I Lived A 5 Stars Lifestyle While Saving Most Of My PayChecks
I grow up in a modest family on the mountains in Italy, where winter and temperatures under the 0 degree Celsius last for at least 5 months per year.
You must be wondering what the winter in Italy has to do with saving 80% of my salary. Everything or maybe nothing.
The thing is that during the 7 good season months we have to ensure to cut enough trees and grow enough vegetables to survive during the winter season. I realized that living in the mountain made me a natural saver, a kind of survival human instinct.
This can explain why most “cold” countries are much more productive and able to grow their economies faster and more efficiently than hot countries. Look for example at Africa, South America, and South Asia, their economies are far behind economies from Japan, China, North Europe or the USA which have winters.
I was reading a blog post on budgetsaresexy.com about people saving 40-50% , but I wasn’t so impressed.
So, I decide to write about my 80% saving rate. I was unsure of writing about it because it might sound impossible to achieve for most people. I thought “if no one has written about it, it must be unsustainable.” But I’ve been saving 80% and more of my income for years.
I want to explain my habits, set of mind and tools that made it possible so you can benefit too.
Why to Save Money
If you don’t want to work forever, you better start to save money as early as possible. Saving money is the keystone to your financial free future, after come investments, business and so on.
However, it has never been my goal to save 80% of my salary, it just came naturally to me not to waste my hard earned money to buy unnecessary things.
You must be thinking that I was making a fortune to be able to save so much, but I wasn’t. As you know, I’ve been a professional chef for years, I have worked for five-stars hotels most of my career (this was the 5 stars lifestyle expressed in the title above).
My salary was US$4,000 per month only (I was working 70 hours per week), but the best part was the company package was with free accommodation, free medical and free food.
I was spending a lot considering my benefits.
Let’s have a look at my monthly expenses to get a better idea about my spending habits.
My Monthly Expenses
Food: US$70. I used to eat outside the hotel on my days off. I could have eaten in the hotel if I wanted too, I would save another US$840 per year.
Social/entertainments: US$250. I used to party every weekend, my bad.
Shopping: US$120. Some clothes and daily needs. As said early, the less, the better.
House Cleaner: US$60
Rent: US$400 (FREE, paid by the company)
Water & Electric: US$25 (FREE, paid by the company)
TOTAL US$612 per month
So awesome, actually I was spending only 15.3% of my salary, so the saving in average was 84.7%.
I was a single man back then, and this helped. I always recommend to start early saving your money for retirement because as you age, the expenses will increase with the coming of family and babies. However, your income should grow as well.
What helped me to keep my costs down was to remove all the unnecessary cost and headaches that come with owning things.
The less I own, the happier I am
For example, I rented a condo with sea and golf view located only 1 Km from the hotel where I used to work, so I didn’t need a car but instead every day I enjoyed a free bicycle ride to work.
Not only it was healthy, but helped my body to kick start the day. A bicycle has low maintenance cost, no need for petrol or insurance, saving you big bucks.
Of course, I could have saved US$200 dollars from the rent and moved outside town. But was it worth it?
Let’s have a look to my colleague which used to live outside town and go to work by car (when the car wasn’t in the shop for repair).
So, how much the car cost him?
Toyota Yaris purchase price: US$22.000 (in Malaysia cars are expensive)
Let’s say the lifespan of a car is 10 years, so US$22.000/10 years= US$2.200 per year
10 Km every day go and come back from work, for 251 days. 10×251=2510Km
Let’s say you do 25.1 Km per liter, so you would need 1000 liter of petrol per year. One liter cost is US$0.572. Total petrol cost per year is US$572
Car Insurance around US$400 per year
TOTAL US$264 car’s cost per month. This doesn’t consider the US$22.000 principle if invested in a PTF or mutual fund with a 7% return per year, after 10 years would be worth US$ 43.277.
It is a big saving, isn’t it? In the comment below let me know your thoughts.
A funny story here. I bought a used bicycle to go to work during my stay in Malaysia for US$140. I used it for two years and had to sell it because I was moving out of the country.
Here come the best part; after two years I sold the bike for US$170, making a profit of US$30. I always bought cars and bikes used, because I never lose much and sometimes even gain. But this is for another article.
Is Easier to Save When Younger or Older?
When young, you don’t have many overheads, so your saving rate should be healthy. I fill sorry for the students that have to pay back their loan. It’s a headache but some people have paid it off in 18 months.
When you are older, your income increases so even with higher expenses for the family. You should still achieve a healthy rate of saving. Keep in mind the more you save, the less you will work in future.
Early retirement isn’t a dream. It is just good habits in saving and investing the remaining to become financially free.
I want to share you an excellent news; life is getting cheaper. Most of the products are made in China, and they are super cheap.
Today I bought a pair of swimming goggle for a mere US$3.22 on eBay including delivery. How amazing is that? 10 years ago I would have paid at least US$15, without someone delivering to my door.
More robots will be used to mass produce and prices for items will drop steadily.
Did you notice that a car now cost same as did ten years ago?
This is why the world is in such low inflation. Products are just getting cheaper. And 2016 will be an excellent year for product prices because oil is trading below US$ 30, and seem the price will stay at this level for some time.
Imagine tomorrow you will buy things much cheaper than today, so why don’t wait tomorrow?
Keep your money invested instead, so they grow and tomorrow you will buy even cheaper things.
Tools Will Help You to Save Without The Pain
I used two simple tools that help me to keep in control of my spending.
ExpenseLite; this free application is on my iPhone, and whenever I spend money, I just insert the data there. It is easy to use and fast.
Excel Spread Sheet: every month, I put the monthly expenses/earning into an excel spreadsheets as shown below.
The above spreadsheet will help you to monitor your expenses. After 12 months, combine the figures, and you will be shocked to see how much money you have spent on phone calls or meal at the restaurant.
Reflect, and see if you can put your money to better use.
I used to spend US$5000 per year in drinking at weekends. What a waste of money, and I realized it thanks to the above simple IN/OUT phone application.
I reduce that spending to US$2000 per year, US$2000 invested in market stock and the remaining US$1000 I spent in traveling.
You can use more sophisticated online software such mint.com, but personally, I like to keep it simple.
What About You?
Do you think you can save 80% of your salary and still be happy? Let me know in the comment below and would be great if you share some tips you have used to make it happen.