Do you have things you want but consistently tell yourself you can not afford it? I am sure you will enjoy this week’s Interview with Paula Pant from Afford Anything. Paula is a journalist-turned-blogger, speaker and media commentator specializing in personal finance, real estate, and lifestyle design. In 2008 which was the same year as the financial crisis, Paula decide to quit her job and sell all of her possessions. For the next two-and-a-half years, she decided to backpack across Asia, Europe, and the Middle East.
She has created a movement on her blog Afford Anything which is based on the idea that you can afford anything. The movement believes that life is too short to sit in a cubicle.
Let’s hear how Paula has been able to master her money, so she could ditch the 9-to-5 and embark on an epic adventure:
What event lead you to decide you to quit your job and travel the world?
When I was in college I wanted to study abroad, but study abroad programs were prohibitively expensive. It cost $10,000 to $15,000 for a single semester at the least; some of the more expensive study abroad programs cost as much as $20,000 for a single semester. I couldn’t pay for that — so I started thinking creatively about how else I could get the study abroad experience.
I realized that I didn’t really want to study, I just wanted to go abroad. I decided that after graduation that I would work for a few years, save up some money and then quit my job and travel … and that’s precisely what I did. People are often surprised when I get to that last line of the story, the line in which I took an idea and put it into action. When I quit my job, all of my friends said “Wow, you’re actually doing it!” and all I could think was, “well, yeah, I’ve been talking about it for years. Why would you think I wouldn’t be?”
How long had you planned this?
I suppose you could say that I planned my round the world trip for five or six years, starting from the point that I was a college student with a dream. But true planning, in the sense of accumulating money into a savings account that would be used to fund the trip, began with I accepted my first job out of college.
I was earning a starting salary of $21,000 per year. I saved 20% of my income and then I freelanced during the evenings and weekends and saved 100% of that money after taxes. After three years, I had accumulated $25,000 and was ready to quit my job.
What steps did you need to take to make sure you could do it?
The biggest step that I took was saving money. I knew that I didn’t want to come back to the U.S. after only four or five months. It was important to me to be able to sustain a two-year trip and so keeping a large cash cushion was crucial to fulfilling this dream.
I took a few smaller, shorter trips for durations of about two to three weeks while I was saving this money. These short trips were a little trial run but taught me how to prepare for a big trip for example, I learned to stay at Hostel’s, I learned how to pack, I learned which guide books to read and how to access internets and got a realistic sense of what type of budget I could work with.
What was your biggest challenge or roadblock when it came making that change?
The biggest roadblock was psychological. I was afraid of quitting my job. I thought it might be career suicide. I worried that I would never get a job again. At that point in my life, I had no ambitions to become a full-time entrepreneur and so I constantly worried about how things would look on my resume. I had to give myself the mental permission to quit.
How did you feel once you reached your goal and were able to quit?
Obviously I was overjoyed, enthusiastic and excited when I quit my job. The reality of it seemed so surreal. Within one week I put in my last day of work, gave up the lease on my apartment and flew to a foreign country, that’s a pretty big week.
What are your current financial goals?
Currently I am financially free, which means that I make enough money from my investments to cover all of my expenses. I don’t have additional financial goals because I’m satisfied with my current status. My goals now focus on travel, fitness and having fun; enjoying my successes.
What tools do you currently use to manage your finances while you travel?
I keep an account with Charles Schwab bank because they don’t charge ATM fees and will reimburse other banks’ fees. Since I’m going to be pulling money out of random ATM’s all over the world, it’s nice to have a card that doesn’t charge ATM fees. I also maintain credit cards with Chip-and-PIN technology and no foreign transaction fee.
Finally, I keep a money belt on my body which contains my credit cards, debit cards and passports. I carry only a small amount for daily spending in my wallet. That way if I get pickpocketed, I will only lose a negligible amount of money.
What one thing have you done to enable you to live your current lifestyle?
The biggest thing I have done to enable my current lifestyle is living significantly under my means and investing the difference. For several years I have saved at least 50% of my income. That has allowed me to become a real estate investor and gain financial freedom. I drive a used car and I don’t shop for the latest designer clothes or handbags or anything like that. I spend most of my money on travel and of course, I invest a lot of my money into building my own businesses as well as buying passive-cash-flow real estate.
Why did you start the One Percent Challenge?
I began the 1% challenge after many of my blog readers expressed that they were having difficulties in saving enough. They understood the importance of saving, but they couldn’t figure out how to find that money within their budget.
The 1% challenge, for those of you who are not familiar with it, is a challenge in which people increase their savings rates 1% per month. If you currently save 10% of your income, save 11% next month. If you currently save 15% of your income, save 16% next month. If you earn $3,000 per month, for example, 1% equals $30. If you earn $4,000 per month, 1% equals $40, and so forth.
Each month, increase your savings by an additional 1%. After a year, your savings will have increased by 12%.
What type of feedback have you received since it started?
The feedback from the 1% challenge has been tremendous. My readers have been incredibly creative in finding ways to save, ranging from doing away with home internet completely to rounding up every purchase that they make. They share all of these tactics and tips in our Facebook group which is a great resource group to join with a community that is taking the challenge.
What three things do recommend in order to simplify your finances?
To simply your finances, adopt what I call the anti-budget. Skim your savings off the top first, and then go wild with the rest. I’m not a detail-oriented person, so I don’t like tracking precisely how much money goes towards toilet paper and cat food. I would much rather have the assurance of knowing that I’ve set aside my savings, and whatever is left over in my bank account is money I can freely spend without worry.
The second tip is specifically for couples. Live as though you only earn one income, even if you earn two. Now that I’m part of a couple with joint finances, we have a very simple budgeting strategy. We save 100% of the take home pay of whomever earns more. This guarantees that we will necessarily be saving more than 50% of our income.
My third tip for simplifying your finances is to automate all of your bill-paying. You don’t want to have continually track which bills are due on which days.
What’s your best savings tip?
The best savings tip is to focus on the big four: taxes, housing, transportation and food. Americans spend more money on those four categories than anything else. Taxes and housing collectively consume about 50-60% of a person’s pay. If you can reduce each of those by 5 percent, you will have instantly saved 10% or more — without worrying about skipping lattes.
What book, blog, or podcast would you suggest to someone who is looking to simplify or improve their finances?
Obviously I would suggest affordanything.com to anyone who wants to simplify or improve their finances. If you are a beginner, I also the Stacking Benjamin’s podcast, which takes a lighthearted and fun approach to discussing money.
What advice or thoughts you would like to share with others who are looking to simplify?
My best piece of advice for anyone who wants to simplify their finances is to pull their savings off the top first. I refer to this as the anti-budget because it’s not what people imagine when they think about budgets. Most people think about line-itemizing every expense in excruciating detail. But if you simply pull the savings off the top first, you don’t need to worry about how you are spending the rest of your money. When I say “savings,” I’m referring to money that could be used for investments, debt pay-down and literal cash savings.
To read previous interviews in the series click Simple Inspiration Interviews.
If you are interested in sharing how you have simplified your financial life, send me an email and I will follow up with you. Enjoy the rest of your week. Til next time, take one step at a time to simplify.