The first part of this blog post was all about growing the top line. My focus till 2014 had always been about how to maximize the topline and investing regularly. But to get to a great Net Worth, you need to cut costs too. The value of this is two fold. It reduces your expenses so you can live on less. The amount you will need to get to Financial Independence lower since your annual cost is lower, its 25-30X multiple is lower too, and hopefully you can get there sooner. A lot of people think if you are financially independent, it means you are rich but that’s far from the truth. What it really means is you have enough. You have found ways to really cut your expenses and focus on your priorities, so you don’t need as much. And that’s exactly what we did.
Slash Costs and create a budget
I am a pro at this as I managed multiple brands’ P&L’s for 13+ years and know how to do this. I started looking at all our expenses, created a budget and started cutting costs. I track my budgets via Personal Capital, as I am able to see income, expenses, investments, net worth and create a view of how much I will have in later years.
Tackle the big costs first – childcare and insurance
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- Our biggest cost, after mortgage, was daycare. We had 2 kids below the age of 5, going to daycare and that cost us over $3000/month. We started looking at day care options and went and met several home daycares. As we were both individually making well above this amount, it didn’t make sense for either of us to give up our jobs to stay home with the kids. In the end, we were able to trim this expense to $2300, still a significant chunk of change. When my husband transitioned to art, he then took on the kids and we used half-day public pre-school options, which brought our costs down much further. Now both kids are in school, phew! But our property tax is still $1000/month.
- Next I hunted for cheaper insurance – life, home, car, earthquake, etc. It is still 12% of our budget but it used to be even more. I would recommend you do this once a year, as it seems once your insurance company has you for a year, they start to increase your costs slowly and stealthily:).
Cut the cost of utilities
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- Cut the cord on cable saving us between $150-200/month
- Reduced the cost of internet by moving to a local provider from Comcast which brought our cost from $90/ month to $50.
- Negotiated with my cell phone company and reduced our monthly bills and then moved to Google FI . So far, we are loving it. With 2 people on the plan, I expect our bill to be between $45-55/month compared to the $80 before, but I will share more of our experience with Google FI in a future article.
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And some other low hanging fruit
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- Started packing lunch for the first time in 14 years of working, often times packing a salad from Trader Joe’s. This would cost $5 instead of the $9-20 it would cost me to buy food from the cafe or a restaurant. Now when we were DINKs (Double income no kids), we never thought about these things. If we had, we could have retired sooner.
- Reduced the number of times we ate out. Before we often ate out a couple of times a week and often during the weekend. Even though we weren’t going to expensive restaurants, with 2 kids, this still added up. We brought this down significantly to a max 1-2Xs/ week and I continue to try to stop going altogether.
- We went for movies almost every week but that was pre kids. Once our little miracle monkeys arrived, that fun outing went for a toss 😭 but instead we enjoyed our time with them.
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Kept the things that brought us joy even if they cost a lot
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- Another big expense for us is vacation but we do love to travel and since it brings us happiness, we are hoping to keep this in the mix going forward and frankly we’d like to add more of it. Last year we went to Thailand and India and the year before, we went to Bali and Mexico with kids. So you get the theme, we enjoy the tropics and the beach. After all, this is SimpliFI By The Bay! 😎 We are planning to travel during spring to Hawaii and in summer to Costa Rica, so we will need to travel hack. I am collecting credit reward points to help with the cost.
Harvest capital losses up to $3000
You can harvest up to $3000 of capital losses every year and if you have even more, this can be carried over to the next year and the next….. Madfientist has a great article on this that explains it better than I could, so please visit it for more on this http://www.madfientist.com/tax-loss-harvesting/.
Lastly and most importantly track your net worth
Peter Drucker says, “If you can’t measure it, you can’t improve it. Ultimately what you track, grows. I track my net worth via Personal Capital, as it lets me see the whole picture in one place from my savings and investment accounts, credit cards and real estate to my budget and retirement plan simulations.
These are the strategies that enabled sufficient FI to do what we want.
Sources
** https://money.usnews.com/investing/articles/2016-04-14/do-actively-managed-funds-really-pay-off-for-investors