Save Money with these Five Simple Rules
This could also be titled, save money through smart decision making. I recently started to consider how much everything costs on a monthly basis. As I review each monthly cost, I consider them using the equation that Mr. Money Mustache uses when he discusses the opportunity cost of a monthly expense/bill. He compares any monthly expense to what the same amount invested over 10 years could yield given a 7% expected return by multiplying the monthly cost by 173. Simple and quick.
So let’s assume that a $50 monthly premium channel bill could yield $8,650 over 10 years ($50 multiplied by 173) if invested in low cost index funds such as VINIX or VTSAX. That’s a lot for HBO.
Here are five simple rules that can help you to reduce your monthly expenses and locate new opportunities for investments.
Always Do Your Own Chores
The cost of paying other people to do your chores is astronomical. Let’s take for example the cost of a lawn service that mows your front and back yard once a week. In Texas, that could cost you $30 to $40 a week. Let’s assume you only need your lawn mowed nine months out of the year due to Winter. You will still end up paying on average $130/month for the year or $22,490 over ten years.
Here is how I got to that number. 40 * 52 = 2080. If we’re only considering nine months, then take 2080 * .75 = 1560. As we’re concerned with the monthly cost, we divide 1560 by 12 and get 130. Then, multiply 130 by 173 to get the 10 year investment potential from the Mr. Money Mustache equation. 130 * 173 = 22490.
That’s a lot of money your lawn is costing you.
The list of chores people are willing to do for you is long, and the opportunities for saving (and later investment) are equally great.
- Lawn service (mowing) – monthly cost $130. Ten year potential $22,490.
- Lawn service (chemicals) – monthly cost $40. Ten year potential $6,920.
- Insect service – monthly cost $40. Ten year potential $6,920.
- Household cleaning -varies, but we’ll assume $80/month. Ten year potential $13,840.
- Cooking/Food – this varies widely based on family circumstances, but the sky is the limit!
Track Your Money, Expenses, and Investments with Personal Capital
If you have heard of Mint.com or used it to some degree, Personal Capital will seem familiar to you. The reason I prefer Personal Capital to Mint is that Personal Capital is great when it comes to tracking investments. It has fancy charts and an asset allocation check-up that is free to use. Personal Capital has an investment advisory service that I do not use. As previously discussed, our investment priorities are fairly straightforward. We don’t need to pay someone extra to manage our investments, but Personal Capital is as good as it gets for a free app to track your investments. It even works with the TouchID sensor on my iPhone to ensure the information stays secure in the rare event I put my phone down without locking it. Also, the ability to monitor transactions makes sure you can pay attention to where your money is going and whether that is keeping with your longterm goals.
As I said, Personal Capital is free unless you choose to use their advisory service. Sign up below (affiliate link)!
Cut the Cable Cord and Only Buy the Media You Want
This one sounds like it would be difficult to do, but there are numerous strategies to get access to the media you want. If you take a couple of hours on the front end considering how to do it, you could save hundreds of dollars a month. This topic almost needs an entire post on itself, so I will probably have one in the future to consider the hardware and software solutions available (e.g., home media servers, Apple TV, Amazon Fire Stick, etc.).
When we had AT&T U-Verse, it seemed our bill was always ballooning more and more. Once it hit $157/month, I knew we had to make a change. Shopping around helped and we signed up for satellite. If I could do it again, I would have relied on the media delivery devices I mentioned earlier. That way we only pay for the channels and media we want and not the commercial laden TV shows. DVRs can help avoid the commercials, but they often cost some each month to rent.
At $157 a month, the ten year potential is $27,161.
Buy Used Cars with Cash and Don’t Make the Car Dealership Rich
Some new cars lose 60% of their value in the first four years of ownership. Even those that “hold their value” still lose around 30% in the first four years. Those facts alone should shepherd you towards looking at a four to six year old car for any purchases. Let’s put some numbers to it.
If we assume a new car cost of $30,000 (and many are far more expensive) then a depreciation of 60% is $18,000 in just four years. Many people will say they are buying a new car so that they don’t “inherit someone else’s problems.” That is an expensive line to say, but let’s look at it to see if it has any merit. A list of the most expensive car problems lists the cost to replace an engine around $4,000. That $18,000 you saved buying a four year old car is enough rebuild/replace a car engine four times. With today’s manufacturing standards, I doubt you’d need to replace an engine, but even if you did – spend the $4,000 and have an extra $14,000 of walking around money.
Pay Off Credit Cards Each Month and Live Within Your Means
This one goes without saying. There could be rare circumstances when you had a 12 month 0% interest with a balance transfer, but the huge credit card companies did not get to be HUGE credit card companies because people paid off their credit cards each month or at the end of their balance transfers. Sometimes the monthly interest on these credit cards can be higher than 20%! That is a crazy amount of money to pay what is essentially a short term loan. We used to avoid the use of any credit card, but now we use the American Express Blue Preferred card for every day purchases. We pay off the balance every two or three days. Using this credit car allows us to earn about $50-$75/month in benefits. We have never carried a balance.
By following these few rules, you could greatly increase your chance of saving money and reaching financial independence early.
I hope you enjoyed these rules. Which rules do you follow that help you achieve your financial goals? Leave a note in the comments below!