I’ve been recently inspired by the book Your Money or Your Life and have taken a deeper look at my expenses. Added to that, my wife recently lost her job so we’re tightening up our spending to account for the lost income. The loss of a second income may be a blessing in disguise because it has forced us to really examine where our money is going. I’ve read plenty about “wants” versus “needs” but I haven’t always put it into practice very well. By eliminating a handful of “wants” I’ve essentially given myself a $2,170 annual raise. There is also another factor which has led to changes. I just had my blood pressure checked and it was the highest I’ve ever seen it. I’m trying to make some changes to my eating habits to include a reduction in caffeine. Cutting back on caffeine has helped cut my spending as well.
Here’s how I did it:
1) Stopped buying energy drinks
I stopped visiting the convenience store on my way to work to pick up my morning energy drink. These drinks cost between $1 and $2 depending on the brand. Let’s say I saved $1.50/day on Mondays-Fridays for an average of 20 working days a month. That comes out to $30/month or $360/year. Yikes! I’ve been spending more on energy drinks than I made in dividends last year.
2) Goodbye afternoon soda
Another caffeine habit I had was buying a diet soda every afternoon so I could have a caffeine boost to make it through the afternoon. The vending machine at work charges $0.90 per soda. That comes out to about $18/month or $216/year.
3) Canceled streaming music service
My family really likes Spotify. I was paying about $11/month but now that times are tighter, Spotify has to go. Spotify offers a free but limited service that will have to do. Also, with Pandora, iHeartRadio, and local radio stations, life will go on. No more Spotify saves another $132/year.
4) Switching from coffee to green tea
I typically have a cup of coffee from our Keurig when I wake up each morning. I usually have one cup on work days and 2-3 cups on weekends. I’ll be conservative and estimate 30 cups of coffee per month. Due to my recent blood pressure wake up call, I’ve decided to cut down my caffeine intake by switching to green tea. This is a smaller cost but also a healthier change. The K-cups of coffee I’ve been drinking average about $0.40 per K-cup and the green tea I’ve switched to averages about $0.20 per packet. That’s a savings of $0.20 per day, $6 per month, or $72 per year.
5) Pack a lunch
My coworkers go out for lunch nearly every day. I would frequently either join them or venture out to the local sub sandwich shop. Now, I’ve been packing my lunches and limiting myself to only eating out for lunch 1 day per week. I’m estimating this is saving me at least $10/week or $520/year.
6) Pest Control
When we bought our house we signed up for a bi-monthly pest control service. This was costing an average of $42/month. Once our contract ended, I canceled the service and bought my own jug of bug spray for about $8 at Walmart to spray our house’s foundation, windows, and doors. I’ll probably spray every other month so I expect the jug to last 4 months. That averages out to $2/month on the DIY spray saving me about $40/month or $480/year on pest control.
I’m finding other ways to save money that aren’t as easy to tabulate such as buying cheaper brands at the grocery store and passing up a purchase at the store that isn’t needed. But looking at my 6 easy expense cuts, let’s calculate my projected annual savings.
- Energy drinks = $360/year
- Sodas = $216/year
- Spotify = $132/year
- Coffee = $72/year
- Lunches = $520/year
- Pest Control = $480/year
TOTAL = $1780/year
That’s not too bad for a few minor changes. Also, I was conservative on some of these estimates. For example, those morning trips to the convenience store for an energy drink would sometimes lead to an additional $1-$2 spent on a snack. The interesting part to me is that none of these expenses stood out on their own to me until I really took a look at them. The $0.90/day for a can of soda seemed benign but it was costing me $216/year.
To further magnify the importance of saving $1,780 in a year, let’s compare this to dividends. For example, if I wanted to receive $1,780 in annual dividends from JNJ I would have to purchase approximately 590 shares of JNJ. That would be close to owning $59,000 worth of JNJ stock at the current stock price. Another way to look at this saved money is comparing it to the amount of pre-tax earnings I would have to bring in through my job. Depending on where you look, the average U.S. federal income tax is around 16%-20%. I won’t give away my tax bracket but let’s assume an 18% income tax rate for this calculation. Based on an 18% income tax rate, I would have to earn approximately $2,170 to cover my $1,780 in savings. So in essence, I’ve given myself a $2,170 raise.
So how many hours would a person have to work in a year to accumulate $2,170? I won’t use my real salary in this example, but let’s use the median U.S. hourly wage of about $25/hour. It would take approximately 87 hours of work to earn $2,170 if a person is making the median U.S. hourly wage. That is more than two weeks of work when considering a 40-hour work week just to pay for some “wants” that mostly provide short-term satisfaction. Also, most of my spending cuts should drastically reduce my caffeine intake.
I think this exercise I just went through can really put one’s spending into perspective. I owe gratitude to the authors of Your Money or Your Life for changing my mindset. I hope you can find some “wants” to eliminate that will help reach Financial Independence.