10 Painless Things We Do To Save Money

If you need to reduce your spending in order to meet your goals, you have to focus on the BIG 3:  lodging, transportation and food.  These three categories typically make up the bulk of your expenses.

We didn’t always make the “smartest” decisions on these three–we own a stupidly big and expensive home, we bought new cars, and we eat in restaurants and buy expensive groceries on occasion.

But I think we were smart about a bunch of little things and those little things helped us grow our wealth and reach financial independence in our 40’s (me!) and 50’s (Mr. Ms. Liz!).

Save your money and the earth:

Don’t light up areas where you aren’t.  We have so few lights on, our neighbors probably wonder if we’re home.  This goes for exterior lights too–we turn them on when guests arrive and leave but they are otherwise off.

When we do need a bit of ambient light in an area–like when we’re running back and forth to the laundry room–we choose the switch that runs two lights rather than the switch that lights up the entire room.  Mr. Ms. Liz narrows it down even further by not using puck lights that are expensive to replace and burn a lot of electricity in favor of using our pendant lights.

Turn off your fireplace pilot in the summer.  This saves natural gas and that little sucker generates a surprising amount of heat. Continue reading “10 Painless Things We Do To Save Money”

But Budgeting Doesn’t Work For Me!

You’re busy, I get it–family, work, physical health, keeping the house clean, trying to get a healthy meal on the table . . .

Budgeting seems like a huge pain–no fun at all.  You know you need one but you’ve not made the time to make one and you know it will be futile; you’ll never track your money or follow a budget anyway.

You may not even need a budget.  What?  You gasp?  And I won’t even call you a slacker for not having one!

Just pay yourself first.

Each paycheck, direct your payroll department to contribute to your company retirement plan up to the company match.

Add the percentage your company matches to the percentage you contribute.

Subtract that from the following guidelines:

Starting in your mid 20’s?  10%
Starting in your mid 30’s?  15%
Starting in your mid 40’s?  30% Continue reading “But Budgeting Doesn’t Work For Me!”

Little Things Can Make a Big Difference

I hold too much cash.  16% of my invested assets and 13% of my spendable net worth is sitting in cash.  Over five years of my expenses.  Not the smartest thing because it will lose value to inflation.  But it helps me sleep at night.

My drawdown plan says if the stock market is 10% below the 10 year high I’ll be spending that cash to support myself.  Right now, I’m selling mutual funds for that.

I hold cash because I don’t like bonds right now.  This “safe” investment has a lot of risk for which we don’t get rewarded.  As interest rates go up, and they will, the value of the bonds will go down.  I accept a lot of risk in my stock portfolio because the upside warrants the risk.  I won’t accept risk in a bond portfolio when they aren’t paying me enough to do so.

So my cash was plugging away earning 1.3%.  Inflation in my area is running at 3.1%.  I was losing 1.8% of value each year.  Too much.

I started investigating CD rates on bankrate.com and nerdwallet.com.  Their best five year CD rates are 2.35%.  Even better, a bank I currently have a money market account with is also offering 2.35%.

With CD’s, there’s a penalty for early withdrawal.  It’s generally expressed in terms of the period of time you will lose interest.  At my bank, a CD of more than a year has a 180 day interest penalty.  They take away six months of your interest earnings if you take out the money early.

In the past, I didn’t want to lock my money up in a CD because we may buy an RV or the stock market may tank and I’ll need that money to support myself.  But if I buy a CD, am I really locking that money up?  Or should I just look at the early withdrawal penalty in terms of a breakeven point?

I can leave my money in a money market account earning 1.3% or I can move it to a five year CD and earn 2.35%.  The difference on $99,000 is $1,039 a year, or $86 a month.  This is a significant amount of money to me.

So I calculated the breakeven point.  As long as I keep the money in the CD for at least 14 months, I’m better off in the CD.  I’m almost certain I can do that.

My bank made it incredibly easy to open the cd, it took about 3 minutes on-line and I was all set.  A quick little tweak and I’m over $1,000 ahead.

So then I looked for other tweaks.  Another of my money market accounts was only paying .6%.  I transferred that money to the money market account offering 1.3%.  That gets me another $420 per year–$35 a month.

Now I’m $1,459 ahead–over $120 a month.  Almost $7,300 over five years.  It took more time to write about it than it took to implement it.

Then I told Mr. Ms. Liz he should do the same . . . hopefully he will.  Then he can take me out to dinner 🙂

What quick little things can you do to improve your finances?

Photo credit – SA we met a two year she-moose biking the Village to Village Trail, Beaver Creek Colorado

 

The Joy of Working . . . When Working Is a Choice

The job I retired from was with a terrific company.  I spent 17 years working with some of my best friends and even my fake kid.

Each year, the CFO would gather her leadership group–the accounting, HR and IT professionals who reported to her for a “Summit”.  A gathering to share knowledge, communicate updates and, frankly, to spend some time wining, dining and team building.  Attending these Summits was always a highlight in my year–a paid vacation with my buddies.

I retired 14 months ago.  But this year, I was asked to attend the summit.  And wait, it gets better.  I was asked to ***geek alert*** present a short class on one of my favorite subjects–Excel.

Initially, I was both terrified and thrilled.  Terrified because I HATE public speaking.  My hope was that my short speech at my retirement party would be my last.  Thrilled because it was an incredible honor to be asked to return.  I was excited to see my former colleagues and I love teaching people about Excel.  Helping people with Excel was my favorite thing about my old job.

I got over my terror by convincing myself I’d just be sitting at a table behind my laptop screen.  And I was–it didn’t end up being scary once I got started.  It helped that the room was filled with my friends.

It was really invigorating.  The group was super excited to learn new tips and make their processes more efficient.  There was more than one “wow” comment while I was presenting.  How often does that happen?!

And I was asked to stay over–in a beautiful resort and join the group for dinner and shenanigans after my session.  The shenanigans included sake bombs that sent more than one person stumbling back to their room–thankfully, not me.

Oh, and I got paid to do this!  It will help me fund my IRA this year.

I spent a ton of time preparing.  I developed an agenda that allowed both novices and experts to walk away with a couple new tips.  And being ultra prepared helped me get over my fear.  It was so worth it!

If I thought I had to take this on because I needed the money, my fear of public speaking would have been more than a bit paralyzing.  I would have resented the amount of time it took to prepare–especially because I spent way more time on this than I could bill.  Since it was a choice, I could focus on my excitement.

Not needing the money transformed the way I thought about the entire situation.

There are more benefits to being financially independent than I ever expected. 

I expected my financial independence would mean I could replace work with fun activities.  And, yes, I have.

I didn’t really think about being able to pick and choose money-making opportunities based on whether I thought they would be fun.

Last week was a perfect example.  Hanging out with my old friends, making some new friends and being able to contribute again was a rush.  Having people thank me and tell me how they would use what they learned to improve their processes was incredibly rewarding.

Oh and at least one of them wants to hire me to help them one on one.  That sounds fun, so I’ll do it!

But even before I quit my job, my financial independence paid dividends.  My boss was doing everything he could to keep me around.  This gave me a lot more control–I took advantage of it by working from our desert home as much as I felt comfortable.

So I’d say whether you want to retire early or not, save your money.  Save a lot of money.  Save as if you were pursuing financial independence.  The rewards go beyond the ability to replace work with fun–and that’s pretty awesome on its own!

Introducing the FIRE Prowess Score

Once again, I’m adding a link to a blogging chain.

The last chain was a series of articles about drawdown strategies.  A group of bloggers detailed out how they expected to support themselves when their paychecks stopped.  It was a fun exercise and it forced me to get more specific about where my money will come from in different market conditions.

The latest chain is a new way to assess our efficiency at reaching financial independence.  The FIRE (Financial Independence/Retire Early) Prowess Score was developed by JW, the 30 something behind The Green Swan, it goes like this:

FIRE Prowess Score= Change in Net Worth / Total Gross Income

His goal was to develop a measurement that worked across all income levels so geeky bloggers (watch me raise my hand!) could compare themselves on an even playing field.  The typical measurement we’ve used is savings rates.

The downfall of savings rates is that it’s easier to save 75% of your income if you make $500,000 a year than if you make $50,000 a year.  The savings rate super heroes in this space are often doctors.

I love that this is called a prowess score.  Prowess means skill or expertise in a particular field.  Yep that makes sense.  But it also means bravery or courage–and I think it truly takes some courage to rock this FIRE Prowess Score.  You have to live differently than those around you.  You have to focus your limited resources on things that matter to you and ignore the things that don’t.  That takes some courage for sure.

OK so how does it work?  Let’s say you are calculating your FIRE Prowess Score for the last 5 years:

-Add your income for those five years–I got my historic income from SSA.gov
-Take your current net worth and subtract your net worth from 5 years ago
-Divide your change in net worth into your total income
=And you have your FIRE Prowess Score

Here’s an example:

5 year increase in net worth: $100,000
/ Income 5 years @ 75,000/year = $375,000
=FIRE Prowess score of .27

JW gave us descriptions for the different score levels so we can pat ourselves on the back or berate ourselves to do better:

If over the last 5 years your FIRE Prowess is:

  • Negative or 0.0x – Not even on the path toward retirement, let alone FIRE. If you aren’t saving and investing any money and your net worth isn’t growing then it is time to make some changes and develop positive financial habits. It may be a change to a frugal lifestyle or getting an advance degree to take the next step in your career.
  • 0.0x to 0.25x – You’re conscious of your retirement and know you should plan for it, but early retirement may not be on your radar at this point.
  • .25x to 0.50x – You’ve got the ball rolling and you’re certainly trying! Keep investing wisely, perhaps add a side-hustle or few lifestyle tweaks to lower expenses and FIRE can be within your grasp.
  • .50x to 0.75x – You’re working hard toward your retirement goals! Early retirement is definitely possible. Keep working hard and that investment snowball will be rolling (compounding) in no time!
  • .75x to 1.0x – FIRE is on your mind and you are performing in overdrive right now!
  • 1.0x and over – You are killing it! Don’t make any stupid mistakes and FIRE will be within your grasp in no time. In this scenario, your net worth is more than your lifetime earnings which Joe at Retire By 40 recently wrote about. This is certainly a tough milestone to reach, but maybe one day I can make this claim!

OK so drum roll please . . . here are my scores:

2016:  2.79 off the charts!
5 Years 2012-2016:  1.34  I’m killing it!
10 Years 2007-2016:  .89  not too shabby!
Post College:  .72  it took me some time to get this FIRE thing going.
Worst Year:  -1.34 in 2008 when my net worth shrunk 16%

How did I rock it so much in 2016 you may ask?  I quit my freaking job!  I had a full year of growth in net worth against a bit more than half a year of income.  We may need to come up with a different scoring system for those at the end of their accumulation phase (that’s just a nice way to say older folks).

As long as the stock market cooperates, I’m really going to rock it this year.  My net worth continues to grow and my income is almost non existent.  So far my FIRE Prowess Score is 20.97 for 2017.  Oh shucks, JW said this score doesn’t work for folks who aren’t working . . .

I think JW’s descriptions are spot on.  I would say over my lifetime I’ve been focused on saving for retirement but I didn’t put my savings into overdrive until my last 10 working years.  I also made some investing mistakes early on–thinking I was some sort of Warrenita Buffett rather than just shoveling money into a S&P 500 index fund.

Check out the other bloggers’ scores in the chain:

Calculate your FIRE Prowess Score whether you’re pursuing early retirement or not.

What can you do to improve it?  Save more of your income and invest it smarter–show your prowess!

Could You Live On Social Security Alone?

The experts say Social Security provides about 40% of the typical retiree’s pre-retirement earnings.

But that percentage varies a lot.  Lower earners receive a higher percentage of their earnings and higher earners receive a lower percentage of their earnings.

I write a lot about the importance of saving money for retirement because of this 40% statistic.  But COULD I live on my social security alone?  If I could, what would that life look like? Continue reading “Could You Live On Social Security Alone?”

What Would Someone Who [insert your dream here] Do?

We’ve all seen the bracelets and bumper stickers that say WWJD?  What Would Jesus Do?

What if we filtered our decisions through a What Would statement?

What would someone who wants to travel the world do?
What would someone who wants to retire early do?
What would someone who wants to kill it at work do?
What would someone who wants a great marriage do?
What would someone who wants to lose a few pounds do?
What would someone who is paying off $10,000 of debt do?

I think we’d make better decisions. Continue reading “What Would Someone Who [insert your dream here] Do?”

Make The Hard Choices

I just watched a TED talk by Tim Ferriss.  It is well worth 13 minutes of your time to watch the entire talk but one thing he said struck me:

“Easy choices, hard life
Hard choices, easy life”

Jerzy Gregorek as told to Tim Ferriss

This statement is true in so many areas of our lives but, I believe, particularly true when thinking about our finances.

Buying something on credit–easy
Paying for your past rather than saving for your future–hard

Learning new skills and making ourselves more valuable at work–hard
Taking home a bigger paycheck–easy

Aligning your spending with your values–hard
Having money for the things that matter most–easy

You get it.  Think about what you’re struggling with, what choices can you make that will turn that struggle into something that is easy?

My life is astonishingly easy right now.  I don’t worry about money.  I only set my alarm for fun things.  I’m meeting new people and enjoying new activities.  The decisions I’m struggling with fall squarely in the category of first world problems.

But my easy life was built on a foundation of hard choices–saving rather than spending, working rather than playing.

The choice is yours–make it a hard one.

Your Retirement Questions Answered

When people find out I write a financial independence/early retirement blog, they sometimes take a breath and start peppering me with questions.  I thought it may be helpful to y’all if I answer the questions I get asked most often.

How much should I contribute to my retirement?

If you want to retire at a typical age then 15% of your gross salary before taxes and benefits.  This 15% can include your company match.

At my last job, the company matched 25% of my contributions up to 6% of my salary so that worked out to a 1.5% total match.  If I wanted to retire around my full retirement age for Social Security, then I should have contributed 13.5% of my money.

If you want to retire early, you should be contributing 15% to your retirement and saving outside of your retirement accounts as well.  How much depends on your expenses and risk profile.  Run a few calculators, or build a spreadsheet and figure it out.  Here’s a calculator from Vanguard.

What if I started late or don’t have much saved now? Continue reading “Your Retirement Questions Answered”

How I’ll Fund My Retirement

Many of the financial bloggers I follow are pursuing financial independence.  Not many of them are already there.  So there isn’t much information about how to fund your life once you are retired.

My fellow blogger, Fritz, at RetirementManifesto decided to correct that by creating a chain of articles discussing drawdown strategies.

I decided to join in the fun and lay out my draw down strategy.

I don’t have a pension.  I am counting on Social Security though I’ve reduced my expected payments by 30% because something has to change with Social Security, right?  At 52, with a husband in his 60’s (sorry Mr. Ms. Liz!) I feel secure in counting on this.

Curious about how I got here?  Here’s my savings rate and net worth growth.

First, a couple snapshots on where I am now.  I’m following Fritz’s lead on format. Continue reading “How I’ll Fund My Retirement”