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Fredric is a web developer based in Chicago who hopes to one day start a foundation to support young, Black males in programming and computer science.

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6 tips on saving $20k on $45k/year

August 13th, 2007 • Related • Filed Under

if you’ve ever taken a personal finance course, you know that the most important factor in having a healthy nestegg and retiring comfortably is starting as soon as you can. with that in mind, i wanted to share some techniques i’ve used the past 3 years (since graduation) that has started me off on a good path, even if i wasn’t making six figures.

  1. savingsform good habits. experts will tell you that it is not about how much you make, but how much you spend that is the key to saving. if you make $200k a year, but living the lifestyle where it costs you $175k a year, you’re not exercising good spending habits despite your high income. get in the habit of considering your income as 80% of your bi-weekly checks. pay yourself that 20% first. also read ‘the millionaire next door‘. it changed how i view spending money.
  2. have multiple banking accounts. opening two and three banking accounts is easy. many banks even allow you to open them up online. when i first started working, i opened up 3 other accounts in addition to my main checking account. i also setup my direct deposit to go to all 4 of those accounts. one was for daily expenses, another was for my car note, another was for my retirement savings, and another was for my liquid savings. having multiple accounts takes away the ‘visualization’ of having a lot of money in your day-to-day account, almost tricking yourself into thinking you have less, when in fact you’re pushing that money into multiple accounts and automatically saving.
  3. contribute the match in your 401k. i’m sure you’ve heard this speech a dozen times. employer match to 401k programs is free money. remember how your parents used to say “money doesn’t grow on trees”? they were right, it grows in your company match. say it again with me people, ‘FREE MONEY’.
  4. don’t overpay your taxes. if you’re getting a refund in april, you’re doing poorly in saving your money. getting a refund is basically telling the government ‘here, you can hold onto my money, interest free, and then give it back to me if i file correctly’. you’re probably thinking, ‘but what if i owe in april’? don’t panic! i’ve owed a few years and the IRS has a neat thing called ‘payment plans’ and you can repay any money you owe over time. just make the payments in a timely manner (no credit impact). this, of course, requires you to ask the IRS to repay via a payment plan and may incur a little interest…but, i’ve always felt it was worth it. even better, use a tax estimator and come out even in april!
  5. don’t count/compare your pennies. savings starts somewhere. whether it’s $25 a week to $200 a month. don’t agonize about how much you don’t have or how little you’re starting out with. remember, the time-value of money is your friend. just get in the good habit of consistently putting something away. in a couple of years, your $200 a month will turn into 5 figures.
  6. use different types of savings. as of this moment, i have a roth ira, a traditional ira, a savings account, and two 401k accounts (one that needs to be rolled over). while financial planners will probably advise not having two different types of ira’s at the same time because of the max contribution limits, i feel that at this age, it gives me piece of mind that i have money that is in an account that can and cannot be touched. while a roth should never be thought of as an account you should frequently withdraw from, it makes me feel good that in dire emergencies, i can withdraw without penalty.


using these tips, averaging a salary of about $45k/year, and putting away about 20% with a moderate 8% return, the totals are:

  • $11,600 in 401k (6% with match)
  • $6,500 in roth ($100 per paycheck)
  • $1,700 in traditional ($50 per paycheck, started late)
  • $1,500 in liquid savings ($50 per paycheck, dip into it every now and then)
  • total: $21,300

(image from digitallook.com)

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