Growing up as a child, my mother instilled habits of saving to me. She would remind me by saying, “If you have $10, spend $5 and keep $5.” I kept a “stash” of money, which was in a safe box at the bank, so that accessing the money would require a great amount of effort. I even ironed my money so that the crisper bills would be arranged neatly in the stash.

My early college days were rough. After my mother and I moved back to the West Coast, we had to start our lives over. My mother made a modest wage at her job, where more than half of her pay went to rent. Envy filled my heart as it seemed as though those around me had more money to afford nicer things. Nicer clothes. Nicer gadgets. Nicer homes. I told myself, “I do not want to continue living like this. I deserve better.” I had a stash, but I did not want to spend all my savings at the expense of instant gratification when I was not earning any money. My initial goal of having the stash was to splurge on nice things once I graduated college, such as nicer clothes and a down payment for the Lexus GS350, but that goal changed in the end. (More on that later in the series…)

Almost every Thursday during my first two years of college, I stopped by the mall near our place to visit the Apple Store. I developed a knack for window shopping, where I sampled nice things but not buying those things in order to develop self-control. I browsed the Internet on the MacBooks displayed for Lakers news during the much-dreaded Smush Parker-Kwame Brown era. I listened to Kanye West’s “The Good Life” on the Bose on-ear headphones from the iPod nano displayed. Once I got my fix of sampling nice things, I stopped by the Auntie Anne’s on the way out of the mall to eat an almond pretzel. As I ate the pretzel, I told myself, “I will one day live The Good Life.”

Fast forward four years later to the summer of 2011. Noy Sauce made the leap of faith moving from the Best Coast (err…I mean, West Coast) to the East Coast for an adventure. On my first month in the East Coast, I applied to many job positions with the hope that a company will take a chance on me. In between applying for jobs and attending interviews, I was left with plenty of free time. As I browsed the internet one evening, I googled “saving”. I came across a blog that offered bite-sized articles on ways that I can save money and use that money to make more money. One article led to another on the same website. Before I knew it, I had more than 15 tabs opened in my Google Chrome browser. The feeling of finding a resource that piqued my interest was nothing short of bliss. I read the articles one-by-one nonstop for almost three hours, and when it was time for bed, I had one goal in mind: further cultivate my saving mindset.

Once I started my first job, my mother shipped my car to the East Coast. When the costs of shipping, title and registration, insurance, and maintenance totaled close to $2000, I asked myself, “Hmmm…if I spent this much just to have my car here, how much more would it have cost to get that Lexus GS 350 I wanted during my college days? Fuck it. I’m keeping this car, and I will run this car to the ground.” The money I saved by foregoing the GS 350 was pretty embarrassing the first few months I started working that I wondered what to do with it. As I continued cultivated my saving mindset, I stumbled upon a blog that shared basic investment advice, in addition to saving.

According to Google, the word invest means to “expend money with the expectation of achieving a profit.” I heard about stocks and bonds, but how do stocks and bonds make money? I asked myself, “Why did they not teach us about saving and investing in school? Isn’t this stuff more important in life than understanding why the search bar on a webpage is best located on the top-right-hand corner? Sure, Mom taught me the basics of saving. But there has to be more than what she had taught me.”

I used my free time after work to read books and blogs on economics and investing. The most important lesson I learned from reading books and blogs on economics and investing is that having the self-control to live with less matters more than figuring out the “best” investment portfolio that generates the largest returns. This meant that I would have to not totally succumb to lifestyle inflation, by living a similar lifestyle I had from college. (Think of lifestyle inflation as having more newer and nicer things as you earn more money.)

The easiest ways to avoid lifestyle inflation are to be content with what you already have materialistically, and to not have all your take-home pay deposited to your checking account. The former can be achieved by expressing gratitude for being alive and being in the current situation you are in. Finding peace in your situation enables you to live below your means, and indirectly save money. The latter can be achieved by setting a certain amount of your paycheck to your savings and retirement accounts, based on how much you spend in a month.

A few of Noy Sauce’s unconventional ways of saving money (and somewhat maintaining the college lifestyle):

• Driving a seventeen year-old car instead of a newer car that is less than five years old. I saved at least $400/month in car payments over five years.
• Not subscribing to cable television, and only subscribing to high-speed internet. I saved about $75/month with this decision over four years.
• I forgone purchasing a MacBook Pro, and instead upgraded my laptop from college by replacing the conventional hard drive with a solid state drive (SSD). I installed a free licensed version of Windows 7 I had from college (one of the perks of being enrolled in a STEM major at a university). The boot-up speed was comparable, if not faster, than the MacBook Pros at that time. The SSD cost about $200, and compared to buying the MacBook Pro I wanted that was priced at $2000, I saved $1800.
• I bring my own cooked food to work (when I am not lazy to cook). I save about $40/week.
• I rent instead of owning a house. I save about $800/month in mortgage payments (based on the price of rent in the area where I live; I currently pay $1200/month). The cost of owning a house does not include the opportunity cost lost in investing the savings in a stock fund. I could get a roommate or live with family to save even more money, but I do enjoy the privacy and freedom. Besides, having my own place makes me manly.
• I am open to furniture hand-me-downs. I saved about $1400 in having furniture given from friends and family. My dining table set was found next to the apartment dumpster one Saturday afternoon a year after I moved into my apartment.

After spending four months reading and internalizing material on saving and investing, I decided to pursue passive investing with my money.

Passive investing is investing money in a portfolio periodically (i.e. every pay period, two weeks, etc.) with paying little attention to the market swings. This type of investing ensures that you will get the expected average return of the market, which is around 7% per year. The goal is to not beat the market, but rather match what the market returns on average.

When you attempt to beat the market by looking for downward swings in the market in order to invest, you are actively investing. You may beat the market, but chances are that you will lose against the market.

A good analogy to passive investing is like sprinkling salt onto your meal. You do not know exactly where each grain of salt will land, but you have a general idea on where all the salt will be.

(Note: The types of accounts are primarily applicable to U.S. residents. YMMV if you live outside of the U.S. However, the principles of saving are still the same.)

The best place to start passive investing is through your 401(k). The 401(k) is a retirement savings account sponsored by your employer. The money you contribute to a 401(k) is before taxes, and will grow tax-free until you retire and start making withdrawals. The 401(k) is known as a tax-deferred account. Most companies match contributions up to a certain percentage of your pay. For example, one company may match dollar for dollar up to 3%, and another company may match 50 cents for every dollar invested up to 6%. It would be a good idea to at least invest as much as your company’s matching contribution, because it is literally free money. The company matching may not seem much right now, but 20 to 30 years from now, the matching will make a big difference because of the power of compound interest.

For the best savings in your taxes, first contribute up to the employer matching of your 401(k). Then, contribute to a Roth IRA. A Roth IRA is another type of retirement plan whose earnings are not taxed. The money you contribute to a Roth IRA is after-tax, which is the money you get after all the deductions in your paycheck (such as taxes, health insurance, and life insurance). What is great about a Roth IRA is that the investment earnings you make grow tax-free. You can also withdraw your money anytime before age 59 1/2, as long as you do not touch the investment earnings.

For example, in 2015, you contributed $3000 to a Roth IRA. During that year, the Roth account increased in value by $200. In 2016, an emergency comes up and you need money. You can withdraw the principal payment, which in this case is $3000. As long as you do not touch the $200 in earnings made, you will not be penalized an additional 10% in taxes.

IRA stands for Individual Retirement Account. There is another retirement savings account called a Traditional IRA, which functions similarly to a 401(k) in that the contributions are considered before tax. You would contribute to a Traditional IRA if your employer does not sponsor a 401(k) account. Technically you make your Traditional IRA contributions after-tax once you receive your take-home pay, but you make the tax deductions when filing your taxes.

In 2016, the most you can contribute to a Roth IRA and Traditional IRA combined is $5,500 (assuming you earn less than $184,000 for the year and are younger than age 50). Once you max out the contributions to the Roth IRA and/or Traditional IRA, the next step is to contribute to the maximum of your 401(k), assuming your employer sponsors that plan. The limit you can contribute to your 401(k) for 2016 is $18,000. If you would like to invest the maximum, you can calculate:

Percentage deferred to 401(k) = $18,000 / your pay before taxes

Once you max out your 401(k) contributions, you then can finally invest in a taxable account. This money can be withdrawn anytime without a 10% penalty, unlike the three retirement accounts discussed.

To summarize what was discussed in Part One of Noy Sauce’s Investing Series:

• Noy Sauce had some growing pains during college.
• I love my hooptie. Driving my hooptie and paying my bills in full each month trump driving a Hummer H2 and paying for groceries at the 99 Cent Store using coins. (True story.)
• The amount of money you save matters more than picking the right fund.
• Passive Investing for the win!
• Simple guide to get started:
• Contribute up to the employer matching of your 401(k).
• Contribute up to the maximum of a Roth IRA and/or Traditional IRA ($5,500 for 2016).
• If you still have money left over, max out your contributions to your 401(k) up to $18,000.
• If you still have money left over, invest in a taxable account.