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Since graduating from college in June 2018, I’ve saved and invested more than $50,000 while working a 9-to-5 job with a modest salary.
I’m certainly not going to be listed in Forbes as World’s Wealthiest anytime soon. However, according to the Federal Reserve’s Survey of Consumer Finances, the median net worth of individuals less than age 35 is $14,000.
When I graduated from college, I suddenly found myself with more money than I knew what to do with. Just months earlier, I was scraping together a few bucks to buy a beer at the bar. Now I was setting up health insurance, a 401K, an HSA, and heavily investing in my stock brokerage accounts.
I’ve always been pretty savvy with my money. In high school, I worked as a fry cook and started investing most of my paychecks with Robinhood. When I got to college, I continued the trend, investing a significant portion of the money I made while interning each summer.
Once I finally got a big-boy job with a real salary, I knew I had to buckle down and take things seriously. Since starting my 9-to-5 job in June of 2018, I’ve saved and invested more than $50,000.
The best part is — I did it with little stress or worry about where my money was going every month. These two personal finance hacks helped me make it all happen.
1. Live Like Your Broke, Not Poor
In my first year out of college, I shared a room with my best friend from high school. Although we had good-paying jobs, we both wanted to keep living as frugally possible.
That first year, I saved a ton of money and was able to, in turn, pour a lot of it into my investment accounts. But saving wasn’t the only good thing to come from sharing a room for a year.
It was my first lesson in Personal Finance 101:
Pay Yourself First
According to Investopedia, pay yourself first is “a personal finance strategy of increased and consistent savings and investment while also promoting frugality. The goal is to make sure that enough income is first saved or invested before monthly expenses or discretionary purchases are made.”
That second part is essential — ensure all saving and investment goals are satisfied before any monthly expenses, fun, or off-the-cuff purchases.
Sharing a bedroom with my best friend taught me to invest in my future self before giving in to my current desires. It taught me how to live like I was broke, so I could invest like I was rich.
After a year of sharing a room with my best friend, I moved to San Diego, where I knew no one other than my older brother. He owned a two-bedroom apartment, but unfortunately, he also had a roommate.
Equipped with the “pay yourself first” mentality, I decided to crash on his couch while looking for my own place. Fast forward 10 months, and I was still on the couch, saving an incredible amount of money and enjoying living with my older brother.
It was another valuable lesson in the art of paying myself first. As Grant Cardone once said:
“When you start increasing your income, stay broke. Once I start increasing income, I immediately moved the surpluses to sacred accounts that were out of my reach and marked for future investments.”
To pay yourself first, you don’t have to share a bedroom or sleep on a couch. That’s just what worked for me and my goals.
Paying yourself first could mean making sure you save $100 per month before buying that new video game. Or making sure you set up your 401K contributions before you start thinking about buying a new car. Or making sure you invest $50 per month to start building the habit of investing.
Paying yourself first is about prioritizing your future self over your current pleasures. It’s about eating a little bit of dirt now so that you can eat cake in the future.
Paying myself first is a mindset that helped me reframe the way I view money. Equipped with this strategy, I started treating money as a tool rather than something I dreadfully had to deal with.
And it’s because of this mentality that I understood how to use human psychology against myself — rule #2.
Pay Yourself First: Prioritize your future self over your current pleasures. Make sure you meet your current saving and investment goals before you start buying all the things you want today.
2. Use Human Psychology Against Yourself
About a year ago, I picked up a copy of the NYT best-selling personal finance book, I Will Teach You to be Rich, by Ramit Sethi. I was blown away by how accurate, actionable, and valuable this book was.
In one part of the book, Ramit writes, “One reason we don’t regularly save money is due to the pain of putting money into our savings accounts each month.”
That one really resonated with me. I despise moving money from my checking account to my savings or investment accounts. It feels like I’m stabbing myself in the back, banishing my money for a long, long time.
However, Ramit goes on to say that you can use human psychology to your advantage in this situation by automating your finances.
Automate Your Finances
By automating my finances, I effectively removed the decision to save or not to save. It made saving and investing automatic. Mindless.
When I didn’t see the money in my checking account, I eventually learned to live without it.
You can use human psychology in this way to trick yourself into investing.
“You pick a simple investment plan that doesn’t involve any sexy stocks or guessing whether the market is going up or down, and then you setup automatic contributions to your investment accounts.” — Ramit Sethi
In this way, you effectively ‘trick’ yourself into investing because it requires no work on your part. You simply go on living your life — crushing it at work, spending time with friends and family, eating at great restaurants — without stressing about what you’re doing with your money.
This was the biggest personal finance hack that I’ve ever learned. When I started my full-time job, I set up four individual accounts as part of my personal finance automation:
- Company 401K: I immediately took advantage of my company’s 401K match program and invested a portion of my pre-tax income into the plan.
- Betterment: Post-tax money invested in a mix of stock and bond index funds.
- Vanguard: Post-tax money invested in target-date Roth IRA.
- Capital One Savings Account: Post-tax money saved for rainy day fund, car maintenance, and even gift expenses.
When I had to initiate the transfers to my savings and investment accounts manually, I dreaded it. And usually, I ended up not doing it — only to spend the money elsewhere on more stuff I didn’t need.
However, when I finally automated my saving and investment goals, my net worth started to skyrocket. I didn’t have to think or worry about anything.
Whether I liked it or not — the money was going to be taken from my account. And I just had to figure out how to live with it.
Automate Your Finances: Use human psychology to your advantage and set up automatic transfers to your savings and investment accounts. Once the system is setup, you’ll learn to live without the money.
When I graduated from college, managing my finances seemed incredibly daunting. My life and income had changed overnight, and I was left to figure it all out. It didn’t all happen at once, but once I started taking intentional steps to improve my financial situation, things started to fall in place.
Prioritize your future self over your current pleasures and pay yourself first. Make sure you meet your current saving and investment goals before you start buying all the things you want.
Then, use human psychology to your advantage and set up automatic transfers to your savings and investment accounts. This will free you from stressing about money and empower you to do more of what you love.
As with most things, a single change won’t drastically improve your life. But sticking with the change for a long period of time will. Stick with these new habits and watch your personal finance situation drastically improve over time.