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Saving For the Future When You Can’t Afford To Save

In a couple of recent columns, I have suggested that building long-term financial health means developing the habit of living on as little as 30% to a maximum of 70% of your gross earnings.

I can hear the comments now: “Rick, you’re a fat cat financial planner who doesn’t have a clue. Why don’t you try living on eight bucks an hour and see if you can save anything?”

That’s a valid point. It’s been a while since I worked at McDonald’s for $1.65 an hour and earned $300 a month renting apartments. Today, I am fortunate in not needing to worry about having enough to pay the basic bills. So I did some research and came up with a bare-bones budget for a single person living in Rapid City.

Rent for a tacky single apartment or a shared decent one: $300
Electricity $75
Gas and car maintenance $100
Car insurance $50
Cell phone $100
Groceries (eating at home) $200
Clothes (second-hand or on sale) $50
Medical (doctor visits, dentist, optometrist, prescriptions) $75
Entertainment and eating out $100
Miscellaneous (personal care, laundry, haircuts, gifts) $100
Total—without savings or health insurance $1150

At eight bucks an hour, your take-home pay would be about $1178 a month. You could just get by, but without health insurance or savings. At $10 an hour with a take-home of $1473, you could add $150 for health insurance and $150 for savings.

Here are some ways to live frugally enough to save when you’re just starting out:
• Find a cheap apartment or share with one or more roommates.
• Get a second part-time job and save most or all of those earnings.
• Learn to cook and eat at home; eat out only on special occasions.
• Drive an old car (preferably one your parents helped you buy when you were in high school and had money to spend).
• Buy clothes and furniture second-hand.
• Have fun on the cheap: rent movies instead of going to the theater, hang out with friends at home instead of going out.
• Skip cable TV and use the Internet at the library.
• Have a cell phone and no land line.
• Don’t smoke.
• Don’t even think about getting a credit card.
• Don’t have pets.
• Ask family members to give you cash as Christmas and birthday gifts.
• If you can, get health insurance through your parents’ policy; the health care bill allows you to stay on their policies until you’re 26. Taking the calculated risk of going without insurance won’t be an option after 2016.
• Consider negotiating living with your parents for a specified time period like one year—only with a firm commitment to save half of your earnings and a clear agreement, in writing, as to the household responsibilities and expenses you will assume.
• Become part of a community of friends who exchange help and services.
• Save something regularly, no matter how small. Start with even ten bucks a week—but start. It’s developing the habit that matters most.
• Invest in yourself. Make yourself a valuable employee, do more than is required, and use every opportunity to expand your skills through formal education or on-the-job training. This will increase your earning power in a hurry.

This frugal, self-disciplined lifestyle isn’t necessarily what the average single young adult is going to find appealing. Yet learning to think ahead and to live on even a little less than you have is the way to get out of a low-wage lifestyle so you can enjoy long-term financial health.

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6 Responses to Saving For the Future When You Can’t Afford To Save

  1. Susan Hotalling April 14, 2010 at 7:32 am #

    You forgot one last bullet point – leave Rapid City and go to some other area that actually pays better wages. Even in this time of rising unemployment, you can do better by living around the smaller cities in the Midwest, particularly MO, OK, TX, KS – been there, done that. Rapid City and its politicians continue to be anti growth, anti business, and anti competition. No nepotism to cement you here = GET OUT and you will do just fine.

  2. Rich Colman April 14, 2010 at 7:39 am #

    Hi Rick:

    in 2016 you can still forego health insurance, you pay a penalty if you do and for many in MA, the penalty is cheaper than the premium! So many choose to risk not being covered in MA.

    Cute article.

    Rich

  3. Marion Asnes April 14, 2010 at 8:31 am #

    Hi Rick,

    Love the article–it really took me back. As the mother of two college-age children, I’d like to add two things: One, if you learn to cook for yourself, you can be healthier as well as richer. Restaurant food is loaded with fat and salt, two things our bodies don’t need in large measure. Two, invest some of those savings into learning the skills you need to move up in your career. Part of wealth-building involves good savings habits, but you also have to learn good earning habits.

    Warm regards,
    Marion

  4. The other Rick K. April 14, 2010 at 11:41 am #

    Rick,

    You can move to a city in California where wages are higher and $300 a month rent for a tacky single is just laughable. You can’t get an apartment for less than $600 a month. All things are relative as to where you live.

    The Other Rick K.

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