It’s been pretty hard to tamp down the excitement over here lately. Even though work is nearing peak stress, we’re gaining major energy from how close we’re getting to early retirement, both in terms of the calendar and the numbers. Some of that is thanks to the inevitable passage of time and generally favorable market conditions, while some of it is thanks to upping our game this year when it comes to savings. It just feels like the momentum keeps building, which makes us want to say to anyone who doubts the awesomeness of pursuing financial independence or early retirement: It’s real, and it’s spectacular.
We’ve talked a little bit about upping our game — at the start of the year, at the end of the first quarter, and at the end of the second quarter — but we’ve only talked about it in general terms. Today, we’re going to get specific about how exactly we’re raising the bar, and especially what that looks like for non-budgeters like us.
A note on savings rates
As always, we won’t talk actual numbers, but in a new change, we’re also not going to talk about our savings percentage anymore. We’ve realized that there’s the potential for unintentional shaming when we talk savings rate, and we don’t want to make anyone feel bad for having a lower percentage than whatever arbitrary number we might throw out there. All savings is good, and we should all be celebrating that rather than comparing. After all, much of our rate comes from having incomes above average, not from being especially virtuous or thrifty. So we don’t deserve any medals for saving more than anyone else. We’ll save those for the Olympians. High fives for saving, though? We have plenty of those for anyone who wants one!
Saving for non-budgeters
One of the hardest things for us to get our heads around when we were baby savers was that it was possible not to be budgeters and still to save money. We had tried and failed at several budgeting schemes, and felt pretty bad about it. We stumbled into the idea of paying ourselves first before we knew that that’s what it was called — we thought of it as hiding money from ourselves because we had this silly idea that we were bad with money. What we actually were was fine with money but not especially compatible with budgeting. These are different things.
Fast forward a decade or so, and we’ve not only made peace with our status as non-budgeters, we’ve also perfected the art of hiding money from ourselves, aka paying ourselves first.
For “pay yourself first” to work, you have to be in a place in life where you’re able to constrain your spending. Where you are tracking how much money is in the bank, you know which bills are yet to come out of your accounts, and you keep what you spend under that remainder so that you don’t overdraft. If you can live with that, then paying yourself first is really just all about artificially constraining your spending a bit more so you can up your savings, and maybe continuing to ratchet up that savings until it hurts. When it hurts a bit, you know you’re doing it right. [Insert Fifty Shades of Gray joke here.]
The formula we’ve been using for a few years now to pay ourselves first includes having HR split our paychecks so part of each automatically goes to savings without us ever seeing it, having automatic withdrawals set for our big monthly investments so there’s no willpower required to do it, maxing our 401(k)s, and putting anything leftover at the end of the month into savings.
Oh, and we’re huge believers in 15-year mortgages since you actually start building equity from day one, which is a different way of paying yourself. With a 30-year mortgage, you don’t gain much equity from your payments until almost a decade in. So many models that recommend a 30 over a 15 assume that you will stay put until you pay off the mortgage, but most people move within a decade of buying a home, so the short-term equity gains actually matter a lot. But that’s a different post!
Upping our game this year has meant keeping all of those tactics in place for paying ourselves first, but we’ve found other ways to save more, faster.
Upping our savings game
The biggest thing we’ve changed this year is our default setting. In the past, we took a wait-and-see approach with extra money sitting in our checking account, because we thought we might end up needing it later in the month. Now our default has become: “Oh, we have money? Hide it.”
We had this interesting/embarrassing experience last fall where I got super behind on my expense reports from work, but since we’re unwilling to carry a credit card balance, we just paid off the credit card bills each month from a combo of cash flow and our life happens fund until I got my act together and got my reimbursements. In the end, even though we were already focused on saving a lot, we only ended up taking about half the total of my work expenses from our life happens fund, and we found ways to cash flow the other half, so when I finally got reimbursed, it was a de facto windfall. That told us two things:
- We still had a lot of wiggle room in our monthly spending and could save more, and
- If we force ourselves to cash flow things, we can generally find a way to make it work.
I’ve stayed on top of my expense reports in 2016, but we haven’t let the value of that lesson escape us. Here’s how it’s helping us save faster this year than we ever have before:
Bank every “windfall” — “Windfall” is in quotes, because we’ve taken to considering just about everything that’s not strictly a paycheck extra cash and banking it (meaning: putting into our Vanguard investments or using it to prepay the mortgage). That includes principle and interest payments from the personal loan we made, the rent on our rental property, and many of our expense reimbursements from work (all except the largest ones). We put that cash straight into savings, and then find ways to cash flow the rental mortgage and the credit card payments. This is our single biggest change this year, and it has absolutely accelerated the progress we’re making. Once or twice we’ve overdone it and had to dip into the life happens fund, but we’ve paid the fund back with the next paycheck and still ended up ahead of what we wouldn’t saved without this new habit.
Travel on points and credits — We haven’t had time for a proper vacation this year, but we’ve still traveled for fun quite a bit. But we’ve spent very little to do it, thanks to travel points and — more importantly — e-travel certificates earned by offering to get bumped. We have more opportunities to do this than most people do, since we travel a lot, but we now make a habit of accepting bump offers whenever we possibly can. (And for those who can’t do what we do, there are so many great travel hacking options available.) It doesn’t always work out to accept a bump since we usually have a meeting we’re traveling to, but it has worked enough times to completely pay for our Thanksgiving travel and several other trips. Our Thanksgiving trip was going to cost $508, but we had two $250 vouchers from a recent bump and I was able to book the trip as two one-way segments that netted out to $4 each, or $2 per person per leg. And we’ll probably even get upgraded both ways — $2 first class, y’all!
Dine out less than ever — It helps that we’re in what we hope is our last big stressful work period before we retire, so we don’t have time most days to leave the house, except for a quick hike in the local trails at most. But we haven’t been dining out much at all, and that is undoubtedly saving us cash, especially when you compare it to our former baller days when eating out happened multiple times a week.
Eat less — This is a weird thing to say, but it’s true. We’re making a conscious effort to eat less food, and — obviously — this saves money. We’re not eating less in order to save money, but to be healthier, and we’ve cut out most of the remaining junk in our diets. Saving money is just a nice side effect.
Take less cash to the farmers market — Noticing a food trend? It is our biggest expenditure after housing, after all. And farmers markets have always been a major weakness of mine. I have at times spent rather obscene amounts there, but now I take a set amount of cash with me — an actual modest number — so I can’t spend more than the allotment. It’s been working, and I’m a lot more price conscious about what I buy. I am super thankful that several farmers bring their blemished or “ugly” produce to the markets and let me buy it for half price. It tastes just as good.
Save the monthly leftovers — Not talking food here — it’s back to money. Anything left at the end of the month gets saved, so that we don’t see that money sitting in there after we get paid on the first and let ourselves think that means we have extra to spend. If there’s money there, we hide it.
Keep squeezing — If we get through one month without feeling squeezed for cash, then we’ll increase the amount we invest the next month to squeeze a little harder. We’re now saving on average 50% more each month than we saved last year even though our raises were a tiny fraction of that, and we hope to have that number a little bigger by end of this year.
All of that is in addition to our randomly quirky cheapskate habits and common-sense habits like not letting shopping be a thing, and eliminating costly services like cable TV. (Though, man, we are totally missing live TV during the Olympics. In most places, we could at least watch NBC with bunny ears, but we get no TV signals in the mountains. #mountainproblems)
And we still have definite room for improvement, which we’ll focus on after work quiets down a bit. Though my cell phone is paid by work, Mr. ONL’s is still some pricey Verizon plan. We know we can do better. And we’re still outsourcing a lot of labor that we know we can do ourselves, like plumbing and changing the cars’ oil. Those are little expenses in the scheme of things, but we like to be able to handle our business. All on the to do list for retirement.
An interesting and totally unexpected thing has also happened that we only recently realized: We’re spending significantly less right now than we’ll be able to spend in retirement. So all that talk of needing a dress rehearsal or a trial run to make sure our retirement spending projections are realistic? All gone! We’re already living at that level with room to spare.
What a relief! We have always been just a teensy bit nervous that it would be a hard adjustment once we actually pulled the plug and had to live on the new budget, but instead we’ve focused on making changes to our lifestyle and spending gradually rather than all at once. The result: we can’t pinpoint any specific time when we feel like we had to make a big adjustment because there was never a big adjustment to make. We’ve just gradually notched down our spending and ticked up our savings, without ever going cold turkey on things we love doing.
Now let’s turn it over to you guys. I know you’ve got some money wizardry going on — what ways have you found to increase your savings? Or to decrease your spending? Anything else you’ve upped your game on? We’ve got virtual high fives at the ready, and we’re not afraid to use ’em.