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February 09, 2011

How to save a third of your income and still have FUN: Expert Q&A

Chances are you've already come across Kimberly Palmer's blog, Alpha Consumer, which is full of fresh and practical advice. Or maybe you've seen or read new her book, Generation Earn, which just made the top five in's financial literacy reading listSo you can imagine how thrilled I was that she agreed to answer my questions about her project and her philosophy, and even ask me a few questions back!

In our email exchange we discovered we're similarly obsessed with helping others re-envision their relationship with money. We're both members of Gen Y and both have spent more than 23 days in Washington D.C. (She live there, and I've passed through on occasion.) Unlike me, she seems incredibly disciplined and managed to buy a condo thanks to her frugality. I've learned a lot from her, and I'm pleased to share her answers, below.

Expert: Kimberly Palmer
Twitter bio:  Gen Y personal finance expert, author, and personal finance columnist for U.S. News & World Report 
Check out: "Recession Lessons from Gen Y" via Alpha Consumer.
Exciting: She was recently profiled and interviewed by Fox Business.
Why she rocks: She isn't just giving young people tools for financial responsibility: She's a living, breathing example that her ideas are doable: even the biggest one, saving a third of your annual income, is a goal she preaches after a year of practice.

When I hear you put aside third of your income, I freak out. It seems like so much! But then when I read about the life you were leading, it seemed totally doable. You didn't fall apart, you didn't sit on the carpet eating ramen and staring at the walls. Here's my question: When you started out, did you fear it would be impossible? How did you mentally and emotionally prep yourself for the changes you were about to make?

We actually never sat down and said, “Let’s start saving one-third of our income,” we just decided to be more frugal – and actually, both my husband and I were pretty frugal to begin with, so it wasn’t a major change. We just knew that if we wanted to have any kind of financial security – save for a home, for retirement, for a family – then we had to put away a significant amount of cash. We did it by making some pretty big lifestyle decisions, including staying on a small, one-bedroom apartment until our baby was three months old, which meant we could avoid car use, too. We also kept our food budget pretty low by cooking relatively inexpensive, mainly vegetarian meals. Focusing on those big three costs – housing, food, and transportation – was the key.

But I should also add that saving one-third is pretty much impossible at certain times of your life, especially after big changes – a recent graduation, new baby, or new house. In the past year, we had a baby and also bought a house. That caused a big shock to our savings rate and we haven’t yet recovered  – although we are trying!

What was the biggest sacrifice you made?

Housing. In our tiny apartment, we would watch HGTV and lust after the nice homes. We could have afforded a nicer apartment or a two-bedroom, but we resisted, and eventually we saved enough money for a down payment on our current house.  

Were there any moments of temptation? How did you deal with that?

Not really, because we pretty much adjusted to our frugal lifestyle, so we didn’t miss anything. Well, maybe when we visited a friend’s nice home we would be momentarily envious. But we did indulge in some small things, like a nice flat-screen television, and expensive craft beer, so it’s not like we were living a Spartan lifestyle.

What part, if any, did asking/negotiation play in cutting costs?

Huge! I have to give my husband credit for this because he is the master of negotiating, although I am getting better myself. We ended up getting access to a beautiful hotel pool near our apartment all summer long for almost no money just because he asked for cheap passes. We also had success negotiating hotels for getaways and smaller retail purchases. Those little savings add up.
I understand it took some experimenting to find the best ways to save. Can you tell me about two or three different approaches you took, and why each was (or wasn't) effective?

There were a few times when we said, “Let’s cut out restaurant meals, because that is such a drain on our budget.” But it never stuck. We always ended up going back to our favorite place on Friday nights. And you know, that is okay. We needed some reward for our hard work. So for us, cutting out restaurant meals altogether wasn’t the way to go.
How much of this goal required you to disconnect from societal pressures and expectations about "what one should buy/own" and just do what you felt was right?

We actually found that almost all our friends were also trying to be more frugal, so after we explained to them our plan to save more, it wasn’t hard to get them on board. It turns out a lot of people would rather skip the expensive social plans, too. There are cheaper ways to hang out and have fun, like taking turns hosting dinner parties. Because so many people our age also care about saving, I never really felt that “keeping up with the Jones” pressure.
What's the path of least resistance -- i.e. the easiest way to boost savings?

You have to find the strategy that works best with your lifestyle, which requires some introspection. If you love fashion, don’t cut your clothing budget. Cut your food and housing budget instead. Your spending has to be aligned with your passions or it will never stick.

Any "golden rules" of saving -- a must do for anyone, regardless of age, income bracket, location, family situation, employment status?

My favorite is pretty basic: You have to spend less than you earn. It can be pretty profound once you really think about it though. For people used to using credit cards, it requires a mindset adjustment.

How are you different today?

I have so many more financial responsibilities that it’s harder than ever to save and be frugal! The biggest, of course, is my baby.  I spend so much on her, partly because I’m a new mom and still experimenting with what I need and what I don’t need, and also because I think it is a natural reaction of parents to want to spoil their children! I can’t help it, I want to buy her the best of everything.

If any readers decide to try saving a third of their income, or a version of it, can you point them to some resources -- either blog posts or, ahem, your book -- so they can get some more guidance?

In Generation Earn, I focused on how to zone in on goals so you can be smart about spending and lifestyle choices and save a significant amount of your income. The most successful savers profiled in my book are ones who started small, by saving even just $10 a week, and then slowly ramping that up, because it’s partly about establishing a habit. That’s why I also recommend budgeting tools like, so you can start slowly and work towards your bigger goals.

image source: courtesy of Kimberly Palmer
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