How We Spent (and are Spending) Our Extra Money

In my mind, there are two groups of college graduates. There is the small group of graduates who graduate with a practical degree that land a high-salary job from the beginning. They deserve all the props they can get because this quite the challenge. The other group of graduates are those who struggle finding a job. Perhaps they pursued a liberal arts degree, like my wife and I, and graduated college without any strong direction on what they wanted to do. Without a directly-related 4-year degree and with little to no professional job experience, it is almost impossible to get a high paying job.

Our Struggle to Earn Money After College

This isn’t just any generalization. This was a fact of life for us. After graduating, we sacrificed all hopes for a decent paying job in order to move to another country. This was our rationale: not very many college students graduate debt free and we want our lives to be doing something meaningful. That’s why in January before graduation, we decided to move to Nicaragua to teach English and be a part of a “diversity appreciation movement” (there was no official name, but that describes the purpose of our moving in a few words). This ended up badly for us. After getting sick 2-3 times each with the first 6 weeks due to the unsanitary conditions that we were provided, we were forced to pack our bags and return home.

Not only did we feel like we had failed in so many ways, but we also created a 4 month gap of work history that no one would understand. Please understand that this was not a concern for us then or ever, but for the purposes of this post, that’s what it did in the eyes of our future employers. If you are trying to obtain your first job, the last thing you need is to explain why you haven’t had a “real” job.

We ended up moving to New Jersey a month after returning to the US (it took that long to recover from our illnesses and weight loss; we both lost 20 pounds in 6 weeks). I wanted to go to grad school and since we didn’t have any other convictions or ties, we packed our bags. We signed our new expensive lease with no guarantee of a job. In scrambling, we were both able to secure jobs, but they were far from what we wanted to do. I worked 30 hours while going to school and my wife worked 50-60 hours. We paid our bills, but had little left over.

This continued on for a year, when my wife realized she couldn’t work the job that she was working. She already wrote about the experience of a street canvasser, if you are interested. She ended up making decent money, but she needed a career change. I had just got a promotion to full-time, making just a tiny bit more than before and now had benefits. She left her job for an Americorps position that paid her well-below minimum wage. In fact, her living stipend was less than my tuition each year, so we were practically living off my low-paying salary.

How We Spent Extra Money

It’s a Great Moment When You Finally Earn Extra Money

Those two years were a challenge and yet, not that far away. Because my wife is extremely successful and motivated, that year as an Americorps vista positioned herself into getting a Manager position at the same company. She nearly quadrupled her income from one year to the next. Since we were living in the black and not going into debt when we had low-paying jobs, this meant her pay increase was “extra money.” While there are days in my life that are more exciting in my life (like my wedding day, graduation from college, getting my first real job, etc.), this is up there with the others. Only those who struggled after college know what a true relief it is to finally have some breathing room in your budget.

Most young adults, when tempted with extra money, decide to inflate their lifestyle, buying a new car or taking an expensive vacation. I instead, asked all of my earlier readers what I should do with the extra money. I got a lot of great advice from my readers. I’ve given a few updates since that time a year and a half ago, but I thought I would provide a nice little summary for all of my readers who have joined me since writing that first post.

What We Did (and are doing) with Extra Money

There are many things that we did with the extra money. Here’s the list of important changes:

Lifestyle Inflation

While I’m not proud of this, I’m also not ashamed of it. My wife and I had made huge sacrifices so that I could pursue my educational goals. We were living in one of the most expensive regions in the country, paying more in rent for our 1 bedroom apartment than my family members elsewhere were paying for the 3 or 4 bedroom mortgage. In our “no-money days,” we never went out to eat, rarely went to the movies, and took a short 3 day vacation for our anniversary. After getting more money, we decided to change a few things. We would go out to eat 2x a month, allow ourselves to have a little fun, and a few other small improvements. We kept the same faithful wagon that we bought years before then. We also changed apartments, spending a few hundred dollars more each month on rent, but it was a vast improvement from our old apartment. Now we feel like we can breathe.

Opened a Second Roth IRA

As hinted at in my original post, one of my goals at the time was to open and fully fund a Roth IRA. I can tell you now that we did accomplish this. We had already been contributing to my wife’s Roth IRA (it was our only retirement plan the first year or two), but it was time to kick it up a notch. $5,000 a year in contributions is not going to be enough for retirement, and we knew that. We opened up a Roth IRA for me just months after she got a raise and since then, we’ve maxed it out two years in a row. It will be 3 years soon enough, once we move save up and send off our 2013 for our Roth IRA’s. In looking back at this decision, I couldn’t be happier because we have now saved up a decent amount of retirement savings. Granted, we’re still a long ways from being able to retire, but we have an early start. We all know that it’s important to start early with retirement savings.

Secured Life Insurance

Another thing that was important to me was to secure life insurance for myself. My wife’s parents had already secured life insurance for her since she was a child, and now it was my turn to make sure she was covered financially if something ever happened to me. Some may argue that young adults don’t need life insurance because it’s the period that they are most unlikely to die. I couldn’t disagree more.

I decided to go with Whole Life Insurance for reasons that I listed in the other post. Not only does it provide me with a guaranteed $80,000 death benefit for my wife, but it also provides me with a little diversification. It has a cash-value aspect to it that will likely provide me with 1-2 years of retirement income (essentially tax-free) on top of the death benefit. Another benefit of locking in the premium now is that I secured a lower premium since I’m extremely healthy than I will be able to in 10 or 15 years from now.

Other Investments

My wife and I started investing any and all other money that we had sitting around. It was a scary moment to put our money at risk, but it got (and continues to get) much easier as time goes on. We understand that investing and obtaining a decent return on our money is the secret to financial independence. We have high hopes of being financially independent at an early age, while continuing to work for companies that we believe are making a difference.

Most people sell out, get a 6-figure salary doing something that they hate so they can retire early. What they don’t realize is that they are wasting many years of their life for a few extra dollars. My wife and I plan to do it differently. We both work for non-profits now, so a 6-figure income for either of us is unlikely, and impossible in the next few years. Instead, we realize that if we save a large portion of our income (while giving some of it to great causes), we can have the ability to retire early without selling our souls.

While we weren’t perfect when it came to prioritizing the extra money that we started earning, I honestly felt like we did a pretty good job. I don’t know very many other young adults who would prefer to have one car, eat in instead of going out, and many other sacrifices so that they can save for the future.

Readers, do you remember the first time you had a decent surplus of income? What did you do with the money?

Is there anything I am missing?

22 Responses to How We Spent (and are Spending) Our Extra Money

  1. Michelle says:

    At first, we spent a good deal of it on lifestyle inflation. We have since become much better with using it to pay down student loans.

  2. I think there is a gap in between the two groups of college students you mentioned. There are focused degrees that provide an easy path to a job but aren’t particularly well paying. Teaching is one of those. In some districts, starting salary for teachers is below the poverty line!

    • Corey says:

      Great point, Edward. I knew it wasn’t comprehensive, but I was trying to illustrate the importance of thinking long-term and introduce how and why my wife struggled financially. I definitely failed to think long term and want others to avoid making the same choice. Getting a high-paying job isn’t a necessity (obviously), but knowing what you want to pursue as an occupation is important.

  3. We are trying to avoid lifestyle inflation, although it has happened. We now have two cars because we both work. We live in a better apartment, spend more on quality food, utilities went up.
    We are investing money in our 401K. Right now our first priority is saving $60,000 to buy a house. We are at $30K. As soon as we the money in our savings account, I will max out my 401K, and start contributing more to our ROTH IRAs with the hope of maxing them out.

    • Corey says:

      Yeah, that sounds similar to our situation. We want to save for a house now too, but I don’t want to sacrifice retirement savings. It’s definitely a juggle to accomplish all of the savings goals.

  4. Like Michelle, we first spent the money on lifestyle inflation but soon saw that most of the money was simply spent on “stuff” we did not need. We have since come around and used it to save/invest more.

    • Corey says:

      Sometimes it seems like making mistakes like these teach us more valuable lessons than not. In other words, going too far into lifestyle inflation may be better if you realize it initially because you are that much more aware of it going forward.

  5. Interesting background Corey.

    I’d love to learn more about your thoughts on this line, “Most people sell out, get a 6-figure salary doing something that they hate so they can retire early. What they don’t realize is that they are wasting many years of their life for a few extra dollars”

    Is a 6-figure salary very common for folks in your age group nowadays? If so, it definitely helps explain the bull market we are seeing.

    Why is it “selling out” to earn 6-figures? Do you say this b/c you do not make 6-figures? I feel that your perspective against those who make 6-figures will change if you did make 6-figures. You can live frugally and save lots making a high income as well.

    I’d like to understand more about why you look down on people who make more. It’s also a topic of my latest post on FS.



    • Corey says:

      Sam, thanks for the thoughtful response. I didn’t mean to look down on people who make more. I’m all for people making 6 figures. My point, or attempt to make a point was that many people sacrifice happiness for income. In other words, they operate on the following rationale: “If I can only make a few more thousand dollars each year, I’ll be able to get out quick and really do what I want to do.” I know that I fell into this mindset last year, in trying to push my side business to the max for hope of escaping a job that I hated. The answer wasn’t to make more money on the side, but to find a job that I liked.

      In hindsight, I see that I have a number of ideas in that last section of the post and I probably tried to make a point too quickly (and in the wrong post). I probably added a few inaccurate generalizations in my haste. :)

      The point remains though, that you don’t need a high salary to have extra income. And even we, who don’t live too frugally nor make too much money, can hope to retire early.

      • OK, that sounds better b/c the post does make it seem like you don’t like anybody who makes a high income b/c they are just doing it for the money. Perhaps, but they are also able to get out quicker too.

        It’s hard to know what you don’t know, so you’ll have to trust me that making six figures or multiple six figures it’s actually a really nice thing. Just don’t tell anybody.

  6. krantcents says:

    I have always been a saver! Whenever I received a promotion or raise, I would add half or maybe all of the increase to savings. I always invested my savings because I wanted to have my money work for me. When I achieved financial freedom, I did indulge in a few things such as a nicer car etc. I felt it was a reward for all the years of effort.

  7. I have lived in barebone conditions and enjoy it much more. However, with a family it is not fair for me to make them share the lifestyle that I find comfortable. My wife and I have learned to come to a happy medium and while we do have more lifestyle inflation than I’d like we still have no debt and invest on a regular basis.

    Thanks for sharing your story with us?

  8. Daniel says:

    I definitely think lifestyle inflation is more of a necessity in this case. It’s not like you were living the good life and made more so you bought a nice car. You need to have some fun on the weekends, it’s good for your relationship if nothing else.

  9. Thanks Corey this was a very interesting read. Your experience coming out of college was much different than mine (I was one of those people that chose a practical degree). :) Thanks for giving me this insight, I think it will help my writing to consider the other group of college graduates like you.

  10. Kevin Watts says:

    Interesting backstory. I actually graduated with an engineering degree but still struggled to find a job after graduation. I had to move to a completely different field to get a job. The good thing is it’s higher paying and I enjoy much more. I’m glad you have a plan and are sticking to it. I have actually been to Nicaragua a few times. What kind of sickness did you get that made you comeback?

  11. bf and I have a bit of a surplus, nothing crazy, but we both make OK money. For now we’re focusing on saving everything, possibly for a downpayment on an income property we’d like to buy in a year or so. If we don’t end up in the income property we’ll probably buy a house in the suburbs and rent our current condo in the city.

  12. The first time I earned some extra money, I decided to pay off some loans and splurge a little. The first one, I did not regret because it enabled me to focus on better things instead of worrying about loans I need to pay on a monthly basis, but the second one was a bad choice because I should have invested the money or save it. Now I know better!

  13. KC says:

    You have a great story. You guys overcame those trials and survived. You’re a survivor and you two should be a model of ever family out there. You learned how to make sacrifices and you know how to budget and spend your money wisely. I salute you for saving your extra money on retirement savings and life insurance. Not many people appreciate its importance. Most especially, you work hard, save, and still are able to enjoy life. Just like what they say, “Good things come to people who wait; greater things come to those who are willing to work for it”.

  14. Jacqueline J. Young says:

    I think it is better to save and invest your extra money rather than spending it. I think it is a far better idea implied by ioption broker review sites, that investment is one key factor where you can risk loosing money or gaining more. But the best thing about good investment is that you can have a better return and may reuse your saved money to invest over and over again, so there is no money lost in that process.

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