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How I Cut Living Costs by 42%

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    How I Cut Living Costs by 42%

    My basic living expenses weren’t always $15,000 a year (http://www.savingadvice.com/forums/p...ss-budget.html). Before I really started paying attention, my annual basic living expenses added up to $26,000. As I gradually awakened to the advantages of financial independence, I also gradually undertook getting those expenses down by 42% so I could reach financial independence sooner and become job-free. Looking back, it was surprisingly simple to do. Not easy, because it did take effort. Not fast either, because it did take time. But simple? Yes.

    Still, there were definite limits to what I was willing to cut out of my basic living lifestyle. I was worried about having to give up my house and live in an apartment, depending on public transportation or on an old beater car, freezing in winter or broiling in summer, eating a starch-heavy diet, or putting my stash at risk from unexpected and catastrophic costs.

    But I learned that I did not need to worry. There were a lot of ways for me to trim down my basic living expenses without making any significant sacrifices.

    In a nutshell, I sliced down my mortgage payment, eliminated completely my car and installment debt payments, adjusted my insurance deductibles, changed my stock broker, modified my energy usage, redirected my electronic entertainment focus, fired the maid service, and trimmed the fat out of several household operating expenses.

    The result was a drop in my basic living expenses of $11,000 a year.

    This is something I believe anyone can do -- IF they have a good enough incentive to do it. My incentive was to be able to retire a decade sooner.

    Based on a 4% Safe Withdrawal Rate (SWR), that previous $26,000 in basic living expenses of mine meant that I needed a financial independence stash of $650,000. For me, that was a lot and I still had a good ways to go before I got there. But I realized that every $1000 I could cut from my basic living expenses would lower my "magic" financial independence number by $25,000. And THAT was a damn good reason for me to bring down my basic living costs.

    Reducing my basic living costs by $11,000 a year dropped my financial independence stash number by $275,000. Which got me to financial independence 8 to 10 years sooner. And those extra 8 to 10 years of freedom made the effort worth it to me.

    Is reaching financial independence sooner worth lowering basic living costs to you? If so, how are you doing that without having to make significant sacrifices in your basic daily lifestyle? If not, why aren't the added years of freedom worth it to you?
    Last edited by Retired To Win; 11-08-2014, 06:53 AM.
    Retired To Win
    I blog weekly on frugal living, personal finance & earlier retirement at:
    retiredtowin.com
    making the most of my time and my money

    #2
    Good thread. I love the perspective shown with the $1k example. I want to retire early. I get sidetracked occasionally by new cars, but I would rather shave time off of my years at my job instead. My car is fine!

    I also just recently realized that I wrote all of my expenses down and analyzed them closely but I never put limits on categories. For example, I would budget $200 a month for clothing and eating out and then I would write down what I actually spent. I never limited what I spent by tracking throughout the month and then cutting myself off. I'm starting to do that now.

    Comment


      #3
      Originally posted by Retired To Win View Post

      Is reaching financial independence sooner worth lowering basic living costs to you? If so, how are you doing that without having to make significant sacrifices in your basic daily lifestyle? If not, why aren't the added years of freedom worth it to you?

      Good job, you set a goal and met it.

      To answer your questions, I have a different goal, so I have never thought very hard about everything I could cut to retire as soon as possible. After working for peanuts for several years I made a decision around 28 that I want to live a good lifestyle throughout my life and not just grind to a comfortable retirement. I may not be setting any retirement saving records but I'm having a better time than I would have had penny pinching the whole way, although I know some people content or even happy to do this. You only live once so I want to enjoy the whole ride, for me that means spending a little more than the minimum. Plus my pension hits a key point when I turn 63 so no use retiring before then. With the 3 prong approach I will have more money coming in during retirement than I will working if everything holds up.

      Comment


        #4
        I would like to suggest do not be extravagant or niggardly but hold a just balance between

        these two extremes.

        Comment


          #5
          Cutting Car Costs: a HUGE Financial Independence Win

          Originally posted by Reggie View Post
          Good thread. I love the perspective shown with the $1k example. I want to retire early. I get sidetracked occasionally by new cars, but I would rather shave time off of my years at my job instead. My car is fine!...

          We got "lucky" when an accident cured us of our preference for newer cars.

          In the year 2000, we bought a two-year-old 1998 Subaru Forester on payments. In 2003, with the car finally paid off, we were just starting to feel and enjoy freedom from those payments when the car got totaled in a freak accident. With the insurance settlement check in hand, it was time to buy another car. And so we asked ourselves: what should we do?

          Should we again buy a two-year-old (2001) car and re-obligate ourselves to monthly payments? Or, since we were earning more than we were in 2000, should we actually upgrade our choice or age of car (and thereby also "upgrade" our car payment)? We could have. But we chose not to.

          The fact is, NOT having a monthly car payment felt too good to give up. Both my wife and I felt the same way. Why go back to car payments? Before the accident, we were perfectly satisfied with our five-year-old Subaru Forester. What had changed? Nothing! We agreed: we would still be perfectly happy with a five-year-old Subaru Forester. And so we took that insurance settlement check and bought one for cash.

          After we bought that second 1998 Subaru, every month thereafter we patted ourselves on the back as we used the freed-up cash from not having a car payment to knock down our other installment debt at an accelerated pace. And THAT made us feel good -- which compounded the positive reinforcement from our "buy an older car" decision.

          Two years later, when changed circumstances demanded that we each have a separate vehicle, we did not have to ask ourselves how to proceed. We knew. With proper maintenance, that second 1998 Subaru -- at that point 7 years old -- had performed like a champ. Driving an older vehicle DID work. So the 1998 Subaru became my wife’s car and I acquired a 1996 Dodge Dakota pickup truck. And, again, no car payment required.

          Now, it is 2014 and we STILL drive those two vehicles. They STILL perform like champs. And they have saved us a boatload of money in car payments, insurance premiums, and maintenance costs. Not to mention that the last of our installment debt got paid off almost 2 years ago, thanks in great part to our no-car-payments, drive-an-older-car lesson that we learned following that one-car freak accident eleven years ago.

          Needless (?!) to say, driving older cars has made a monumental difference in our journey to financial independence. Even at a modestly estimated $800 a month to cover the loans and higher operating costs of 2 late-model cars, having -- and replacing -- 2 such cars periodically would have forced us to amass an additional $240,000 before we could declare financial independence. And that would have meant waiting 5 or 6 more years before becoming financially independent. But we did not have to.

          What about you? Are you reaping the benefits of driving a paid-off, older model vehicle? Or is a monthly car payment still holding you back from attaining financial independence?
          Retired To Win
          I blog weekly on frugal living, personal finance & earlier retirement at:
          retiredtowin.com
          making the most of my time and my money

          Comment


            #6
            Originally posted by Retired To Win View Post
            What about you? Are you reaping the benefits of driving a paid-off, older model vehicle? Or is a monthly car payment still holding you back from attaining financial independence?
            In August 1998, I bought a slightly used 1998 Toyota Camry that was a dealer demo. I kept that car until July 2012 so I was payment-free for a very long time. Then I replaced that car with a 2006 Camry, so almost 7 years old by model year. I did take out a small loan just for cashflow reasons and paid it off within a year, so I was again payment-free on my car.

            We did replace my wife's car last year and still owe a little on that but that won't last long and we will be totally payment-free soon.
            Steve

            * Despite the high cost of living, it remains very popular.
            * Why should I pay for my daughter's education when she already knows everything?
            * There are no shortcuts to anywhere worth going.

            Comment


              #7
              Awesome on meeting your goal!

              Dh plans to retire at 59. Works perfect of us now. Maybe our minds will change one day. We have no debt. We have the funds on hand for both kids to finish college. That is a big priority for us. We actually have a very low budget for all but travel and college. We LOVE to travel. College is our biggest layout for the year and travel was second in 2014. Travel was our biggest in 2013 also. We spend on what is important to us.

              After seeing my dad pass in his 50's and my siblings pass away in the 30's I have learned to strike a balance between preparing for the future and living for today. Hope that makes sense. I watched my dad work like a dog and everything was when I retire. Yes, he left mom comfy but he never got to enjoy the fruits of his labors.

              Comment


                #8
                Originally posted by Bright View Post
                Awesome on meeting your goal!

                Dh plans to retire at 59. Works perfect of us now. Maybe our minds will change one day. We have no debt. We have the funds on hand for both kids to finish college. That is a big priority for us. We actually have a very low budget for all but travel and college. We LOVE to travel. College is our biggest layout for the year and travel was second in 2014. Travel was our biggest in 2013 also. We spend on what is important to us.

                After seeing my dad pass in his 50's and my siblings pass away in the 30's I have learned to strike a balance between preparing for the future and living for today. Hope that makes sense. I watched my dad work like a dog and everything was when I retire. Yes, he left mom comfy but he never got to enjoy the fruits of his labors.
                That's great. For some people, travel is almost a necessity. My dad is almost 70, retired, and travels several times a year either in the US or outside(sometimes he drags my mom with him), I think he would go crazy staying local. I would say half of their retirement budget is on travel. Someday that will be me but I can only do a big travel once every 3 or 4 years now with a house payment, retirement savings and a busy job. Something to look forward to.

                Comment


                  #9
                  We have slashed and slashed and I really don't know where else we can slash WITHOUT making it a major sacrifice. We don't eat out much, have pretty cheap cell phone plans, don't have cable TV, drive older cars, etc....

                  But there is no way to get to the amount you are talking about, or even close. We have 3 children. We have health insurance costs of $7K per year, We don't want to live in a bad area of town or tiny apartment.

                  But our goal isn't to leave our jobs 10 years earlier. We enjoy what we do.




                  Originally posted by Retired To Win View Post

                  Is reaching financial independence sooner worth lowering basic living costs to you? If so, how are you doing that without having to make significant sacrifices in your basic daily lifestyle? If not, why aren't the added years of freedom worth it to you?

                  Comment


                    #10
                    How would you account for expenditures that come out of your EF? How about when it is time to repair or replace a vehicle? Would such expenditures be counted against the year they occur?

                    What I'm getting at is that you might be at $15k/year expenses when there are no such situations. But then that roof needs replacement, or you need to replace a vehicle, or you get a new driveway, or have a medical emergency, and the yearly expense goes up by say $10k, putting your annual expense for that year at $25k.

                    So is the $15k/year a blue sky puppies-and-unicorns baseline? If so, then that is not how we do it. We add in unpredicted expenses as they happen, and count them against that year.

                    Comment


                      #11
                      Great job. Very detailed plan.

                      Comment


                        #12
                        My Cost Cutting Big Picture

                        Originally posted by Reggie View Post
                        ... I just recently realized that I wrote all of my expenses down and analyzed them closely but I never put limits on categories. For example, I would budget $200 a month for clothing and eating out and then I would write down what I actually spent. I never limited what I spent by tracking throughout the month and then cutting myself off. I'm starting to do that now.

                        Well, I actually have never put limits on budget categories either, at least not for basic living expenses (under which I would not include either clothing or eating out, btw). What I do is to budget by exception, meaning that I continuously review and optimize my spending as I can without crossing the "sacrifice" line.

                        Doing that, step by step I took my previous $25,600 annual basic living expenses down to $15,000.

                        The steps I took to reduce my basic living expenses by 42% occurred over a 10-year period and, for the first few years at least, by isolated chance epiphanies. It was only after discovering MrMoneyMustache that I undertook a concerted cost-cutting campaign over a time span of less than a year to arrive at my present $15,000 basic living cost.

                        So here are the MONTHLY cost cuts to that original $25,600 budget, in the order that they happened.

                        [] winter home heating* ^ .......... $ 38 originally ===> reduced to $12
                        [] vehicle installment loan* ...... $150 originally ===> reduced to 0
                        [] home phone service* ............ $ 20 originally ===> reduced to 0
                        [] investing newspaper ............ $ 10 originally ===> reduced to 0
                        [] weekly maid service* ............ $200 originally ===> reduced to 0
                        [] home mortgage* ................... $500 originally ===> reduced to $120
                        [] life insurance* ........................ $ 20 originally ===> reduced to 0
                        [] stockbroker commissions ... $100 originally ===> reduced to 0
                        [] cable tv service* .................... $ 25 originally ===> reduced to 0
                        [] general electricity usage* .... $130 originally ===> reduced to $113
                        [] credit report monitoring ........ $ 13 originally ===> reduced to 0
                        [] internet radio service ............ $ 3 originally ===> reduced to 0
                        [] pet food & cat litter* ................ $ 96 originally ===> reduced to $32

                        [] monthly total ......................... $1155 originally ===> reduced to $277

                        By the time I was done, my annual basic living expenses had dropped by $10,536 without actually changing my lifestyle (except for each of us doing 2 hours a week of house cleaning.) Otherwise, I found a lower or no-cost alternative for every other budget line item that I cut.

                        And in so doing, I also "found" an extra 8 to 9 years of job-free financial freedom.

                        My budget optimizing is still a work in progress. I am pretty sure I can find other cost reductions. And each one of them will be another step forward.

                        How is your cost optimizing going?

                        NOTES:
                        * these numbers are my half-share of the expenses; my wife covers the other half
                        ^ the home heating cost is amortized over the full year (12 months)
                        Retired To Win
                        I blog weekly on frugal living, personal finance & earlier retirement at:
                        retiredtowin.com
                        making the most of my time and my money

                        Comment


                          #13
                          Originally posted by Retired To Win View Post

                          So here are the MONTHLY cost cuts to that original $25,600 budget, in the order that they happened.

                          [] winter home heating* ^ .......... $ 38 originally ===> reduced to $12
                          [] vehicle installment loan* ...... $150 originally ===> reduced to 0
                          [] home phone service* ............ $ 20 originally ===> reduced to 0
                          [] investing newspaper ............ $ 10 originally ===> reduced to 0
                          [] weekly maid service* ............ $200 originally ===> reduced to 0
                          [] home mortgage* ................... $500 originally ===> reduced to $120
                          [] life insurance* ........................ $ 20 originally ===> reduced to 0
                          [] stockbroker commissions ... $100 originally ===> reduced to 0
                          [] cable tv service* .................... $ 25 originally ===> reduced to 0
                          [] general electricity usage* .... $130 originally ===> reduced to $113
                          [] credit report monitoring ........ $ 13 originally ===> reduced to 0
                          [] internet radio service ............ $ 3 originally ===> reduced to 0
                          [] pet food & cat litter* ................ $ 96 originally ===> reduced to $32

                          [] monthly total ......................... $1155 originally ===> reduced to $277
                          Wow that's quite a nice cut. I too find that there are lots of wants in my life that I'm still paying for, gotta be a little ruthless and start cutting out some of them, I'll bet you don't even feel the real need for most the stuff you cut from your life.

                          Comment


                            #14
                            Originally posted by Zedon View Post
                            ... After working for peanuts for several years I made a decision around 28 that I want to live a good lifestyle throughout my life and not just grind to a comfortable retirement. I may not be setting any retirement saving records but I'm having a better time than I would have had penny pinching the whole way, although I know some people content or even happy to do this. You only live once so I want to enjoy the whole ride, for me that means spending a little more than the minimum...

                            When I cut my living costs by 42% I did not give up living "a good lifestyle throughout my life." I live in a comfortable single-family home on 2.5 beautiful acres, drive where I want when I want in a comfortable and well-maintained vehicle, eat lots of meats and vegetables daily, stay warm in winter and cool in summer, enjoy all of today's "electronic amenities" and generally have a jolly good time.

                            And I did not "just grind to a comfortable retirement." My low basic living expenses allowed me (and still do allow me) to have plenty of surplus discretionary income for restaurants, travel and entertainment while still having shortened my journey to financial independence by many, many years.

                            Or is it that you (mistakenly) believe that a "good lifestyle" requires a late-model vehicle, a trip to Europe every year, a $100 bottle of wine every week, and a Rolex on the wrist? Please, tell me it is not so.

                            To me, it would be an unforgivable "grind to retirement" to have to continue holding down a job for many additional years just so I could spend money on such utterly frivolous things.

                            Isn't time lived free too important to trade it for that?
                            Retired To Win
                            I blog weekly on frugal living, personal finance & earlier retirement at:
                            retiredtowin.com
                            making the most of my time and my money

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