A good while ago, before anybody really suspected that a global pandemic would hit our health and finances, I wrote an article about saving half of my income. I explained how I engineered my budget and my life to put saving as a priority, on top of the list of my monthly financial activities and way ahead of the bills and fun spending. Today I’ll tell you how saving a lot looks like, despite my income changing significantly.
Holding onto ‘pay yourself first’ principle
One of the key principles of saving significant amounts of money is the idea that you in fact prioritise keeping money to yourself or investing it over using it up in a less productive way. Of course you will always have some expenses (we do need to eat something and I like to have a roof over my head). This means that when my income dropped by 20% I had two immediate thoughts: can I make the difference up in other income and how do I amend m y budget to account for 20% less in this set income stream?
Unlike some of the other financial ‘gurus’ I am yet to build a huge set of side hustles and passive income sources, so assume that I am literally just working with my day job income. If I want to save half of what I am making, what is the figure now and what does it leave for me to live on? And can I realistically live on it? In my case the answer is ‘just barely’. And in order to make this ‘just barely’ doable, my next job is taking a closer look at my everyday expenses.
Keeping everyday expenses stable
One of the positives of Covid for me is that I no longer physically go into the office. This reduces my monthly travel costs from right around £184 to…well, pay as you go and I decided to sit at least two out of the weekends per month out. This results, off the bat, in a whooping saving of somewhere round £160 per month. I am still occasionally going to a restaurant, or buying a piece of clothing, but again, my budget for these has shrunken to approximately 1/3 of previous value. You might wonder why I am allowing myself to go out and have discretionary spending at all. The way I live my life, while cheap, needs to be sustainably affordable. This means that I need to have some pleasure in life so that I am not tempted to suddenly drop the rains and go off on a spending spree. If I happen to forgo some of the small pleasures I budgeted for, that’s lovely for my budget, but I am not reliant on pushing myself to complete ‘scorched earth’ just yet.
Adjusting the budget to reflect real life
With a change of lifestyle comes a change in how my budget really looks like. £100 per person on groceries in my house doesn’t cut it anymore – we eat at home all the time. The utility bills, especially electricity and heat are higher because we are always at home and it’s starting to get cold outside. While I don’t spend on workwear anymore, occasionally I’ll buy something to make my workspace at home more comfortable. And my budget, the one after saving, is constantly being adjusted to reflect the shifts in my life. At this point I’ve had the opportunity to fine-tune things, 6 months into working from home full time, but I do expect more changes as things progress, including the pandemic, the weather and the economy.
I no longer publish my monthly budget figures, instead I prefer to share my net worth progress. You can see these reports on my YouTube channel. However, since we are talking about saving half of my income, here are my current budget percentages:
My usual savings are currently at just over 43%. It is arguable whether paying off a mortgage should be seen as a form of an investment or a saving of sorts. I have previously excluded it from my calculations as I am only able to monetise on this if I sell the property or decide to remortgage. I have therefore left it as a separate item here and it stands at again, just over 43%. Should I chose to stop fast-paying it and roll the value of the overpayment into savings, my saving ratio would increase to 59.72%.
I have streamlined my everyday expenses and utility costs to a near-Spartan level and now only just over 13% of my income goes towards the things which are hard to live without.
How is it possible that a person who lost 20% of her income still manages to put away a significant amount of money with every payslip? There honestly is no secret to it – I still have a stable income and if you are in a dire financial situation, my advice would be that you prioritise finding the same over everything else.