Andy @ Retire at 40

Spending Your Way Out of a Recession

18 Jun 2009 22:57:26 +1200

I know people were talking about this a few months ago but finally I found some common sense. By a bank of all things.

Earlier this year, I saw people interviewed on the TV and they said things like:

I'm spending our way out of the recession

Yeah, it [the recession] is not affecting me. I just keep spending

And I would think "wow, these people have no idea".

Trying to Change the World One Person at a Time

Sometimes, changing the world one person at a time can work but pretending that your spending will help us get out of the recession is a bit silly.

The amount of money that you are in control of is such a tiny fraction of what is required, you'd need the whole world to think and act similarly.

Instead, you should be worried about your future, have an emergency fund and be a little more sensible with your money.

Because you never know what's down the road.

Paying off my Mortgage in the Current Economic Climate

16 Jun 2009 21:22:30 +1200

At the moment, the economy doesn't seem to be too great. Of course, many people are saying that they haven't felt any impact at all ... but these are the lucky ones who's jobs are relatively stable.

So far, I'd say that I was one of the lucky ones. To me all of four things has happened in the past year:

I got a pay-rise
I cut my spending
there has been tax cuts
there has been interest rate cuts

Therefore, with all these things going on, I am able to pay off more of my mortgage since I am currently on a floating rate.

The Plan

Since I have split my mortgage into a revolving and a repayment mortgage, I am able to pay a little more on both at the present moment. There will be no penalties since they are both on floating rates.

The overall plan is to eventually fix the larger of the two amounts (the repayment part) and keep paying a little extra on that. I shall also keep adding as much as I can afford to my revolving mortgage since that also acts as my emergency fund.

Attacking on Both Counts on Both Mortgages

By attacking both mortgages I am able to start bringing down the principal a lot faster than I ever have and because some of it is my revolving mortgage, I don't have to worry about having it disappear since that acts as my emergency fund.

I'm also attacking the larger of my mortgages on two counts too, since my interest has come down and I've upped my repayments.

All in all, I'm currently on track to repay my home loan in just less than 8 years. That would take me to a total of 11 years since the mortgage started.

Not a bad saving on all that extra interest I'd otherwise have to pay.

Paying Bills per Month Rather than per Year

12 May 2009 21:18:56 +1200

There are two trails of thought in my head these days. Firstly, the idea that I will retire at 40 once I am financially independent.

The second is that of simplifying and downsizing my life and my needs.

The funny thing is, sometimes these ideas aren't quite orthogonal and one influences the other, sometimes to it's detriment.

Paying Bills per Month

Recently, I changed banks. I did it for a few reasons, one of which was that I could do more of my banking online or over the phone. I rarely - if ever - need to go to the bank now and in fact they don't even have premises since they are physically inside Post Shops.

This bank switch has made my life simpler and easier and I like it.

Whilst I was switching though I also decided to change a couple of other things too. The main one being that where possible, I decided to change from paying some bills quarterly or yearly to paying them monthly.

The reasons for doing this I will come on to in a second but firstly, let's see why this is now a disadvantage.

Going Against My First Plan

Becoming Financially Independent means being careful and clever with your money. Yet paying for things monthly may go against the being clever bit.

For example I have to pay my rates quarterly. They are due at the start of the 3rd month of each quarter, therefore the money for the first two months sit in my account earning money for me. But by changing it to monthly payments means that I no longer get that advantage.

Also for other bills that are paid yearly, I may have to pay everything up front but usually you earn a slight discount for doing it that way.

Therefore in both of these cases, switching to a monthly payment plan is probably not the best thing to do financially speaking.

Going With my Second Plan

Overall however, paying these bills monthly makes things a lot easier and therefore makes my life simpler.

That is, instead of putting money aside into a Freedom Fund and having to calculate how much to put in it each month and then paying it at the beginning of each year I instead have a Bills Account which receives the correct amount every single month.

I know that a Freedom Fund isn't the hardest thing to do and I still have one for those bills I can't pay monthly but I also like the idea that I'm paying for something as I need it.

In Conclusion

Whilst paying for some bills quarterly or yearly may have a financial advantage, the ease and simpleness of paying them monthly outweighs pure monetary gain.

This may or may not work best for you but how do you do it and why?

Shaving those Expenses: 10 Things to Think About Cutting Down

24 Mar 2009 20:57:07 +1200

After a few weeks trying to cut a number of expenses, I hereby offer you 10 things you can think about where you might be able to cut your bills or your monthly outgoings.

1) Lowering your Cable TV/Satellite Subscription

Or indeed, cutting it out completely. Think about it, how much time do you watch TV anyway. Not much? Then you don't need either Cable or Satellite. Watch it alot, then you probably need to cut down anyway.

I used to have Cable TV in a previous house which was about $60 a month, now saved.

2) Monthly Insurances

House insurance, contents insurance, life insurance, car insurance, income protection insurance, the list goes on. Every month you give money to someone else such that they can help you out if things go wrong. But how often do you check to see that you're paying the lowest price. You'd be surprised to learn you haven't reviewed your insurance in years.

I am planning an appointment with an insurance broker soon and I suspect I'll get to save somewhere between $20 and $30 each month on my insurances.

3) Utility Bills

With the shake up of most countries power over the past decade or so, it's pretty easy to find great deals on your electricity and/or gas usage. Just shop around and you'd be surprised at how much the smaller suppliers are charging compared with the old incumbents.

I've just change providers and will be saving about $25 a month.

4) Moving to a Lower Internet Plan

If you're not using your internet plan to the fullest, then you probably want to downgrade to the next plan down. This is especially true if you're not downloading lots of large files. You're probably using nowhere near what your plan allows you to.

I realised I was on a 20G plan and in only 2 months in the last 6 did I reach 8G or 9G. I've now lowered my plan to 10G and will probably look at the 5G and just pay for excess bandwidth if I use it. A saving of $25 a month right there.

5) Switching Banks

By switching banks you may be able to save various chunks of money here, there and everywhere. From service fees, withdrawal fees, other bank's ATM fees and a myriad of other fees which all add up, you might save a few bob.

I just switched banks, mainly for my mortgage, but by switching my current account and credit card too, I'll be saving $12 a month on account charges and about $15 a month on not getting credit card insurance. Also, $20 a year on the credit card fee and about the same to be in the rewards program. It all adds up.

6) Switch to Low Power Devices

Switching to low power light bulbs is an easy win, but think about switching your other devices to a low power one too. The washing machine and fridge would be two worth looking at.

Maybe it's not worth it if your current devices are still happy and working but when you have to replace them, it'll be well worth the time investigating the low power options.

7) Switch to Pre-Pay on your Mobile/Cell phone

Switching to pay only for what you use is a pretty good option in most cases. I know people who have switched to metered water and who are now saving a good chunk of money (people who would have in the past been subsidising the people who waste water unnecessarily). Why can't you do the same for your mobile? If you don't use it much switch to only pay for what you use.

I shall be switching to Pre-Pay soon and going from paying $20 a month subscription (+ calls) to paying $6 (to get a special offer) + what I actually use. I'm sure to save around $20 a month.

8) Lowering your Rent

Moving to a smaller place means you'd probably end up paying less rent. You might also have to get rid of some stuff that has been dragging you down the last few years. An increase in savings and an increase in life simplification will work wonders for your stress levels and your daily energy.

Moving from a three bedroom, to a two bedroom and now a one bedroom place has made me open my eyes as to what is important in life. Having stuff and clutter is not on that list. Also saving $220 a month isn't bad.

9) Moving to somewhere close enough to walk or bike to work

By moving somewhere where you can walk or bike to work means you get to save money and you'll probably end up saving time too (since biking is pretty quick once you get used to it). No buses or trains to wait for and no being angry at crazy and unreliable timetables.

Moving into town has meant that I not only have more money to save due to not having to bus ($100) but I also save now that I have sold my car. My fitness levels are up and my savings are bigger.

10) Anything else you regularly pay for?

Whatever you have that you pay for regularly is ripe to be analysed and figured out how much of that particular thing you actually need. Almost everything can be shaved slightly to give you those few extra dollars in your back pocket.

And as always, and for those of us who have seen the light about all of this, you know that shaving off a little of each bill here and there makes no difference to the quality of life but an enormous difference to your bank balance once added up.

So, get cracking on those regular payments and make sure you shave each of them and save a bit every month. By the end of the month, you'll be surprised at how much you're keeping instead of slipping through your hands.

Guest Post on Lazy Man and Money

28 Feb 2009 08:40:46 +1200

Firstly, welcome to all the Lazy Man and Money readers wandering over here to take a look round. Remember to subscribe to my RSS feed so you can keep coming back. And to all my readers, go and take a look at Lazy's blog (yes, he doesn't mind being called that) - it's a great read.

Short Term Sacrifices for Long Term Gain

Photo: alphaducentaure

My post over at Lazy's blog was originally called Short Term Sacrifices for Long Term Gain but in conjunction with Lazy we changed it to Sacrificing the Little Things for Early Retirement so his readers could get more of a taste of my background, why I started all this and where I'm headed.

I wrote the post in response to a comment I had on a previous blog post of mine, called Seeing the Old Me. Concetta put the idea in my head when she commented that by doing a four day work week, I was actually treating myself, all the time! I hadn't realised this at the time (though it makes perfect sense now).

I'd mentioned that I had been buying take-away coffees and treats for myself in reward for working too hard which brought back memories of the old me again. Working hard, playing hard but spending all of my money whilst doing it. Then I mentioned that I had to sacrifice things if I wanted to do a four day work week (oh, and retire early, mustn't forget that) - and by not spending my money on those 'extras' I could also afford to drop down a day at work. It turns out though that she was right and that having the extra day off is a huge treat, week in, week out.

If other people think that by not going to the movies that often or not having the flashiest car is a sacrifice, then that's fine with me. Neither of these things are that important to me and instead I'll make some fresh pasta, go out cycling or enjoy a bit of gardening instead. Better health and less outgoings.

Therefore a few small sacrifices gets me a much bigger reward - as always, judgement is in the eye of the beholder.

And funnily enough, these are also the same people who say "...and you can afford that?" when they hear you're working a 4 day week. Pretty funny, isn't it?

Thanks

So thanks again to Lazy Man for hosting my guest post and I hope you enjoy my article over there if you haven't read it yet.

Personal Finance is Not a Destination, it's a Journey

25 Feb 2009 01:15:14 +1200

You've heard the phrase:

Life is not a Destination, it's a Journey

And like life, the road to financial independence doesn't lead you to a destination but instead just takes you on a road leading to a place you'd rather be but never actually getting you there.

Each junction on this road can also be considered a decision making time, a time when you can re-evaluate and a time to look back and figure out what you want to do to keep moving forwards. Forwards of course means heading towards your goals because if you didn't have goals you wouldn't know which way to was the right way to go.

Re-Evaluating Your Outgoings

In this post, I'd like to just concentrate on one particular aspect of these junctions and that is about re-evaluation. In fact even more specifically, re-evaluating your monthly outgoings like bills and suchlike.

Back in one of my first posts, I mentioned in my article on budgeting that I'd been doing various things over the years such that I was spending less on various things. Some of the bigger items I had cut down on were:

rent (by moving to a smaller flat)
travel (by moving closer to work)
food (by not buying as many take-aways and making my own food)
lots of other little bits and pieces

A few months after that, I also took some steps to make my monthly outgoings even less. I ended up selling my car and instead buying a bike for travel. That action in itself saved me over $250 a month, which is about $3,000 a year.

Can't be bad.

Spring Clean your Outgoings

Even though it's coming into Autumn in this hemisphere, for most of the internet world it is now coming into spring. As well as spring cleaning your house it is as good a time as any to also spring clean your monthly outgoings. This can be done in two ways.

You may want to turn and toss every single little thing but mostly you can just give things a quick dusting to make sure you've still got what you expect. In some cases, you just need to review what kind of plan you're on whether it's electricity, phone or subscription services.

I am currently going through a bit of a spring clean and I figure that by the end of it, I'll be saving well over $1,000 a year extra. Let me go through some of the things I've done in the past couple of months and a few more things on the table in the next couple.

stopping my DVD mail subscription service
switching electricty/gas providers to a cheaper option
switching banks (to one with lower mortgage interest and less charges)
changing credit card (to one with no fees and lower interest - not that I'd pay them any)
stepping my internet usage plan to one with a lower price
changing my home firewall machine from one drawing 100-150W to one which draws 5W
switching my home/contents insurance to a cheaper supplier/option
turning off my normal phone and getting a VoIP phone number instead

By doing all of these things, I suspect I can save upwards of $1,000 every year and quite possibly closer to $2,000.

For a start there's a $250/yr saving with switching energy suppliers and a $300/yr reduction by switching to a lower internet plan.

If I get rid of my phone, that's a $420/yr difference, minus about $120/yr for a VoIP phone, that's still a $300/yr saving.

I suspect I'll also save about $360/yr on home/contents insurance and realistically my bank fees/credit card fees will be lower by about $100/yr or more.

Just totting that up, that's a yearly saving of $1,300 without even lifting a finger (ok, I have to phone a few people but not much more than that).

See What You Can Do

If you've been living frugally for a while you might have already done all of these things and more, especially if you've been settled into one house for a while. In which case, maybe you don't need to review your situation.

However, it doesn't hurt to go through each of these things every so often just to see if something can be done. Let's say a new competitor is now supplying energy to your vicinity, it would be a shame to miss that opportunity.

Even just shaving off a little at the top of each and every bill you get can save you a significant amount of money per year. Add 10, 20 or even 30 years worth of compound interest on top and those small insignificant amounts start to add up to some serious money in the future.

So far my increase in savings have been well worth the effort I have had to put in and there are still more of those things on the list for me to go through and switch around or reduce. Overall, I'm pretty pleased already.

What other bills can you think of which can be easily reduced by either cutting back on a plan or switching supplier?

Frugal or Cheap

22 Feb 2009 15:56:07 +1200

There seems to be some debate in the PF world at the moment about what the terms 'Frugal' and 'Cheap' mean. I think there are some interesting points but in all honesty I really think that it is in the eye of the beholder.

Personally I think I prefer the term Frugal rather than Cheap due to the same reason DebtDiva mentions ... that cheap has negative connotations, but mostly it doesn't matter to me.

I have known a number of people over the years who have said things to me like "I'm too cheap to buy [this] or [that]". They obviously don't care about any negative feelings towards being 'cheap'.

To Me, It Doesn't Matter

In reality, it all amounts to the same thing anyway, that these people who call themselves frugal or cheap look after their money a bit more than those who don't. Possibly by not spending as frivolously, saving well and looking at the long term needs rather than the short term wants.

The One Thing I Remember

There is however one phrase that I try to remember when I am purchasing something. Generally I don't go for the cheapest stuff but at the same time I don't go for the most expensive either. I've always been a middle-of-the-road guy when it comes to such things (of course, it is very dependent on what it is you're buying).

As it turns out, this particular phrase has stood me in good stead over the years and I somehow manage to make my purchases last years longer than what some other people would. By not buying the cheapest thing, my possessions usually last as long or longer than I need or want them to. Adhere to this phrase and you'll probably be able to do the same too:

Only the rich can afford to buy cheap!

It's one of those phrases I heard once and never forgot. The friend who told that was well on the way to retirement at an early age (probably mid-forties and he could stop work - not that he will) and I've thought about it all the time since.

How do you see the words 'frugal' and 'cheap'? How about 'thrifty'? Does it really matter?