We last left off discussing how my wife and I increased our savings rate from 8% to over 80% in a few years. How were we able to make such a drastic changes in our lifestyle? The answer is simple: we changed things slowly, from month to month, and let the savings build up over time. We turned it into a game!
Every day on our carpool to work (remember, we were down to one car at this point), my wife would read another MMM article out loud and discuss if it was something applicable to us. The majority of articles were! We then made a list of all the low hanging fruit and started changing just a few items each month. I kept a list of the changes we made, and thanks to tools like Mint and Personal Capital I can see all my historical spending. Let’s walk through a year of changes, one month at a time:
After the car accident, we became a one car household. This saved us money on having a second car insurance payment ($109.57/mo), a second registration payment ($4.87/mo), and it saved on gasoline by about $50/mo, since at least 5 miles of our commute was in the exact same direction everyday. We knew we wanted to move closer to work, but, baby steps.
We also canceled cable TV this month. We fell for one of those “First year is $29 a month” traps, and then the price spiked up $96 a month. We knew this had to go. We could just watch Netflix and Hulu instead.
Month 1 Total Savings: $260.44
Total Monthly Savings So Far: $260.44
When we first moved into our house, we were in an area we were unfamiliar with and wanted the peace of mind that came with a home security system. At the time, a 3 year contract with a high monthly rate ($55.15/mo) plus installation and hardware costs seemed reasonable. When all was said and done I paid over $3K on a service I never used once. For that much money, I could have installed my own cameras and other equipment for much cheaper, so we canceled the service.
We had a good savings momentum going at this point so we also canceled our water delivery service ($59.74/mo) as well. We were on well water at the time, and didn’t trust the water for drinking. Once we canceled, we upgraded our reverse osmosis filtration system and everything tasted fine.
We also lowered our cell phone data plan this month to something much more reasonable (but in retrospect still very expensive). I was able to reduce the bill by $65.97/mo by lowering the data and learning to use WiFi more instead.
Month 2 Total Savings: $180.86
Total Monthly Savings So Far: $441.30
In addition to our water delivery service, we also had a fancy organic grocery delivery service as well. As two working professionals who were usually out of the house at least 11 hours per day Monday through Friday, we paid a lot for convenience so that we could enjoy our weekends… but once we started exercising our frugality, we could see this $81.74/mo expense this had to go.
Also this month, we read the MMM article about driving style, and adjusted ours accordingly. I’m not talking about drafting or fancy stuff- just the easy changes. We started accelerating slowly at green lights (yes, this annoys some folks in Florida, but whatever. It’s my money.), coasting as far as possible towards red lights, and avoiding the use of the A/C in the car during fall and spring, when we could easily just open the sunroof. We also reduced our use of toll roads. This did make some of our trips take longer, but the savings were worth it. With practice we averaged an additional $15/mo in gasoline and $10/mo in toll expenses.
Month 3 Total Savings: $106.74
Total Monthly Savings So Far: $548.04
In month 4, we read MMM’s article about air conditioning and decided to challenge ourselves. Each week we raised the A/C temperature 1 degree Fahrenheit. Now, this is Florida in summer, so if I can do this, anyone can. We went from 76 to 79 by the end of the month. Since our A/C unit was older and inefficient, those 4 degrees saved us approximately $45 a month in the summer months. That's a lot of cash!
We also lowered our internet speed this month. Turns out moving from 100Mbps down to 60Mbps was effortless and we didn’t even notice the difference. This saved us another $14.98 per month. Every dollar counts.
Month 4 Total Savings: $59.98
Total Monthly Savings So Far: $608.02
In month 5, we realized it had been three months since we used our annual theme park tickets, and they were due for auto-renewal. At $68.42/mo, this had to go. We were too busy to use them frequently anyway. Even infrequently paying for a $150 day pass to the parks would have been cheaper.
These days, we tend to skip the parks altogether, but still stay in the theme park resorts on occasion, enjoying all of their luxurious amenities without the cost or crowds of the theme parks themselves!
Month 5 Total Savings: $68.42
Total Monthly Savings So Far: $676.44
In month 6, we built up our home gym and canceled our gym memberships, saving $58.47/mo. We purchased a bench and rack, some weights, a captain's chair with pull up bar, and some yoga mats. The total cost was less than 5 months of gym membership. We even built MMM's jumping box!
Full disclosure, years later, my wife does have a gym membership once again. While the home gym met all of my needs, she missed the group dynamic of her spin and exercise classes, so she re-enrolled in 2016. I don't think there’s anything wrong with this- in fact, I think it is a good lesson: don’t be afraid to cancel services to see if they actually mean anything to you.
Ideally, you should wait a few months and see if you actually miss them. For my wife, it was a few years, and of the dozens of things we canceled, this was the meaningful item for her. That’s what this exercise is all about: stopping the ‘leaks’ in your cash flow that don’t bring you any happiness. That's where the wasted money lives.
Month 6 Total Savings: $58.47
Total Monthly Savings So Far: $734.91
In month 7, we slowed our internet down more aggressively. We opted for the slowest option our cable company offered (15Mbps), as it was still fast enough to stream HD movies. We also purchased our own cable modem so we could stop paying the ‘rental fee’ of $5 every month. These lower speeds saved us an additional $39.26/mo. Add it on to the savings pile!
Month 7 Total Savings: $39.26
Total Monthly Savings So Far: $774.17
By this time our savings momentum was on a roll, so we just kept on canceling things. I remember we would look at our credit card and bank statements and start highlighting in yellow things that were discretionary, that we didn’t really need.
This month, Amazon prime was on the chopping block. It was up for renewal, and they were raising the price to $10.99/mo. In my mind, this was a bad deal. I am paying a company money to incentivize myself to impulse shop more often! Impulse shopping is bad. Walmart was only a mile down the road. I didn’t need this service anymore.
We also canceled our Hulu Plus subscription, saving an additional $7.99 per month. We had both Netflix and Hulu Plus, and didn’t even spend that much time watching TV- maybe a few hours on the weekends. I discussed it with the wife and we agreed: Netflix was a higher value for the money, and it has no commercials. So we ditched Hulu.
Month 8 Total Savings: $18.98
Total Monthly Savings So Far: $793.15
Not much happened in month 9, other than canceling our Amex Gold card, which was costing us the equivalent of $16.25/mo in fees. There was a time when we spent so much that Amex would waive the annual fee, but seeing as that our spending was on the decline, we decided to switch to a similar card with no annual fee. These days we have gotten into travel hacking, but more about that in a future post!
Month 9 Total Savings: $16.25
Total Monthly Savings So Far: $809.40
In month 10 we parted ways from AT&T cell phone service. I should have done it years earlier. We paid off our financed cell phone hardware, moved to MetroPCS, and saved a whopping $129.85 per month. That’s as much as our savings from months 5 through 9 combined! Why did it take us so long to switch?
- I was using well over 6GB per month just for my line
- I had heard MetroPCS had horrible coverage (it’s actually not bad)
- I had other devices and lines on my plan, complicating logistics
- I procrastinated on this for 10 months
The new plan had only 1GB of data per line, but my usage simply adjusted. It was painful at first, but years later, I don’t miss AT&T (or their bills!) at all.
Additionally, I decided to drop the long term disability and life insurance policies taken out of my paycheck at work. This may be controversial for some, but my logic is this: I don’t plan on working more than five more years, so statistically I am less likely to need the LTD. I would rather take the larger cash flow and invest it instead. LTD is not really necessary for people pursuing FI, because they don’t plan on working long term!
As for the life insurance: I don’t have kids yet, and my wife has a good job and is independent, so she doesn’t need me to carry it. What was I paying in for over a decade? Let’s do some math. I was paying $15.99 per month for these services, for ten years. Doesn’t seem like much, but if I had invested it instead, I would have over $3K. If I worked a traditional 45 year career, it’s even worse: I would have missed out on $75K of investments. Talk about opportunity costs! Literally, you are paying a fortune to protect your cash flow because you can’t pay your bills if you lose your job. Count me out.
Month 10 Total Savings: $145.84
Total Monthly Savings So Far: $955.24
In month 11 we read about MMM’s water saving techniques and decided to get on board. We installed low flow shower heads and sink faucets throughout the entire house. Total cost was less than $30. Monthly savings averaged us about $6/mo. Not as much of a savings as month 10, but as you can tell by this point, every little bit adds up.
Month 11 Total Savings: $6.00
Total Monthly Savings So Far: $961.24
Month 12 brought about more insurance changes. We raised the deductible on our car insurance from $250 to $2000. Why? Because it lowered the monthly premium significantly. I have an emergency fund. I am saving money now. I can afford an unexpected $2000 expense when it happens, if it happens. I don’t need to pay a penalty because I can’t save my money! The lowered premium can easily cover the deductible with just a few months savings.
I also dropped comprehensive and collision coverage, because I realized how fast cars depreciate. After my wife’s accident, all we received was a measly $10K check to replace her relatively new $20K car. This means that I could have saved the $10K and replaced the car myself, just by saving the difference in my monthly premium for a few years. These changes dropped our car insurance by $81.12/mo.
We also decided to cancel our renters insurance, saving us $41.15/mo. When I took an inventory of my belongings, I realized that everything in our house could be replaced for less than the value of my emergency fund. This included my fancy computers and tablets, furniture (fully depreciated by this point!), clothing, everything. If it gets damaged or stolen, I can replace it myself. This is the power of saving your money. If you don’t save your money, you have to pay someone else to do it for you, and with a hefty fee. This is how I like to think of insurance.
Note that not all insurance is a waste of money… I do believe in the concept of catastrophic coverage. I can cover a $10K loss, but not a $500K loss. This applies to health insurance, home insurance, etc, and deserves its own future post.
Month 12 Total Savings: $122.27
Total Monthly Savings So Far: $1,083.51
So there you have it! After one year of small changes made gradually, month to month, we discovered an additional $1000 per month hidden between the cracks. That’s $12K per year! Not too shabby. We continue this optimization every month, even today. In engineering we call it continuous improvement, or six sigma.
Sure, the low hanging fruit is gone and I may only find a few dollars in savings each month, but every recurring dollar we save counts twofold: it reduces the amount of money we need in FI, since we have reduced our budget, and it increases our savings towards that reduced goal by the same amount. Win win!
My main takeaways from all of this?
- Favor one time costs over perpetual recurring payments
- Many conveniences are overrated (and overpriced)
- None of the services canceled brought any happiness into my life
- Try it with your expenses- you can always add things back!
So what did we do with this new found $1000 per month? Invest it? Pay off debts? Buy a Tesla? And $1000 per month is a good start, but that’s not enough to get to an 80% savings rate – where did the rest of the savings come from? All this and more… on the next Financial 180.
Interested in starting your own Financial 180? You've come to the right place. The math is easy: create a gap between what you earn, and what you spend. If you can save half your income, your working career will only be around a decade long! Want to shorten it even more? Read on to see exactly what expenses the wife and I cut from month to month. Track your progress against the milestones of FI, and gradually build up your own savings snowball. Check out the books and links in our resources section and jump-start your journey to FI. The you ten years from now will be glad you did!