A couple of weeks ago I began preparing a presentation I was going to give at our second ChooseFI Alabama meetup. I took to the group and crowd-sourced what my topic was going to be. After a number of choices were thrown out, frugality is what most people had voted for. Perfect, one of the most life-changing things we’d encountered on our journey to Financial Independence. But, we were genuinely astounded when I gathered all the info and saw just how much we were saving by making a relatively simple life choice to be more mindful about our money.
Before we dive into the changes and the numbers, I want to drop some cold hard statistics on you.
- 69% of Americans have less than $1,000 in savings
- 33% of Americans have less than $5,000 in retirement savings
- The average personal savings rate is 5.5% including retirement, emergency, vacation, and other savings
- 58% of people under 35 don’t have any retirement savings at all
Damn, that’s depressing isn’t it? Considering the average income has grown over $6k since 2010, and is at an all time high, I’m not exactly going out on a limb by saying that Americans clearly have a serious spending problem. And here are a few numbers for the “just earn more” crowd, the “spending money out on drinks every night helps me make more business connections” people, and the “buying a new car will make me seem more professional and help me advance my career” folks.
- 78% of NFL players are bankrupt or under “financial stress” (sounds like “broke” to me) within 2 years of retirement. Average pay of an NFL athlete? $2.1 million. Average career length? 3.3 years. Just shy of $7 million on average gone in 2 years.
- 60% of NBA players are bankrupt within 5 years of retirement. Average pay for an NBA player? $6.4 million. Average career length? 4.8 years. Over $30 million squandered in 5 years.
- I’m sure you can see where this is going, but 70% of lottery winners are broke within 5 years.
Earning more doesn’t solve a spending issue. These people above make more in a single year than we might make in our lives. If only they’d learn the healing power of frugality like I have, they could keep those hard-earned dollars and maintain a comfortable life for themselves, and likely their children without having to work another day.
The Big Four
We changed our spending in potentially hundreds of ways, but for the sake of time, we focused on our before & after spending in just four categories: housing, transportation, food, and cell phone service. The first three are typically the biggest portion of anyone’s budget, but the cell phone service could be substituted for other people who might spend more on internet, cable, hobbies, shopping, candles any other dumb shit…ours just happened to be our phone bill.
We’ve mentioned it in previous articles, but right after we got hitched, we did what any other normal, childless, 20 somethings would do. We bought an overpriced 1 bed 1.5 bath condo for $159,000. With the mortgage and the ridiculous HOA, we were shelling out $1400 of our hard-earned dollars every month plus utilities. Once we found FIRE, this was one of the low hanging fruit that we decided to cut. It took a little convincing for me to get Mrs. RRR on board with axing the place, but I’m pretty persuasive and now she couldnt be happier about us cutting our losses.
If we rented it out, we might’ve made $1200 per month on it, so keeping it and shelling out a few hundred a month to float it wasn’t a great early retirement decision. We’ve moved a couple of times since then, but ended up landing in a 1 bed 1 bath detached Mother-In-Law suite beside a 3 bed 1 bath house for $86,500. We live next to our tenants, who are the nicest people ever, and we net +$2 a month after mortgage, utilities, and setting 10% aside for maintenance. We break our numbers on this property down in our article: The House Hack that Allows us to Live for Free
$1,400 to +$2 = $1,402 monthly savings
Maybe a month before we found FIRE, through Mr. Money Moustache, I convinced Mrs. RRR to let us buy a really dumb car. $16,500 poorer, we had a fast ass car that you couldn’t drive in the rain, couldn’t drive in the winter, and was really uncomfortable in the heat, so definitely the perfect daily driver. The average used car costs $19,657 so compared to that, we got a bargain. This fruit was so low-hanging it was already on the ground.
So, around two months after buying it, we got rid of it. Our next car was an ’07 Nissan Versa hatchback for $2,000. $17,657 less than the average used car. Average length of ownership for new cars is 7 years, so we decided to spread our savings over the course of 5 years because it’s used, there’s no way it’s going to last more than 5 years…… hell, according to my in-laws, it should’ve died before we even bought it. The insurance also dropped by 50% netting us even more money.
$17,700 (car and ins) to $2,664 = $15,036 or $250.60 monthly savings
Our love for Aldi has been well documented. Seriously, we should get a kick-back for all the times we’ve mentioned it. But, there was a time a few short years ago that my own grandmother was trying to save me some money and suggested to shop at Aldi, and I was too closed-minded to even give it a try. Bringing my own bags, having to put a quarter in for a buggy, and only having a few aisles to peruse through are now things that I love, but at one time kept me from stepping foot inside. Switching from Kroger to Aldi, eliminating our food waste, and sticking to a list helped us cut our grocery bill by over 50% We also cut our eating out down from multiple times a week to a couple of times a month, and gladly take leftovers and free food.
$580 to $211 = $369 monthly savings
Back in the day, having the newest iPhone was a huge priority to me. So much so, that I camped out at the Apple store multiple times for the iPhone release like an idiot. Thankfully, those days have long come and gone. I spent an average of $349 on my last three iPhones, and that number was with 2 and 1 year contracts (back when they still offered that kind of thing). With an iPhone 8, X, or XS the price is astronomical, but I won’t even add that as savings. Now, our goal is a new *to us* phone every 4 years for $150. I’m just over 3 years into my last iPhone, so we haven’t had to bite the bullet on that one yet. AT&T was our service provider, and before cutting back, our bill was $113. We jumped to Cricket, and cut that bill in half. Then, we jumped to Sprint and cut the bill in half again. If we can manage to find a carrier that’ll give us unlimited talk, text, & web for under $15 per person, we will ditch Sprint quicker than Usain Bolt at the Olympics.
$142 to $36 = $106 monthly savings
Our previous lifestyle cost us $29,964 a year just on those 4 items. Currently those same 4 things are costing us $4,200. That’s a whopping $25,764 savings PER YEAR! And to top it off, according to the 4% rule, this means we need $105,000 to pay for these things in our current lifestyle compared to the $749,125 that we needed before. I’m not sure how long it would’ve taken us to save that extra $644k but I’m positive that it’s years taken off of our working life, maybe even decades. By saving an additional $25k a year on top of our current savings, we should be able to reach our goals immensely faster.
With that being said, I’m not going to bank on spending $4,200 in retirement, but being frugal will definitely make it easier to bolster up our nest egg, help us snag a couple more properties quicker than we could’ve before, and give us the comfort of knowing that we can tighten our belt if the markets start to tumble or something catastrophic happens
Frugality is not a limitation or denying yourself happiness. Frugality is freedom.