From Ramen to Riches, in 8 Years After College Graduation

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A bowl of Ramen Noodles.
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Every one of us has had "aha! moments." Epiphanies. Days when we reach a crossroads and realize that we have to make some changes. For the next two months, we're sharing moments like those in our Life Stage Lessons series: Real stories straight from the financial lives of our DailyFinance contributors about times when they realized they were due for a serious course correction. So read on, learn from our mistakes, and get inspired to improve your relationship with your money.

When you graduate from college and get your first "grownup" job, you're suddenly making more money than you've ever imagined.

After years of living as a poor college student, this feels amazing.

But depending on how you handle this newfound abundance, you can either set yourself up to become a self-made millionaire -– or you can descend into a downward spiral of lifestyle inflation that sets you up for some serious troubles down the road.

I'd like to share a little story about which of these two roads I picked -- and how it's changed my life in ways I could never imagine.

Extreme Penny-Pinching in College

I graduated from the University of Colorado in 2005 with a sociology degree and an unpaid internship at a newspaper waiting for me. I was in the rare position of having zero debt, thanks to a combination of scholarships, affordable in-state tuition, and family assistance. I lived on ramen noodles, didn't have a car and wore thrift store clothes.

"Frugality" was the sum total of my financial planning strategy at that time, and it paid off. I spent multiple Thanksgiving and Christmas holidays alone in my apartment, eating a plate of $1 spaghetti by myself, rather than paying $200 to rent a car so I could drive home. I spent my entire collegiate career without a computer, writing my senior thesis in the on-campus computer lab. I worked 20 hours per week in addition to taking an 18-credit-hour course load.

But with all of that behind me, here I was: a newly minted graduate with a blank slate. Considering that today's graduate emerges from college with an average of $29,400 in student loan debt, I knew that I was starting in a good place.

After College, Too

Because I had lined up an unpaid internship after graduation, my post-college life wasn't that different, financially, than my college life. I worked full-time in various odd jobs, including waiting tables and landscaping, in addition to the internship.

I lived with five roommates in a small apartment, walking or riding the bus everywhere. I bought my first "business suit" at a thrift store for less than $10 (but only wound up wearing it once because it fit terribly, and I didn't have the money to pay to get it altered).

There was no lifestyle inflation for me; the name of the game continued to be frugality, frugality, frugality, frugality (with a side of frugality). For that phase of my life, it made sense. My main priority was not incurring any additional debt, and I didn't.

$21,000 a Year -- Wow!

But eventually, my three-month unpaid internship turned into a six-month paid internship ($200 per month for 60 hours a month of work), which then turned into a full-time job offer with a starting salary of $21,000. This was in 2006, so adjusted for inflation, that's $24,400 in today's dollars.

I know it doesn't sound like much now. But this was my first "real" money, and I felt blindingly, shockingly, unbelievably rich.

As I contemplated what to do with this shocking new amount of wealth, I realized one thing: I needed to transition from my old college mentality of "scrape by as cheaply as possible" to thinking about big-picture financial planning.

It was time to start managing my money like an adult.

A Grown-up Financial Strategy

I didn't have one of those big "aha" moments, like that type that might emerge from seeing a friend get in over their head on credit card bills. Rather, it slowly dawned on me -- as I saw the "adult" world ahead of me -- that my old mindset needed to mature.

In college, my only financial plan was pay the bills -- which at the time meant covering the cost of ramen noodles and occasionally fixing my bicycle.

But as an adult in the workforce, I realized I'd need to make bigger purchases that demand more planning: saving for a down payment on a house, buying a used vehicle, putting aside enough money to eventually cover the cost of a wedding and start a family. I'd need to begin tax planning, estate planning, retirement planning.

I needed to start thinking harder about my investments, and health insurance and emergency funds. These were big, grownup goals that penny-pinching alone wouldn't be able to help me reach. I needed a broader total money management strategy that encompassed both my short-term goals (pay the bills, travel overseas) and these bigger long-term goals (buy a house, start my own business). So I shifted my perspective from simply trying to live cheaply to working toward these big goals.

My First "Grown-Up" Purchases

With my newfound "wealth," I bought health insurance at $120 per month. Then I saved enough to pay cash for a car, which I conceptualized as "making a car payment to myself" every month. The grand total for my first set of wheels? $400, negotiated down from the asking price of $450.

I spent a week shopping for the cheapest possible car insurance (even though I was only purchasing the minimum required by law), and negotiated a deal with a mechanic who lived in my apartment building: He'd handle my oil changes in exchange for made-from-scratch chocolate-chip cookies.

I asked the human resources department to put 15 percent of my paycheck into my 401(k), even when I was only making $21,000 per year. (In hindsight, I should have only contributed enough to the 401(k) to get the employer match and put the rest into a Roth IRA, but I was a novice back then.)

My Most Ambitious Goals

Then I turned my focus to more ambitious goals: I wanted to save enough money to travel the world for two years.

In college, I had wanted to study abroad, but those programs were too expensive. So I reassured myself that I'd take myself on a two-year study abroad program after graduation. To build those savings, I began freelancing. When I noticed that my hourly rate as a freelancer exceeded its equivalent at my salaried job, I angled to turn freelancing into a full-time income.

After three years, I built $25,000 in savings -- in addition to my 401(k). I quit my job, traveled across Europe, Asia and Australia for two years, and then returned home to resume freelancing.

%VIRTUAL-pullquote-These days, I save more money than I used to earn. %I contacted the same clients whom I had worked with prior to my trip. Some still needed my services, and some didn't. As my clients grew, I began earning enough that I could max out every retirement account: my Solo 401k, my Roth IRA and my Health Savings Account for more than $26,000 annually in retirement contributions.

These days, I save more money than I used to earn. Less than eight years ago, I was earning a $21,000 salary; today I put more than that into retirement accounts alone.

I celebrated by purchasing life insurance, hiring an accountant and upgrading to a used Honda Civic, purchased with only 50,000 miles on it (as opposed to the 250,000 that my last car held).

I used another $25,000 in savings as a down payment on a triplex, moved into one of the units and rented out the other two. This gave me my first taste of real estate investing, and I got hooked. I earned a real estate license and bought four more houses, two of which I paid for with cash.

Who Wants to Be a Millionaire?

I'm 31. I'm working hard, and barring another market crash, I think I'll be a millionaire before I turn 35.

I still live with roommates, drive a used car and rarely buy clothes. I allow myself to splurge on two passions -- world travel and nice restaurants -- as long as I've saved at least 50 percent of my income first.

The biggest key to my success is minding the gap between my income and expenses. I ramped up my income -- making a career shift to earn more -- and I keep my expenses low, rather than succumbing to lifestyle inflation.

My advice to any college graduate? Don't listen to the clichés that say, "It's not what you earn; it's what you save." That's oversimplified. Your income matters. At the same time, don't believe that a higher income alone will bring you wealth. Growing your income is simply the first step; saving and investing is crucial. (For more, check out my Beginner's Guide to Financial Awesomeness.)

In short: Mind the gap. The rest will follow.

Paula Pant ditched her 9-to-5 job in 2008. She's traveled to 30 countries, owns six rental units and runs a business from her laptop. Her blog, Afford Anything, is a gathering spot for rebels who refuse to say, "I can't afford it." Visit Afford Anything to learn how to shatter limits, ditch your cubicle and live life on your own terms.
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