Living On 20% Of My Salary

A couple months ago I decided to do something crazy. I decided to contribute 75% of my salary to my 401(k) from mid October, through the end of 2017. I had just started working in July and realized that I wasn’t going to get anywhere close to maxing out the $18,000 contribution limit at the rate I was going. I also wanted to challenge myself to see if I could live on what ended up being less than 20% of my salary after taxes were withheld. What resulted was pretty great.

The First Paycheck

Everything was going pretty smoothly at first. Heck, all I had to do was go into my 401(k) plan settings and change the contribution to 75% of my paycheck and I was on my way. I didn’t have to think about it anymore, until of course I got my first paycheck with the new settings and the amount that ended up in my bank account was under 1/4th of what I was used to seeing.

I Was Poor

Okay, obviously that is not true, but I sure did feel poor. While I may not be in a bunch of debt, after seeing the first paycheck I had a sobering realization: my new paycheck amount was just enough to cover my rent, utilities, and about half of my monthly car insurance bill.

It was at this point that I quit my challenge, went back to contributing 10%, and decided to live comfortably… ha. Right.

I Needed To Make More Money

As far as I was concerned, the 75% of my paycheck that was going into my 401(k) didn’t belong to me anymore and was off limits. I would have to find a way to make up the difference between what I was already making and the bills I had to pay. This also meant that if i wanted to go out to eat or do anything else that costed money, I would have to earn extra income to be able to do so.

The discomfort and worry from not being sure if I would cover my bills spawned creativity, resourcefulness, and drive. I worked part time as a GMAT tutor to generate an extra $1,200 of income during the time, opened a checking account with 5th/3rd Bank for a $200 bonus, and got my Uber Visa card on which I earned $100 cash back with my first $500 of purchases just to name a few.

This challenge had me doing things that I may have decided were not worth the effort otherwise. Getting an extra $20 here and there becomes a much bigger deal when you aren’t sure whether you are going to have enough to pay the bills or not. I loved developing the mentality that if I wanted to spend money on anything other than rent and utilities then I would have to earn it first.

I Couldn’t Ignore My Expenses

After I started living on 20% of my salary I had to put my expenses under a microscope. I just couldn’t ignore the small stuff anymore. I ended up cutting my expenses dramatically.

I had to prioritize my expenses. In one bucket were required expenses (rent, insurance, gas for getting to work, groceries) and in the other bucket was everything else. I worked to make sure I could pay the required expenses and then when it came to everything else I was completely aware of what I chose to spend money on, because most likely it would mean that I could not do something else.

Back when I used to receive my full paycheck I could afford to eat out all the time and go to sporting events and concerts if I wanted to. I had to rely on sheer willpower to manage and choose between these expenses. After effectively cutting my own salary it was no longer optional, I had to make choices.

Having to make these choices forced me to think about which things I really enjoyed doing the most, and which I was just doing “because I could” or “because I’m bored.” I didn’t have time to be bored anymore.

How The Challenge Changed Me

9-5 was not a thing anymore for me. Sure, I worked a 9-5 job, but just because I left work at 5 didn’t mean that I was done working. I became very conscious of the value of time, and in achieving that level of consciousness, recognized that any hour I spent not making more money, or at least learning how to make more money was an expense and should be considered as such.

Much like prioritizing literal expenses, this lead me to prioritize the way I used my time. If I was not actively earning an income or giving myself a forced break with a social outing, I was almost always doing one of three things: working on this blog, exercising, or learning about other success stories through books, podcasts, and videos. Not once in the last two months did I watch TV for entertainment with the exception of one football game over the holidays with my family.

I imagine that most people reading this are thinking that the life I led the last two months sounds terrible. The reality is that I loved every second of it. I have enjoyed helping others succeed through my GMAT tutoring, and I enjoyed hearing about how other people have succeeded in their lifetime through listening to podcasts and watching videos on YouTube.

While my contribution will not be 75% of my paycheck ever again (I cannot legally contribute that much on an annualized basis), I plan to effectively keep myself feeling poor by contributing $1000 out of each bi-weekly paycheck of mine to a personal brokerage account as part of the Let’s Be Millionaires Investment Series in 2018.

If you’re interested in trying to recreate this challenge in some fashion for yourself make sure to check out How To Set Up Your 401(k) as well as Why You Should Always Pay Yourself First.

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