There is always a Perfect Solution

I consider myself lucky that I committed to this frugal lifestyle early.  It was a natural consequence of defining my life goals and my desired timeline for achieving them.  But nobody exists in a vacuum, and when your life goals are intertwined with a partner’s it can occasionally be a challenge to coordinate your efforts.  There are articles over at MMM that address the issue of convincing a spouse of the benefits of living below your collective means, but I found that I had the opposite problem… my girlfriend’s zeal eclipsed my own!

Let me be clear: this is not a real problem.  Her immediate agreement and genuine enthusiasm was preferable to the alternative.  I found myself in a position where I did not have to waste any effort arguing for a lifestyle that I knew was the correct one.  I found myself in a position where she was better at living that lifestyle than I!  I could count on her to keep me honest and on track, and she has been nothing but helpful.  But even though we’ve never disagreed about the direction, occasionally we’ve disagreed about the details.  Which brings me to paper towels.

My whole life there have always been paper towels around.  These pristine absorbent sheets have always been standing at the ready, nearby, like a cottony tubular sentinel watching over me, waiting for a opportunity to help clean up a mess.  I could always rely on these quilted, quicker picker-uppers in a pinch.  And in times of need my default behavior was to turn first to those angelic folds.  Spilled grape juice?  Dirty stove-top?  No problem.  I had the most versatile tool in my utility belt (or on my countertop).  There was nothing that together we could not do.

But at what cost?  Disposable paper towels are not free.  They are not even cheap.  My girlfriend helpfully suggested an alternative: cloth dishtowels.  Although I was uncomfortable admitting it at first, she made some good points in their favor.  They are cheaper.  They are nicer.  They are re-usable (just throw them in when you wash your sheets).  And so together we made them accessible in our kitchen.

But although logically I completely understood the comparative disadvantages of the paper alternative, for weeks I could not help myself from unconsciously reaching for the paper towels first.  After a morning grapefruit I would wipe down the table, expecting to be congratulated by my girlfriend for my thoughtfulness, only to be scolded for forgetting to use the cloth instead.  I wanted to change; I really did!  Would I ever be able to break free of my habit, in the name of saving money?

And then I had a thought.  I took the roll of paper towels off the counter-top and put it under the sink, next to our cleaning solution.  This small change made it so much easier to modify my behavior.  Having them out of sight and out of the way preventing me from reaching for them first, and gave me those extra few seconds to contemplate my actions more completely.  Problem solved.

I have always enjoyed solving puzzles, and my experiences as an engineer have reinforced an attitude I’ve had for as long as I can remember.  I’m talking about the optimistic attitude that a solution always exists, even if nobody has discovered it yet.  If you truly believe that a perfect solution is out there, you won’t stop looking for it.  If you doubt that the perfect solution exists, then you may give up the search and never find it.  After all, as an engineer, if I can’t find the solution to a problem then what the heck am I being paid for?  Another valuable lesson to be learned from this experience is that behavioral modification is possible, and can even be easy, with the right approach.  The best approach surely varies widely across the general population, but having faith that a solution is out there is important, and will help you find it.  This principle applies to everything from paper towels to quitting smoking.  It might just take a little thinking outside the box.  I am reminded of an acquaintance that had a problem with overeating.  They snacked constantly and even when they wanted to change they lacked the self-control to simply quit the bad habit.  Finally, they tried consistently following up the bad habit with a good one, and resolved to brush and floss their teeth after every snack, even if it was just one bite.  Suddenly they found it easy to quit eating as much, finding flossing so often to be annoying.

There is always a perfect solution.

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The Game of Life

I like to game.  Board games, card games, video games; I love them all.  Whether they take the form of a competition or a story, games are an essential part of this green pilgrim’s journey.  I’ve had single-player experiences that rival my favorite books and movies.  These things are satisfying in any form: suspense, character development, the grand reveal.  I’ve had intense multiplayer experiences challenge my mind, my reflexes, and my decision-making abilities under stress.  Jacob over at ERE dismisses games because he prefers real life.  But I enjoy experiences that make me feel alive, and games often do that for me.  So how do I reconcile this hobby with my other values, and my goal of saving for early retirement?

Video games are expensive, and popular.  Newly released triple-A titles cost upwards of $60.  Less expensive Indie games are fun too, but tend to be shorter, and multiple $5 and $10 purchases add up.  Hardware is expensive too.  It costs hundreds of dollars for a brand new computer or current-generation console, not to mention any necessary peripheral devices or accessories.  It doesn’t take a roller-coaster tycoon to see that these numbers aren’t conducive to saving money.  So what options are available to a frugal gamer?

  • Build your own PC

It’s not as difficult as it seems before you do it.  Figure out your hardware requirements, choose components that will be compatible with each other, and buy them from a discount retailer.  When they arrive in the mail you can put them together like Legos.  Do it barefoot (to prevent static buildup) and have a screwdriver handy.  If it doesn’t boot on the first try, don’t panic, just troubleshoot it.

Although this will be a considerable investment (hundreds of dollars) it will still be much cheaper than an equivalent factory-made computer.  When it is time to upgrade or replace you can save money by re-using old parts.  It will be decades before I have to replace my dual monitors, modular micro ATX case, speakers, keyboard, mouse, etc…  Some of these items can be obtained for free in the first place.  My desktop also makes owning a laptop or tablet even more unnecessary.

  • Get an obsolete console instead of a current-gen one

I guarantee the fun games will still be fun.  This is the ONLY downside.

  • Borrow games from friends instead of buying them

If you play games, chances are good that your friends do too.  When I was in college I bought Mirror’s Edge for full-price the week it came out.  So did two of my close friends.  That was possibly the worst financial mistake of my life.  Even today I am able to borrow plenty of games from people I know.  As long as you treat discs with care and return them promptly, your friends will probably enjoy lending them and being able to talk to you about them.

  • Play with friends

Play over at your friends house.  Make gaming a social activity (that you pay nothing for).

  • Play free games

Like such, such, and such.

  • Play free demos

Sometimes you just want to play something fresh, and only for a little while.

  • Play stolen games

This is a topic I’ve struggled with and put a lot of thought into.  It is a fact that most PC games can be torrented illegally and at virtually no risk (with certain trivial precautions).  The only question remaining is a moral one.  When you resolve never to buy a game at its full price, the choice is between pirating it or not playing it at all.  Either way, the developer will not get any money from you.  But if you pirate and enjoy the game, the developer profits from the exposure.  This is especially true for lesser-known independent games, and arguably so for big-budget ones.  One counter-argument is that if everybody did this then no games would be made at all.  I am forced to agree.  Along a similar line of reasoning, if everybody saved 85% of their take-home pay instead of spending it on consumer trappings, our economy would collapse.

At the end of the day, games are about having fun.  There is no price tag on fun.  If your hobby (any hobby) seems expensive, you may be doing it wrong.  The time you put into optimizing your hobby and aligning it with your saving goals will be educational and rewarding, and will bring you that much closer to financial independence.  My game of the week is Chess Time for my new money-saving phone.  It is cross-platform and free, and I’m having a blast beating all my friends!  Feel free to challenge me; my username on there is “Kilroy66”

Happy Journeying!

How I lowered my monthly cell phone bill from $86 to $10

Verizon has been my carrier since high school, and I have a lot of good things to say about their service, but it wasn’t until I started paying my own cell phone bill that I could appreciate the economics at play.  If you are like me, you are accustomed to being able to call or text anyone from anywhere at any time, and to download and run apps to boot.  These abilities are not free, but they are very useful, and therefore worth a certain cost.  I’d even go so far to say that these abilities are worth as much as $86/month (what I had been paying Verizon).  But we live in a free-market economy and luckily Verizon is not the only option.  After researching my options, I chose a new carrier and plan that made more sense considering my usage.  This is the story of that experiment.

Last summer I was really looking forward to my cell phone upgrade.  I had the date memorized, and when it arrived I walked into the Verizon store hoping to leave with a free new phone.  On that day, I learned that their “free upgrade” program had changed to a “discounted upgrade” program due to the ubiquity of higher-cost smartphones.  Instead of biting the bullet and forking over my hard-earned cash, I gave myself some more time to think about it.

The first good thing I have to say about Verizon is that their web portal for account maintenance is excellent.  I’m sure the other big carriers are comparable.  My usage statistics were easy to find and interpret, and I present them to you.  On average, I was using 95 minutes and 172 texts per month.  This was far below what I was allotted based on my current plan, which I had chosen because it was the smallest available at the time.  Why was I paying for unused minutes and texts?  I couldn’t tell you.

My research turned me on to MVNOs (Mobile Virtual Network Operators).  Their business model is to buy access to the major networks at wholesale rates and offer their own retail packages.  This Airvoice Wireless plan was recommended by Mr. Money Mustache, so I crunched the numbers.  95 minutes at $0.04 per minute is $3.80 and 172 texts at $0.02 per text is $3.44 which comes out to a total of $7.22 for my projected monthly cell phone usage!  Even if I talked or texted more than usual I would be unlikely to use up all $10 per month.  This was the plan for me.

It was a good thing I didn’t take Verizon up on their discounted upgrade, because that would have locked me in to a contract with them again.  On the other hand, my cell phone was locked with Verizon (even if I wasn’t) and had no SIM card slot.  Even though my old cell phone worked fine, I would have to buy a new unlocked phone in order to switch services.  Looks like I get to upgrade after all!  I settled on a $300 refurbished Galaxy Nexus.  The cost was justified, since it will pay for itself after 4 months on the new plan.  I may also be able to sell my old phone on Craiglist or eBay.

A week later both my new phone and my new SIM card from Airvoice Wireless had arrived.  I called up Airvoice’s support number and had them port my existing phone number.  No phone number change required!  I was put on hold for a while, but that is to be expected with a smaller company (the second good thing I have to say about Verizon is that their customer service is excellent).  After my phone number was ported I was good to go!

I spent the next week getting to know my new phone, and installing all the apps I was used to.  I spend 90% of my life in wi-fi hotspots, so I disabled the cellular data transfer setting and took advantage of my new free unlimited wi-fi data plan.  I also set up a number with Google Voice and use their app for texting, making all of my texts free as well.  Every time I make a call, or text without using Google Voice, I am notified of my current balance.

So there you have it.  By waiting out my old contract and breaking free of the comfort of “unlimited” plans that really cost you more than cheaper plans that explicitly define each of the individual costs, I saved $76 a month.  This translates to $912 a year, or the amount generated by $22,800 of retirement savings with a 4% withdrawal rate.

Reader Response – Aren’t you assuming fixed expenses?

Yesterday I talked about my goal of retiring by 35, and some projections for meeting that goal.  Today I got a question from a reader:

“I do like the premise, but isn’t it based on the assumption your expenses will remain more or less fixed?  What about a house, family, healthcare when you’re older?”

That’s a great question!  The short answer is yes; my projections are based on that assumption.  I can retire by 35 (about 10 years from now) if my savings rate (which is a function of my income and expenses) stays the same (67%).  Additional expenses like a down payment on a home or child-rearing costs would lower my savings rate, and without a proportionate increase in income (which I don’t expect and certainly shouldn’t count on) I would no longer be able to reach my goal.

Now you understand why I need to step up my game!  My special lady and I don’t plan on staying apartment-renting DINKs forever.  To fully enjoy our retirement we will require a home to spend it in, a family to spend it with, and security for all.  But I know that by planning effectively and exercising self-control I can live a financially independent lifestyle that includes these things too in 10 years or less.

The first step is to increase my savings rate even further, to 85% or above.  This will dramatically increase my wealth accumulation to a point where retirement (assuming fixed expenses) is possible in half the time.  Any earnings made after this point are icing on the financial independence cake, and boy will it taste good.  If I can maintain this rate until those major life events my reader mentions, I’ll be in great shape!  I’m not planning on buying a house or having children for at least another two years.  When I do, I can readjust my savings rate and still retire by 2023.

Even if I buy a house accidentally before then, my current savings would weather me through.  And I already have enough for a down payment on a baby.  I hope to write about each of these challenging topics more extensively in the future.  But for now, I can only refer you to articles by like-minded parents and homeowners.  Their words have inspired me to challenge myself to retire early without denying myself those distinct pleasures.

If you remain skeptical, I don’t blame you.  It almost sounds too good to be true.  But by detailing and discussing my journey in a public forum I hope to show that it CAN be done, and incite others to re-evaluate their life priorities and their strategies for achieving them.  I don’t have any get-rich-quick schemes or insider training tips.  All I have is advice to save your money for the things that REALLY matter to you, and an unfolding story about a pilgrim following that path.

My Savings Rate

In an earlier post I zoomed into the transaction data I collected for 2012 and analyzed a few expenditure categories.  Although that exercise helped me identify specific areas where I can modify my behavior to better achieve my ultimate goal (retirement!) it doesn’t give a very good idea of how far away from that goal I am.  To zoom out and see the big picture, I needed to know my SAVINGS RATE.

I decided to track my savings rate on a month-to-month basis.  Each month, I recorded my after-tax (i.e. take-home) income.  By subtracting the sum of my expenses for that month, I could see the amount I had saved each month.  To calculate my savings rate, I divided the amount I saved that month by my income for that month.

In other words:  SAVINGS RATE = (INCOME – EXPENSES) / INCOME

Depending on your purpose, you may want to calculate your savings rate differently.  For my purposes I did not consider valuation changes on my investments.  I also considered my 401k contributions as part of my take-home income (even though technically they have not yet been taxed).

saverate-mo

So in 2012 my monthly savings rate varied from as low as 23% to as high as 88%.  I was curious to know my savings rate for the entire year, so I performed the same calculation again on all the 2012 data (averaging the monthly rates would have weighted each month equally, which would produce an inaccurate result).

My yearly savings rate for 2012 was… (drum roll) … 67%!

So in 2012 I saved just about 2/3 of my total earnings.  Put another way, my one year of work could allow me to live at the same level of expenses for two full years!  My one year of work was worth two years of retirement!  This is why I never understood the frequently given advice to save 10% of your income; at that rate, 10 years of working would only be worth 1 year of retirement.  Why stop there?

Since I managed to squirrel away 67% easily in 2012, how high should I set the bar in 2013?  I like 85%.  I’ve already proven to myself that this is possible by saving at an even higher rate in April, June, and October.  There are two ways for me to approach this.  I can either make more, or spend less.  I have more direct control over how much I spend, so by waxing my frugality muscle in 2013 I should be able to achieve this increase.

According to some off-the-cuff comparisons (methodology documented very well in this Mr. Money Mustache article) at my current rate (of 67%) I should be able to stop working in about 10 years (reaching my goal of retirement by 35).  At my target rate of 85%, I should be able to stop working in 4 years.  And if I choose to continue working after that, so much the better; it will be because I want to, on my own terms.

See how easy this is?  Join me, Pilgrims, and stay tuned.

The Anjou Wine

This past weekend I made a decidedly extravagant purchase: a bottle of Anjou wine for about $14.  I couldn’t resist, knowing that this was the type of wine Chapter 42 of The Three Musketeers is titled for.

“But Mr. Pilgrim, how does that help you achieve the resolution you just made in your previous post?  Aren’t you trying to spend much less on alcohol in 2013?”

Well, astute reader, you are correct that I am trying to spend less on alcohol overall.  But please do try to understand that I still enjoy a drink from time to time, and that I only know about this wine and its literary association because of a book (The Club Dumas) given to me on my birthday by my thoughtful girlfriend.  In this case, the experience of sharing the wine with her will be worth the price tag, I think.  Do not think I have forgotten my resolution; I will curtail prohibit any further alcoholic beverage expenses for the rest of the month.  Besides, it would have been rude to enjoy such a nice free wine tasting without giving our hosts some business in return.

From the wine tasting, we went to a friend’s place to dine and watch Gone with the Wind.  I had never seen it before, and I enjoyed it thoroughly (having just finished reading the book).  I found this experience preferable to hanging out in a bar, a default activity many others my age are wont to do on a Friday night.  Total cost of my Friday night: $14!

This next bit can be hard to believe when you spend your entire life immersed in a consumer society, but having fun is cheap!  Eating out can be fun, but so is hosting a dinner or potluck.  Many enjoy a trip to the cinema, but invitation-only home screenings are fun too (and you can act like a peanut gallery without consequence).  Why pay for cable?  You almost definitely live near a free public library.  I can’t stress this last point enough.  All of the great books mentioned earlier in this post I either borrowed from the library, from a friend, or downloaded for free from a website like Project Gutenberg.  And the discussions I have after finishing a book are generally more rewarding than recapping who did what on which TV show.

Your public library even lends out comic books (if that is more your style :)).

Go for a walk.  Read a book.  Smell the flowers.  When you practice holding onto your money, you realize that saving doesn’t make you any less happy, and your long-term goals will be realized much more rapidly.  And the occasional splurge (that would not even be considered as such by your previous standards) will provide even more joy than before.

Keeping Track

It is a new year!  A new opportunity to stop bad habits and start good ones.  A chance to redeem the mistakes of the past!  Or so they say.  For people who go to the gym regularly, January is an annoying month.  But the crowds never seem to last long.  Resolving a New Year’s Resolution is difficult for many, but can be made easier with a data-driven approach.  Most progress is measurable, and measuring your progress keeps you honest and committed to the goal.

2012 was the first full year for which I recorded the details of my personal transactions.  I have heard of a variety of websites and applications that help with this sort of thing, but I chose to track my finances in a good old-fashioned homemade Excel workbook.  It contains a few gains, many expenditures, and a wealth of data to help me learn more about myself.  I can even manipulate nifty PivotCharts!

2012 expenses PNG

This chart shows the monthly volume of some key expenditures.  I specifically wanted to track how much money I spend on alcohol and video/computer games, so they have their own categories.  Here is how much, on average, I spent on each of these categories per month in 2012:

  • Alcohol – $77.91

I home-brewed three 5-gallon batches of beer in 2012, but with the amount I drink it didn’t lower my expenses much.  I save money by avoiding drinking at bars, but I can certainly do better than $78/month in 2013.

  • Cell Phone – $60.40

This amount is misleading because I was on my Mom’s Verizon family plan until June!  Now, with my own monthly Verizon bill of $86, I’m looking to do MUCH better in this category next year.  Look forward to a post about my upcoming Google Voice/MVNO experiment.

  • Clothing – $16.13

My company doesn’t have a dress code.  One month I bought a really warm pair of woolen socks from Kohls.  I hope I can keep my clothes spending at this low rate through 2013.

  • Entertainment – $47.96

This includes concerts, other live performances, movies, and my Netflix subscription.  It does not include video games (they have their own category).  The girlfriend and I try to avoid paying to see movies in theaters.  She is signed up with a nifty service (gofobo) that offers free pre-screening tickets every so often.  We saw Looper in the theater for $0!  I’m sorry to say that I paid to see Prometheus.

I hope to spend less on this category in 2013.  In my defense, I did not spend a cent on physical media like CDs or DVDs.  And that live orchestra performance of Final Fantasy music was pretty sweet.  I should cancel my Netflix subscription since I get pretty much all of my media for free on the internet, but I have family members using that account in three states.

  • Gaming – $53.97

Well, that comes out to almost a full-priced game every month.  Definitely room for improvement here.  Why do I buy these games when I can just borrow them from a friend a month later?  Another option would be to buy them during a Steam sale at an extreme discount.  When it comes to my gaming hobby, I need to be more patient and flexible.  That spike in Oct was entirely due to X-COM and ACIII, and both were much cheaper a month later on Black Friday.  Patience is a virtue…

  • Gasoline – $64.74

This isn’t too bad, especially when you consider that I drive a compact SUV.  Still, I live close enough to work that not biking every day is inexcusable.  I resolve to bike to work much more in 2013, and hope to see spending in this category go down as well!

  • Groceries – $125.31

Nom nom nom.

I hope you’re as excited as I am to revisit these numbers next year and measure the improvement!  A few decades down the line I expect that this spreadsheet will help tell the story of my life.  I hope it’s a good story.  Don’t forget to challenge yourself to something big this year!  Have a happy 2013!