- We minimized our housing costs. We used my $10,000 in savings as a down payment and purchased an income property where we could live in one unit and rent out the other. The rental income from the other unit helped pay for most of our mortgage expense.
- We paid ourselves first. Upon graduation, we set up our bank accounts to transfer at least 10% of our take-home pay to a separate high interest rate savings account. As this account grew, it was separated into an emergency fund, lump-sum debt payments, and retirement lump-sum contributions. Any money left over in our regular account after paying bills (and discretionary spending) was used to either invest or pay down debt.
- We lived well below our means. We followed The Wealthy Barber philosophy of separating our wants and needs. This simply means that before you purchase something, you ask yourself a question: “Is this item a want or a need?”. We try to limit our purchases to “needs”. Following this rule saves us around 15-20% of our take-home pay.
- Any additional money was saved. As our combined salaries increased over the years, we’ve kept our lifestyle the same, which has resulted in greater savings. In addition, tax returns or any other “free” money is re-invested or saved. Lately, we’ve been saving up to 30% of our take-home pay.
- We aggressively paid down debt. We used our savings to pay down our student- and car-loan debt, while at the same time investing money in our retirement accounts. We paid off our student loan debt in late 2005, and completed the car payments in early 2007.
- We invested our savings for the long term. Along with maximizing our retirement contributions, we kept our eyes open for investment opportunities. In 2005, we came by a great deal on a single-family home, and picked it up at a steep discount relative to other homes in the area. We still earn rental income on this home.