Financial Independence: Where We Most Drastically Cut Expenses
I reached financial independence (FI) a few years ago and introduced the guiding principles I followed to achieve FI in this article. I highly value all three principles. From my perspective, sensible spending is the foundation for active saving and sound investing. Some expenses are easier to cut than others. Others aren’t particularly fun to cut. And since I’ve been attentive to my spending from a young age, it’s been hard to go lower than I already am in some categories. I know many of you aren’t interested in cutting as extremely as I have, if at all. Rather, I will describe a few big cuts we made to illustrate how it is possible. I hope to challenge you to rethink how and why you spend overall, regardless if it’s in the below categories or not. With a bit of desire, thought, and effort, you can drastically cut expenses.
Housing
We cut our housing cost in half when we relocated a few years ago. The price we paid for our home was about 50% of what we paid for our previous one. Of course, many of you aren’t interested in a major relocation. Yes, relocating to a lower cost of living area was a huge part in decreasing our housing costs, but there’s more to it.
Our previous house was modest, and we weren’t interested in “upgrading” to a bigger house in our new area. We’ve embraced the “enough” philosophy and realized that more stuff or space didn’t necessarily add up to more happiness, at least for me and my family. We don’t need a spare guest room or a formal dining room. Also, we don’t need the financial costs of filling up those rooms with furniture or the time costs of cleaning those rooms. Likewise, we realized a bit more acreage wouldn’t make us happier – it would just create a lot more yardwork. We enjoy our local parks and beaches.
Beyond the size of a home or lot, you can lower your home expenses in other ways. Consider refinancing if you can achieve a lower interest rate which benefits you financially long-term. If you do have a spare room, you can choose to rent it out. If you are considering a local move to buy a more expensive home, crunch the numbers and decide if the total financial and time costs are truly outweighed by the happiness or fulfillment the new home would provide.
Renting vs. Buying
Many individuals, including FI and non-FI enthusiasts, have opted to rent rather than buy housing. The multitude of costs with home ownership, hidden and not-so-hidden, do add up. By simply renting, many avoid costs such as hefty real estate taxes, closing costs, real estate agent fees, and unforeseen repairs. Many issue the platitude “you are throwing your money away on rent”, but thoughtful renters often spend less on housing than homeowners.
Cars
This wasn’t so much a direct cut as a resolution we made years ago to drive our current cars as long as possible. With a bit of planning, attention to maintenance, and value of our current vehicles, we have no desire or need to buy others more often. If or when you do consider buying another car, consider used options. While we actually buy new for our infrequent car purchases, others cut big expenses by buying used. We also save substantially on personal property taxes, since we are paying taxes on older cars rather than newish vehicles consistently.
Do you even need a car? If you have more than one, do you really need that many? Similar to housing, by having more cars, you are signing up for more expenses and more work. And having more cars raises your insurances expenses, as well.
Phones and Service
Phone commercials exhaust me. Virtually every phone commercial I see encourages the misplaced social norm that we each need to replace our cell phone every year with the newest model. I don’t know about you, but I’ve had my current phone for a few years, and I still haven’t used all of its features. I’m at peace with the fact that I’m “missing out” on a slightly better camera feature every year. Indeed, that would entail yet again paying for all of the other phone features that are pretty much the same or don’t positively change my life. And no thanks to needing the new, “better” connectors/adapters, since the old ones don’t work with the new phone.
Lower cost phone plans are trending more these days. I’m a Republic Wireless customer, but many other options exist. Mint is one. You can get comparable, or maybe even better, service from lower cost providers than some of the heavyweights. I pay well under $20 per month for wireless service and have no plans on changing.
And do you really need all that data? Get rid of your unlimited/high data plan, recognize big savings, and instead interact with people and environments that bring you more joy.
Stuff
I define stuff as any tangible item. Yes, this is very broad. It’s intentionally broad so that I continually challenge myself to question how I spend. Stuff can be big or small and everything in between. My first realization that I had too much stuff is when I looked at my book collection.
I love to read, but I always crave to do more. About 15 years ago, I noticed the unread books I had piling up. A few from my still-favorite brick and mortar store, Half Price Books, a couple from Amazon that I got during a killer deal, and others. I noticed that at least three or four of those books had been on my “unread” shelf for more than one year. In the meantime, I continued to blow money on a few more books. At that point, I made a promise to myself to consume what I already owned prior to buying more. Also, I doubled my efforts to patronize local libraries rather than unnecessarily purchasing stuff.
In the years since, I’ve applied that promise to a growing list of categories which continues to expand. For instance, I’ve slimmed down on purchases of music, movies, board games, puzzles, video games, even streaming service memberships. By deciding to consume what I already have and also using/supporting my local library, I’ve saved big. I channeled most of that money into savings. Once in a while, I splurge on new stuff knowing that I will be more attentive to the item and value it more. All things in moderation!
Where We Most Drastically Cut Expenses – Conclusion
The above big categories are just the beginning of the conversation. We’ve drastically cut expenses in plenty of other areas as well, some which I’ve described here. I look forward to stepping through some other examples soon. Where have you cut expenses the most? How difficult was your adjustment?
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Ok, finally someone that speaks my language. I’ve been married 20+ years and early on we used to listen to Clark Howard and followed a lot of his money saving tips and then we found Dave Ramsey and something clicked for my wife and I. At the time, we had $50k of school debt, $16k in car loans and $16k owed to family. So we just got busy and disciplined and just starting paying off debt little by little until it was all gone. We then re-fied to a 15 year loan, built up an emergency savings and put 15% of our gross away in retirement. We have 5 years left on the house and then we will be debt free forever.
Most of us don’t learn financial discipline from our parents. it is possible, no matter what stage you’re at in life.
Thanks for the article from a fellow BoardingArea blogger.
Jason,
Thanks for sharing your story and perspective!
I’m always puzzled when someone suggests that renting is cheaper. I’m in an expensive real estate market, so YMMV if you aren’t. When I rented (back when rents were actually affordable at median income), I ended up having to pay for some repairs and anything the landlords were too cheap to cover. The noise, lack of parking, delivery concerns, security and a host of other factors played into my rush to own. I can find a single-family home twice the size of an apartment for a little more than half the rent. Throw in higher insurance, some property tax (deductible) and an occasional repair, still may be cheaper. Some folks aren’t built for DIY, for them it may be less stressful to rent. But you ultimately end up with no equity, how do you factor that in? Homes are the biggest savings vehicle that most folks have in their lifetime. Moving as you suggest is a great option and I could cut payments quite a bit with a slight move North.
Food costs – being a variable expense – is another area to focus on.
Are you basing your FI on the 4% rule? Also, what is your plan for health insurance? Subsidies through the ACA would be available if you’re able to make your taxes work in your favor, but who knows for how long. Healthcare is the biggest monkey wrench in the system towards reaching FI.
anthonyjh21,
Great point on food costs – I address that here. I use the 4% rule as a general guideline; you are also correct that healthcare is another big topic. I plan to get into those topics further in future articles.
The absolute best way to identify where funds are flowing is to intentionally put pen to paper. A formal budget is difficult for many people to create because it can lay bare mistakes, addictive spending, & lack of attention to detail. The “Miscellaneous” line item, for example, is usually a disproportionately large number that often needs broken down & fully analyzed. But the process can also reveal positive behaviors & what a person’s real needs & wants even are, not what others tell you they should be.
Spending criteria is personal, as are the definitions of success & “financial independence.” Particularly a couple’s situation where there can often be disagreement. It’s no mystery why money is the biggest cause of divorce. Oftentimes working with somebody objective to your situation can help remove some scales & also highlite potential areas of improvement for achieving personal goals.
Pam,
All well said! Thanks for reading.
If you are willing to share, what is your average annual expenses/current location would you say?
Mike,
We live in the Mid-Atlantic region. We easily keep our expenses well under $40k annually.