• Frankie Calkins

9 Ways I Sock Away $50,000 A Year (& Where I Put It)



“You’ll never get to relax in the shade of your retirement tree

if you don’t plant a retirement seed today.“

-Me

(poorly remixed from Warren Buffett)


Some personal background: I live in (a not inexpensive part of) Seattle. I’m 33 years old. I share an apartment and therefore also split bills and common expenses like groceries. However, I am on my own when it comes to Insurance (car, motorcycle), my cell phone plan, and *gulp* students loans ($550 a month I wish I was kidding please send help!). I thought about revealing my income but I don’t want you to focus on that number because this is about concrete strategies and taking action.


This is not a brag (I think the kids call it a “flex” maybe?), and it took me years to get to this place but you CAN do it too. I believe in full transparency because not enough of that exists these days when it comes to talking money. Here’s what it looks like for me...


The 9 Step Quick Math Summary:


1. 401K: $19,000 (the max)

2. Traditional + Roth IRAs: $6,000 (the max)

3. HSA: $3,000 + contribution from employer: $500: $3,500 (the max)

4. Emergency Fund: $3,900

5. My "Other" Emergency Fund: $12,000

6. Personal Investment Account: $2,500

7. Acorns: $1,460

8. Tip Yourself: $910

9. Tax Return: $620

TOTAL: $50,000 (ish)


1. 401(k): $19,000


Back in 2016, I attended a free (optional) work education seminar -- aka “yesssss, two hours away from my cube!” -- where the sole focus was 401(k) and retirement planning. And I’ll never forget the moment the woman presenting said we should be contributing at least 10% of our paycheck. What. The. Actual. Ef… The entire room of young broke millennials went silent. I was contributing $150/mo. Just a tick under the max employer match. Ugh.


You may feel a little sick right now though. Sorry! But what a difference a couple of years can make… take a deep breath and read on :)


The max for 2019 is $19,000, up from $18,500 in 2017 and 2018. To get there I upped my commitment to 5%. Then, when I got a promotion, I upped it to 10%. When I got a new job (and another raise) I upped it to FIFTEEN percent. Wow. From there, I upped it 1% a month for 4 months until I hit $19,000 to start 2019.


Note: My new company does NOT offer a match. Lame. I know. Yours might. In which case your $19,000 might be closer to $22,000. Always hit the match at a MINIMUM. That’s free invested money.


Note: I’m ignoring digging into discussing tax benefits associated with any of my efforts for the sake of simplicity and staying focused on the savings aspect.


2. Traditional + Roth IRAs: $6,000


In 2019, the maximum contribution to an IRA (it doesn’t matter which kind or how many you have) is $6,000 in 2019, up from $5,500 in 2017 and 2018). That maximum is combined. I contribute $1,000 a year to a Traditional IRA through Betterment and automate this every other Friday when I get paid so I never see this money enter and leave my account… well… unless I stayed up and watched my bank account between midnight and 1am :)


I contribute $5,000 to my Roth IRA manually -- $1,000 when I can as a priority at the beginning of the year -- which I set up through my brokerage account at TD Ameritrade. Note: Be sure to keep this account separate from any kind of 401(k) rollover account or personal investing account you might have for tax purposes. I have 2 TD Ameritrade accounts for example (I can switch between them easily using the same login). It’s May 3rd as I write this and I’ve already maxed out this $5,000 part. Because onto the next #moneygoal.


Want to understand the difference between Personal & ROTH IRAs? Great! I’ll explain it… in my book. Go pick up your very own copy here! Would rather listen? Great! The audiobook JUST came out!


Just like that, I’m halfway there. $25,000 socked away.


Pro Tip: I look at maxing out my 401(k) and IRA annually as a bill I HAVE to pay. YOU HAVE TO PAY YOURSELF FIRST. Seriously. You will only succeed and reach your goals long-term if paying yourself first IS YOUR TOP PRIORITY. “But how will I pay my bills and such?!?” You’ll figure it out


*End of rant and SCREAMING*


*Beginning of congratulatory YELLING*


IF YOU STOP HERE THAT’S AMAZING AND CONGRATULATIONS. $25K is no joke. You’re ahead of 98+% of your peers. I can’t site that fact. Just trust me and stop comparing. This is about you. Now, let’s move on to NEXT LEVEL SAVING AND INVESTING TIPS...


3. Health Savings Account (HSA): $3,500


To be clear up front: the max you can contribute to an HSA is $3,500 in 2019. My company DOES contribute to this to the tune of $500 a year. So I set aside $3,000/year. Do not contribute more than $3,500 total! My company's contribution counts towards my max.


Also, you just have a high-deductible health plan (HDHP) to have an HSA. FSAs are good but the rules are very different. For example, tax-deferred money you save towards that is use it or lose it annually. Hard pass for me but everyone is different.


4. Emergency Fund: $3,900


I set up a $150 auto-deduction from my checking to my Betterment “Safety Net” account every payday. Why 3,900? Well, I was aiming for $4,000 but I like round number deductions. Why $4,000? I estimated that’s what I needed by the end of the year to conceivably cover living expenses for 4 months (I wasn’t starting from zero if you're wondering). Some say 6 months. I think even having 2 months of living expenses tucked away is an awesome starting point.


But how do you calculate your monthly living expenses? Be sure to tally up what you’d need in case of a catastrophe (think loss of job) for: rent/mortgage, all insurances, pet/childcare, food, and transportation, and any bills/subscriptions/memberships you wouldn’t get rid of during said catastrophe.


5. My Other Emergency Fund: $12,000


This one is simple. I set up an online-only high-interest savings account through Ally. I move over $500 twice a month. This is NOT automated at the moment but I’m planning to do so soon. This money grows at 2.20% a year and, best of all, is out of sight out of mind.


Did you know that in most cases you can rename your account? Instead of "Savings" or even "Rainy Day Fund", I call this "FU Money". Think about it… having this tucked away means freedom. Thinking of quitting that awful 9-5 you hate or moving to another country and starting over? If you have FU Money, you actually might be bold enough to take the leap. It’s called freedom. If you get to this step you start to understand what real freedom feels like you guys…


6. Personal Investment Account: $2,500


In 2018, I started my personal finance journey by downloading Stockpile and buying fractions of individual stocks. In total, I bought $550 partial shares in about a dozen companies I like and support personally. To date, this money has grown to about $600. That’s nice growth I suppose but that ride has been a roller coaster and taught me to NEVER BUY INDIVIDUAL STOCKS. At least, doing it at random like I was...


With that said, I have been doing a lot of research into dividend-paying stocks. As soon as I feel fully educated and the timing looks right to jump in, I plan to spend about $2,500 buying dividend-paying stocks in 2019 via the app Robinhood (that's just under $50/week). Again, I’m early in this process but the idea here is to buy and hold and reap the benefits of dividends monthly and quarterly. This is essentially “fun money” I’m comfortable losing and don’t bank on this to build wealth. I do hope to document this new endeavor via my YouTube channel so be sure to subscribe over there and check that out as I buy and learn this year!


7. Acorns: $1,460


Automatic round-ups. It’s the best. This app helps you stash away extra change you won’t miss AND invests it for you. This is my favorite app to recommend to newbies because it’s exciting to see your change grow without having to do much after taking a couple of minutes to set it up. You’ve likely heard of it. If you’re looking to get started, you can download the app and get started here.


Why $1,460? I simply backed into my average of the last 4 months to project my total savings for 2019.


8. Tip Yourself: $1,000


My next “go-to” app for saving. Tip Yourself is much more hands-on, the UI is basic, and it doesn’t invest your money in any way. It’s basically a tip jar. Adding money to a real life piggy bank at home is technically losing money when you consider inflation so this app is not a way to get ahead. Instead, I “tip myself” as a reward for accomplishments. Specifically, I use it to tip myself $5 every time I go to the gym (or workout). I go, on average, 3.5 times a week. Since this money is sitting idle, I use this as my spending money while traveling. And yes, I’ll spend a good chunk of this money by year’s end but saving money to spend on something I love is still saving money…


9. Tax Return: $620


This year I got less than normal (like many of us) and I decided to save it all by moving it straight into savings. This is YOUR money you let the government “borrow” at no interest throughout the year. Don’t look at it as a bonus you can splurge away. Save it OR put it toward bad consumer debt with double-digit interest. Or invest it in yourself. Or #payitforward. You get the idea...


Total: $49,890


Hold up a minute. That’s NOT $50,000!! I see nothing gets by you wise one... I’ll tip myself $110 on December 31st if I don’t make some other kind of tiny adjustment along the way. I just wanted a reaction out of you…


The Best Part Of Saving $50,000?


Remember that $25,000 I put aside in steps 1 and 2? Guess what? That money GROWS! Wonder why I front-loaded investing in my ROTH this year? Now you know. Time. Is. Money. (unless of course, 2019 ends up being a "bear market". BUT, even if so, it’ll turn around. IT ALWAYS DOES. Leave your invested money alone NO MATTER WHAT until “retirement”).


Remember that Acorns account I have? Or that Betterment IRA? Those grow too. Even my “Emergency Fund” and “FU Money” grows at a rate of 2.20% annually in my Ally online high-interest savings account because even your handy cash savings has to keep up with the rate of inflation (~2%/year)


By mixing together goals, frugality, and automated savings with compound interest, no consumer debt, and new passive income streams (more on side hustles in the future!), I’m planting one beautiful seed that future me will thank -- as I relax in the shade of my retirement tree. Heck, NOW me thanks January 1, 2018, resolution-setting me already. Hugs and high-fives, younger me.


“I see HOW you did it, but HOW can I?!! It’s not THAT simple for everyone...”


I can’t answer that for everyone because every life situation is so uniquely different. But go back and read about how I save close to $24,000 a year just being smart with my money, every day. That money I “save” with daily good decision making nearly covers steps 1 and 2 above.


No. More. Excuses. Make good decisions. Set goals. Automate. Pay yourself first. Pay your SELF BILL first. It CAN be that simple.


Best of luck. High-fives and hugs. *Deep breath*


You got this.

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© 2020 by Frankie Calkins