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How I saved enough money to take three years off - 4 rules to follow

From my last post (here), I received several questions related to how I was able to save so that I could live 3 years without an income, which then enabled me to bootstrap my company. I thought I'd share my experience and thoughts on that topic in this post.

I'll start with I'm not a financial advisor and to take this as simply my experience as it is what worked for me.


Here are the 4 Rules I followed:

  1. Save - no matter how much you make - if you make an income, you can save
  2. Live Below Your Means - don't get caught up in the hype
  3. Budget - you need to understand how much you spend and on what
  4. Plan - set up a plan with goals

1. Save

I always saved, even when I didn't have much to save. As was typical for all recent college grads when I graduated, I had credit card debt and student loans. I was fortunate to have gone through school when prices weren't insane, so my student loans weren't outrageous.

My first engineering job out of college only paid around $20 an hour. Which, even for that time, wasn't too much (a wiser, more experienced version of me would have asked for more). However, I was coming out of school at the tail end of the .com bubble, so there weren't too many cool tech jobs to be had.

Even so, early on, each paycheck I'd put money in savings, and focus on paying down debt. I paid down those high-interest credit cards first, then focused on my student loans. I did buy a new car about 2 years into working (which added more debt). Since then, I haven't purchased a new car. Cars are a necessity, and once you start making some money, you are easily tempted to want to buy the most car you can. It looks cool, and your friends will be impressed, but don't do it. Even if you're a car guy. I still see people in their early 20's spending $30K or more on a brand new car. You don't need that, just wait, have patience.

2. Live Below Your Means

It's not easy, especially when all your friends are spending money on fancy nights out at the bar, fancy trips, big weddings, and big houses, in addition to those new fancy cars I just mentioned. I focused on paying off debt, then once my credit was good, savings were growing, I bought a house. I bought a house that was far below my means and fixed it up. I didn't spend a fortune on a big fancy house just because the bank said I could afford it.

I was able to buy low, fix it up, and gain value out of the house. For the first time in my life, only 6 years or so out of college, I had a positive net worth (in other words, the debt I owed, including the house and student loans, was less than what was in savings and what my house was worth). For the first time, I felt like I had some kind of wealth.

When I buy something, I pay for it in cash (i.e. I won't spend 2k for a couch and finance it - this is how you continue to be in debt and can never leave your job). If I can't afford it, I wait to buy it and save until I can. But I still make sure I save (see point number 1).

3. Budget

One of the keys to enable you to save is to have a budget. Write down, in excel, or google sheets, your monthly expenses. Cell phone bill, Netflix subscription, rent, food, etc. Get it all down. Take a look at your bank account to really understand where you are spending your money, then set limits on it.

I'm not saying not to live, but understand when you need to get extra "nice-to-haves" out of your budget. Things like 5 different streaming services, going out to eat every night, the big bar tab on Friday and Saturdays, etc. Understand where your money is going, and set limits for yourself. Make the hard sacrifices now so you know you will be better set up for the future.

I used excel for my budget, and I didn't follow it to the T, but used it more as a guideline. I let myself go over from time to time in one area, as long as I made it up in another, and I would always save (that was a hard rule, not a guideline). Know yourself though, if you need to be strict with yourself, then be strict. If you can manage as a guideline as I did, then do so.

4. Plan

I'll admit, this one I wasn't always good at. I was working hard, and moving up the corporate ladder. I was making good money, and when I started, I thought I'd go along for the ride and see where it would take me.

I will never regret any of my experiences. That ride took me all over the world as I was able to travel for my job, introduced me to some awesome people, and gave me some great experiences, including some great lessons learned. However, I got to a point in my life where I was simply unhappy (see my last post).

I wasn't doing what I was meant to do so one day I sat down and laid out my goals. I set up short-term goals, long-term goals, and then stretch goals. Once I had my goals laid out, I was able to put a plan in place as to how to achieve them. I set up a realistic plan, with steps I knew I could take.

Since I already had my budget, I knew exactly how much money I needed to have each year, without giving up any extras (things like Christmas presents or the occasional dinner out). I gave myself a buffer and said I only need $X dollars a year to live off of in order to survive. And if push came to shove, I could cut things (streaming subscriptions, eating for cheaper, etc.).

One comment on cutting expenses: it is easier to cut expenses when you are younger versus when you are older. When you're 26, you probably don't have a mortgage and kids to worry about. So the younger you are when you set up your plan and goals, the better. And don't worry, it can change. I still don't know what I want to be when I grow up and I just turned 40.

I had no kids, and, because of my crazy urge to not have debt and to save, and my strategy of buying low and fixing up, I was able to pay off my house in about 8 years. This may be more difficult to do now, as housing prices have gone up a bit since I bought mine, but it's not impossible. If I were to do this again, on my next go-around, I'd buy a duplex this way I could live for free. There are always options, don't use the current events or situation as an excuse not to move forward with your goals. You can figure out a way with a good plan. But the first step is to set those goals, then set your plan.

Once I had my plan, I put it into motion. I knew how much money I needed to save to live for three years, and I put that much money in my savings account. Once I hit that goal, I quit my job. "Experts" disagree with this advice, they say to start your company on the side. For me, I wanted to go full in; to give 100% to my new company. So the takeaway here is to do what works for you.

As a side note, I also had savings in the form of an IRA and 401K from work, as well as a brokerage account I would play with from time to time. Those savings were off-limits for my adventure to bootstrap a company, that's my retirement. But it is an extra buffer if push were to come to shove and I needed some extra money to keep going. So as you can see, I like to save then put my money into places where it can make me more money.

Conclusion

I don't know where this will go, and I could completely blow my savings then I'll have to do the unthinkable again: get another job. Either way, I am not too worried, there are plenty of jobs out there, professional or otherwise. If I really needed to, I'll drive for Uber or Doordash to make some cash to keep going (which are great options to earn cash without a full-time commitment).

If I decide my venture is not worth it anymore, I'll pivot, or try to find a job back in my field, or maybe a new field. To me, life isn't worth the number of dollar signs tied to what I earned in a year, but more about the experience. For you, it may be different.

I will end this long post with one last thought: I know I have been incredibly lucky. I didn't plan for all of this, and some of it just worked out. Hopefully, my experience can help others. Some of it I did plan, other bits were luck. I did choose (at least what I think) a good field to study in college, and it has opened doors and given me skills I can use in many careers. I also know I am fortunate that I was able to go to college, though I paid for it myself, I always knew I had to go.

I worked hard at my job and worked my way up. I found myself with a big title and a nice salary but still stayed focused on saving and not overspending (though the more you make, the harder it is to keep your spending under control). This had a cost: time, energy, goals, etc., so keep that in mind.

I also know I'm not perfect, but all I can do is try something, make a mistake, and learn from it.

To me, this is a perfect forum to hear others' mistakes and to try to learn from theirs.

I hope this was helpful.

  1. 3

    Saving and also investing 😎

  2. 2

    I failed "2. Live Below Your Means" and "3. Budget" haha.

    I just couldn't help but continue to buy even though my savings was going.

    My problem was not "nights out at the bar, fancy trips, big weddings, and big houses". It was more so splurging on electronics.

    It's fine though, I'm much happier with the things I have as the frugal life style really just wasn't for me. I also got to spend at least a year+ on my projects from savings.

    As for right now, i've been getting tons of interviews so i'll be working but I am also working on a new project which I am looking forward to share as this time I decided to partner up for the first time with a friend irl :)

  3. 1

    Sound reasonable 👍Thanks for sharing :) The rewards of becoming a debt buyer are mainly financial. If you are successful, you can make a lot of money by purchasing debt at a discount and collecting the full amount from the debtor. You can also make money by charging fees for your services.
    What are the requirements?
    There are no specific requirements to become a debt buyer, but there are some things that will help you be successful. These include

    • A solid understanding of the debt buying industry
    • A good understanding of the legal aspects of debt collection
    • Strong negotiation skills
    • The ability to finance your debt purchases
    • The ability to collect payments from debtors
    • The ability to manage risk
      Here are some more takes on the issue https://www.debexpert.com/blog/how-to-become-a-debt-buyer
  4. 1

    One small additional info for the Tip 3 (Budget) : Using YNAB (saas) helped me dramatically in the way I'm budgeting . (Not sponsorship or something )

  5. 1

    i'm definitely one of those people who's always wondering how indie hackers save enough to take years off at a time. i appreciate the practical advice here! is there any part of you that regrets not going out for meals and stuff with friends? for me, that's one of the places i blow the most money...but also, it seems worth it to save my sanity.

    1. 3

      Hi Sam - I didn’t stop going out with friends. I just made sure I understood how much I spent and then was sure not to spend too much. Bar tabs can build up quickly, and eventually we stopped going to the bars as much and just out to eat from time to time. We also hangout at each other’s place a lot as well.

      I agree, you need a social life and friends are important. I suppose my friends group wasn’t always about going out all the time either, so I suppose it depends on who you surround yourself with. However, from time to time, it’s good to get out and enjoy yourself.

      No regrets on my end.

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