to home to limit transportation cost on the weekends, share expenses with roommates, friends, and neighbors. Choose to live in a community with similar demographics and lifestyle to what you are current looking for. Lastly be kind to people, you never know who will end up going out of their way to help you just because you are a kind person.
Readers, please feel free to share your early career cost cutting tips and tricks in the comments below