One of “Fred’s” last comments to me was “Very excited to get raked over the coals.”
Fred and Ethel have a great household income (Fred’s a computer worker and Ethel stays home with their two young kids), and after discovering budgeting a year ago, they’ve put themselves on a very healthy financial path.
But, having clarified that their unifying financial goal is to have the freedom to “be near, and enjoy family” (ie move to where their kids settle as adults, or live the mobile life and spend time with both kids’ eventual families) they’re wondering what they can do to accelerate.
They’re 35 years-old, looking to be free from the obligation to work by age 50 (both kids will be grown by then).
As a little background, Fred contributes 4% to his 401k, which is matched dollar for dollar by his employer. Health insurance is through the employer as well.
|Miscellaneous / Needs Based||$400.00||$2,392.78||They have a goal to increase giving while also increasing debt payoff/savings.|
|Deductible / Automatic||$126.00||$0.00|
|Groceries||$500.00||$139.35||Two parents; two kids|
|Dining Out||$500.00||$134.45||Mostly spent on weekly date nights at nice restaurants.|
|Fuel||$380.00||$130.48||One-car family (2011 Ford Explorer).|
|Repairs/Maintenance (Rainy Day)||$120.00||$1,183.08|
|Car Payment||$0.00||$0.00||Paid off the car a few months ago, planning to buy another within a year.|
|Cash – His and Her blow money||$380.00||$0.00||Includes $150 for a housekeeper, babysitters, beers out with the guys, splitting dinner bills with friends.|
|Household Supplies||$250.00||$38.44||Normal house cleaning and paper products, small furniture (items under $500).|
|Personal Care||$180.00||$14.98||Haircuts, special health foods, supplements, exercise programs and equipment.|
|Mortgage – Home||$1,390.00||$0.00||Balance is $309,000 at 3.375%|
|Utilities – Home||$272.00||$381.11||Water is their costliest utility. Lots of lawn in a dry climate.|
|HO Insurance – Home||$71.00||$420.00|
|Property Tax – Home||$433.00||$694.54|
|Repairs/Maintenance (Rainy Day)||$150.00||$292.01|
|Rental Property||Rents for $1,550/mo. Rent raised annually. Property is rented to a friend.|
|Mortgage – Rental||$1,215.00||$0.00||Balance is $159,000 at 3.375%|
|Minimum Home equity payoff||$290.00||$0.00||Balance is $30,000 – this is the focus of the $1,500 per month extra debt payment.|
|Utilities – Rental||$130.00||$55.70|
|HO Insurance – Rental||$51.00||$202.00|
|Property Tax – Rental||$92.00||$92.93|
|Repairs/Maintenance (Rainy Day)||$150.00||$650.00|
|Doctor/Medicine/Vet (Rainy Day)||$260.00||$890.00||Dr. co-pays, prescriptions, glasses/contacts, chiro/acupuncture, and vet bills.|
|Dental (Self Insurance)||$135.00||$470.20|
|Activities – Dance lessons / Piano etc||$150.00||$50.00|
|Miscellaneous – Spontaneous itunes / redbox||$58.00||$9.07|
|Recurring Entertainment – Netflix / Spotify / Others||$30.00||$0.00|
|Savings/Extra Debt Payoff|
|Budget Total||$10,536 – $1,550 (rental income) = $8,986|
It’s easy to grab a machete and start hacking away at this budget. Seemingly low-hanging fruit all over the place. My first pass at the budget freed up $825:
- Save $350 by cutting Eating Out from $500 to $150.
- Drop the house cleaner and save $150.*
- Cut $50 from gifts ($100/mo should take care of family and close friends, right?).
- Cut Household Supplies from $250 to $125.
- Personal Care from $180 to $100.
- Get a cheaper cell phone plan and save another $90 to $100.
*Fred works from home most of the time, as does Ethel (stay at home mom). Between the two of them, seems fair to say they can keep the house spotless without paid help.
Yeah – not hard to pull a quick $800 out of their current spending, but maybe that’s not the only – or the best – approach here. Maybe, instead of starting with answers, Fred and Ethel should start with a question:
How can we obtain the same value/happiness/satisfaction from our consumption while spending a lot less money?
This isn’t really a matter of deal-seeking (although getting good deals doesn’t hurt). It’s about starting a conversation where they ask each other what it is about each category that gives them real happiness.
What is it about the expensive meals out they enjoy so much? What’s the root feeling of satisfaction there? How could they replicate that experience while spending a lot less money?
Kate and I have found that we enjoy $12 meals at In n Out Burger almost as much as $60 sushi nights – if we go to In n Out at 3pm when the place is empty. Turns out it’s the quiet conversation that matters most to us.
That’s just one example. The opportunity Fred and Ethel have is to do a little “zero-based thinking” about their finances, putting every expense on the table and forcing every consumption decision to compete with their goal to be free by 50.
I wonder – just wonder – if they could turn that $1,500 accelerator into $2,500 or $3,000.
Fred, Ethel: do the math. If you were getting ahead at a rate of $3,000 per month, how quickly would you have the rental property paid off? And/or your own home? And/or a big chunk in the market to fund your freedom? The numbers are pretty exciting.
Thanks for your willingness to share, and your very cool attitude about getting “ripped to shreds” by the community. :)