Two years ago this month I was filing for unemployment. I had been laid off in June, my severance package had run out, and my savings had dwindled to my last $1,500. If I was unemployed for much longer, I would’ve been on the brink of being unable to pay my $1,400/month mortgage and all my other bills.
Cue rising panic. And, regret.
Regret about the $12,000 I spent remodeling my kitchen in the spring. Bitterness about relying on a bonus to refill my savings — a bonus that never came. Embarrassment for over-spending on a 4-week trip to Europe.
I felt POWERLESS… Enslaved by my previous spending choices.
Thankfully, not long after that, I found a job perfect for me. And I got smart: I never wanted to be in that position of weakness again. I vowed to be more responsible with my money. In the two years since, I’ve saved $40K in cash, paid off my car, AND, this year, maxed out my 401K. These are the principles I adopted.
An (essential) disclaimer: I’m no financial advisor. These tactics worked for me, but everyone’s situation is different. I’m a household of one independent woman and her adorable dog, with fewer obligations and more flexibility than others.
I re-shuffled where my money was going
The first thing I did to rehabilitate my money situation was refinance my house. I was paying about $1,400 a month on a 15-year loan, so refinancing into a 30-year reduced my payment to $875. Reducing my monthly burden freed up that cash: not for spending, but for saving. First, all my extra wiggle room went towards a $10K cash emergency fund. After that, I bumped up my pre-tax 401K contributions, which this year will max out at $19K.
✓ Emergency fund ✓ 401K contribution to the max
I made full use of my assets
(Assets = my house, guys. Get your minds out of the gutter.)
I have long rented out my second bedroom as an Airbnb homeshare at about $30/night, but I knew that during prime Arizona tourist season there was a lot more money to be made in renting out an entire house (in my case, a 3-bedroom, 2-bath centrally located to lots of AZ happenings). Last year, between Christmas and Easter, I downsized into a tiny studio casita, and the money that I made renting out my house more than paid my mortgage for the year. This year, I rented my house just during March for baseball spring training while I went to Colombia. Watch my vlog about that here.
✓ Put Airbnb earnings into a credit union savings account
I prioritized experiences over possessions
The 4 weeks I spent in Europe, living out of a backpack for a month — and thriving — made it all too clear that I had way too much stuff that I had spent way too much money on. The clothing. The purses. The jewelry. The gadgets. The fancy cookware… I could go on and on.
✓ Cut back on spending for extraneous items
Now, any purchase I make is with intent, and born out of need, utility, or JOY. To me, financial freedom far out-values the designer stuff and luxury car status symbols. After saving, investing, paying bills, and eating… my “fun money” is spent on experiences, adventures, quality time spent with friends and family, and the joie de vivre!
That first year or so getting back on my feet was all sacrifice, but, now, it’s a balance. I get salon-quality highlights, but opt for $14 haircuts. Generally, I live below my means and optimize my assets, and the path to financial freedom feels good.