When I was in Los Angeles, I decided I wanted to buy a house. Actually, I had wanted to buy a house since high school, and not being able to buy a house was a constant, dull ache in my heart. At some point when I was living in L.A., however, I decided I was going to buy a house, the high housing prices be damned, and I was going to do it soon.
So I made a budget decision. That decision was to live on one third of my salary, pay taxes with one third of my salary (well before I had any good tax deductions), and save the last third of my salary. The decision required some sacrifices.
I moved out of my single apartment and into a room at Kelly Johnson's house. It made a longer commute, but reduced my monthly rent from $800 to $350. I was already maxed out on my 401k (I'm a huge fan of 401k programs, regardless of employer matching), so that was 15% down. I set up an auto-investment program, putting $1000 a month in investments with no effort. Any bonus or increase in pay was immediately funneled into investments. Taxes were automatic. The living expenses were more difficult.
Rent was included in living expenses, as was gas, insurance, car repairs, food, movies, and books. I would have said "clothes," too, but at the time, I didn't really buy clothes, so those expenses were negligible. Well, maybe cleats and sports bras, but that's about it.
Two years later, I had enough money for a downpayment on a house. Because of circumstances, I bought a condo (story there, one I'll tell at some point when I've run out of other stories), instead of a house, but I bought a place to live. Instead of just a downpayment, I also had 25% of the purchase price, with funds leftover for repairs.
It worked well. As I ponder the list of things I'd like to purchase or have done to the house, I'm inspired to do it again. It's not a new year's resolution, more of a guideline. It means, in contrast to the end of last year, I now pause before I pull out the credit card. Can I get this at the library? Could I borrow it from a friend? Do I really need this?
Since I'm trying to get rid of stuff, this'll help ensure I don't bring in as much as I send out.