In 2012, I had just graduated from grad school and gone from optimistic about my future to constantly worrying about money. I had just moved to Washington, DC, with a starting salary of $40,000, nearly $45,000 in student loans, and very little savings.
I ran the math on an interest calculator and found that if I made only the minimum payments on my student loans over a 10-year period, I’d end up paying $16,000 in interest on top of my original debt.
Although my heart sank, I was determined to improve my situation.
Within three years, I paid off my debt, and the next year, I doubled my income. In 2017, I bought my first home before my 30th birthday. In 2019, I was inspired by this experience to Beworth Finance Help others build wealth and gain financial confidence.
I am currently 36 and plan to retire by age 45.
Here’s how I changed the way I thought about money and eliminated financial anxiety for good.
Discovering that interest rate calculator was a big turning point for me because it marked the beginning of my financial education. I had become interested in investing and wanted to eventually buy a home, but first I wanted to pay off debt and build up savings.
At the time, my monthly income, after taxes and deductions and before debt payments, was about $2,492 a month. I couldn’t achieve all my goals at once, but a few small habits helped me slowly and steadily improve my financial situation.
- I started saving money. Initially I put about $120 a month into my retirement fund, and contributed employer contributions equal to 4% of my salary at the time, or about $133 a month.
- I made it a point to negotiate my salary every year. While I didn’t always get a “yes” or receive the exact amount I offered, I was successful most of the time and received several 15-20% raises over the years. Four years after my first job, I was making double the amount, to $80,000.
- I found a way to make more money outside of my 9-to-5 job.I supplemented my income by taking on several side hustles, including mystery shopping, participating in focus groups, and reselling items on Craigslist.
- I slowly increased my debt payments. Each month, when I could afford it, I paid a little extra towards my debt payment. As my income increased, I increased my debt payment to $1,500 each, until I was finally debt-free. This process took three years.
As it turned out, it wasn’t just the debt that was making me anxious; it was the lack of control I felt. Once I felt more confident about my money, I started to turn to technology to help me achieve the goals that were stressing me out.
I automated my savings, put my loan payments on auto, and started investing using a robo-advisor that selected and managed investments for me.
Over time, those contributions took a back seat. Technology gave me added benefits, like higher interest rates on my savings and discounts on auto payments, that helped me reach my goal faster. Once I was debt-free, I was able to reallocate those funds toward saving for a home by simply updating the same automation I had set up years ago.
This simple automated system ultimately helped me achieve one of my biggest goals: homeownership. In July 2017, I purchased my first home in Washington, DC: a 514-square-foot, one-bedroom, one-bathroom apartment with a 10 percent down payment and $345,000.
Once my income grew to include a six-figure salary, business income, and rental income, I was able to spend more on the things I love, like traveling, and cut back on other expenses.
For example, even after I paid off my debt, I lived with a roommate for two years to save up for my first home, I still cook most nights, and I haven’t owned a car in 10 years.
I monitor my variable expenses so that I can continue to invest in the stock market, but in a way that doesn’t make me feel like I’m lacking in daily spending.
Last year, I invested over 45% of my income, a significant increase from when I was only investing about $133 a month. Now, in addition to maxing out my 401(k), I’m also maxing out my individual retirement account, and all the rest is invested in taxable brokerage accounts, primarily index funds.
If I never put another cent into my retirement savings, I’ll have over $3.7 million by age 65. I want to get there sooner, so I’m still actively investing. Assuming a 7% annual return, I’ll retire by age 45 with about $1.7 million.
It’s okay if things change along the way.
In the personal finance industry, many define financial freedom as when you can afford to retire. I see it a little differently. I found financial freedom when I took control and automated paying off my first extra debt.
Ultimately, while more money is helpful and certainly provides a sense of security, it’s these little habits that gave me true confidence then and now. My financial insecurity became a thing of the past, and for me, that is true financial freedom.
Kimberly Hamilton Founder of Beworth Financea Certified Financial Counselor andBuild wealth with little money“
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