Extreme budget cuts

[athena53]

I would have to agree with others who have expressed this sentiment:


If you are controlled by relatively minor changes in finances (A Tax Return?!) that require adjustments to such things as thermostats, travel, eating out, plastic bags, garage doors, etc., etc., etc....Well, then one isn't really Financially Independent are they ?

I agree. About 40% of my spending is charitable donations and travel. I'm also funding the grandkids' 529 accounts. Cutting any of those would be painful to me; our church Treasurer would be VERY distressed (but understanding) if I cut my pledge, and DS and DDIL would be happy with whatever I've already put aside in the 529s. Still, it means I can cut a lot without having to cut back on groceries or live in a house that's too cold in the winter and too hot in the summer. I already have many of the cheap habits listed in earlier posts but it's good to know that if the market tanked I have wiggle room.

 

[Nick12]

Encourage the minions to marry rich and move out.

+1/ In Florida there are a number of minions that latch onto new money or old money regardless of age.

 

[jimbee]

The first thing I would do is stop using income tax withholding as a savings account.

 

[jazz4cash]

Encourage the minions to marry rich and move out.

Or just move out....or pay rent!

 

[Moemg]

I would cut travel and eat out less .

 

[jazz4cash]

I see just a few folks around here who perhaps didn't quite have enough to retire. They start trying to sell things on the side, get involved in small business dealings, etc. Yuck.

I think most folks who come up short start working a bit again. Maybe they already cut the budget as much as they could and realized they were going to have to return to at least part time work....

Yes it’s pretty easy to imagine working part time in some low stress job. I can’t help but wonder if the folks I see working these jobs are doing it out of necessity. It’s easy to find these jobs in the current economy but that could change in a heartbeat.

 

[karen1972]

My biggest cut would be to stop the ROTH conversions and put back the ACA subsidy.

Then I could scale back about $15k out of discretionary (food/travel/shopping/alcohol) which would cut into lifestyle but totally manageable. After that then we would have to re-think other things.

My old company was averaging 3 layoffs a year for over a decade, its one of the biggest motivators for me to FIRE and I had already limited my lifestyle creep a long time ago. Its a good thing to look at, I know lots of people who never changed their lifestyle even when unemployed for long periods of time. If you can stem the bleeding early, you just leave yourself more options. My neighbor refused to pull her kid out of private grade school (even though public grade school was rated one of the top in the region and private cost $5k/kid/yr), even after both of them had been unemployed for more than 6 months. I eventually got them to shop at Aldis for groceries but that doesn't offset private schooling costs. It was very painful to watch people not admit they had to cut back and they eventually got foreclosed on, divorced, etc it was very painful to watch and probably could have been avoided if they had just tightened their belt early on but they assumed it was temporary instead of permanent underemployment.

 

[Sunset]

We are quite frugal. The only 2 somewhat major expenses we could easily remove from our budget would be travel (few thousand dollars per year) and car purchases (we buy new every six years or so).

Even without cutting back I like to keep a car 10 yrs as a minimum.
My last one went 12 yrs.

 

[RunningBum]

I would have to agree with others who have expressed this sentiment:


If you are controlled by relatively minor changes in finances (A Tax Return?!) that require adjustments to such things as thermostats, travel, eating out, plastic bags, garage doors, etc., etc., etc....Well, then one isn't really Financially Independent are they ?

Yeah, I don't even know what a "smaller tax return" means. That makes no sense. At all.

If what was meant was a smaller tax refund, I agree with this:

The first thing I would do is stop using income tax withholding as a savings account.

 

[EarlyBirdly]

"About 40% of my spending is charitable donations and travel."


Did I mention that I am relatively poor and haven't been anywhere in quite a while ?

 

[kgtest]

Yeah, I don't even know what a "smaller tax return" means. That makes no sense. At all.

If what was meant was a smaller tax refund, I agree with this:

Refund? My bad. I saw a big change as I went from itemized to standard deduction. 6% increase to effective tax rate. No incentive for me to itemize this year, add the changes to those with children and it was a double whammy. I don't have an underpayment penalty or anything but was surprised. Usually my income is all over the map though, this was the first 2 years it was about the same in a while.

 

[kgtest]

The first thing I would do is stop using income tax withholding as a savings account.

I don't know what that comment about using an income tax refund as a savings account means, but if you are doing that...scary. I'm sure a bunch of people that aren't on this forum probably do though, or they blow it on vacations, things etc.


I dumped mine into investments IF I got a refund. My savings account is a MM. Currently pays what maybe ~2%, and in my signature, you will always clearly see my cash position relative to my invested assets.
Typically I aim for a 0 tax liability, nothing more owed, nothing more refunded. This year even after withholding extra, I still wasn't clear that I would be losing 8k of exemptions after losing itemization. Anywho, that's another discussion entirely. I'm thankful there is no underpayment penalty.

 

[NW-Bound]

Extreme budget cuts for us would involve selling our house, move to our little snowbird condo, quit travel and eating out, and getting rid of 3 vehicles. This would cut expenses by more than 50%.

I think I can cut down to 50% and still live in the same home, eat basically the same food. The home is paid for, and I am not in the routine of eating foie gras and black truffle. My donations and gifts are completely discretionary, and can be cut to zero any time. No more home improvements and DIY home projects, and more Web surfing and being couch potato. I drink so little anymore, and the existing cache of gifted XO Cognac will last me a while. When that runs out, I can get drunk on moonshine. No big loss.

My basic living expenses are fairly low. I would just sell the 2nd home, and can fund travel with that even.

 

[Koolau]

Within our "what ifs" and "belt-suspenders-elastic waistband" planning, we have looked into the "big slash" possibilities. MOST of the things OP mentions bring very small savings, but doing them all WOULD get you to the 10 to 20 percent cut. We kind of looked at it the other way. What 2 or 3 BIG things could we cut which would allow us to not worry so much about ALL those little things. Let me 'splain further:

We eat out 5 or 6 times a week or more, but we do it cheap, so cutting there would not be a significant saving (maybe a couple of % of total yearly outlay if we NEVER ate out.) We get GREAT pleasure from eating out PLUS great convenience. So cutting out this "luxury" would reduce our FIRE pleasures by more than the 2% savings (after all, you still have to eat at home which ain't cheap.")

I'm guessing we could save 20+% on electric if we cut out ALL of the phantom losses due to all the "instant on" stuff plus chargers, etc. etc. But our electric bill is on $80 so that's not much savings for losing the convenience of "instant on."

Fuel: We drive 10K miles per year (at most) using 3 cars. If we could cut that by 25%, it might save as much as $250.

We could ditch one cell phone and save $300 a year.

I could go on, but the idea is that none of the changes in behaviors seems "worth" the savings.

SO, what could WE cut that would give us 25% savings in total budget? We could ditch the 2 cars here on Oahu and take THE BUS. THE BUS for seniors is the bargain of the century. I think they just raised the senior pass to something like $75/year (maybe it's twice that!.) So savings would easily exceed 8K per year. Next, we could stop keeping one foot on the mainland. Our "excursions" to the mainland (with housing and transportation) exceeds $12K/year (that's our vacation!)

So, ignoring our large "gifting" to kids and charities, we're already at 20+% savings of our actual cash burn.

If we wanted to save half our budget, we would sell out in Oahu and move to our "hovel" on the mainland and live like kings on HALF the cash burn - without giving up anything else.

So that's my thought process. I think I would personally look at the big savings FIRST before trying to cut ALL the little things, but that's just me. We would cut back a little if it meant we got to stay in Paradise, but we would NOT want to change our entire life-styles to stay. As always, this is one of those really BIG YMMV calculations we each have to make for our own situations.

 

[PointBreeze]

Cell phones, cable, house cleaner and eating out add up to easily 20-25% of our budget. I'd keep the cell phones, reduce the cable bill to just Internet access, (*sigh*) fire the wonderful cleaning woman, and eat out way less.

 

[jimbee]

I don't know what that comment about using an income tax refund as a savings account means, but if you are doing that...scary. I'm sure a bunch of people that aren't on this forum probably do though, or they blow it on vacations, things etc.

I understood your original statement of "smaller tax returns" to mean smaller refund. That may not be what you meant.

I personally do not use income tax withholding as a savings account, but I know a lot of people who do. When they get a smaller refund, they tend to be upset, regardless of how much income tax they actually paid.

 

[RunningBum]

Refund? My bad. I saw a big change as I went from itemized to standard deduction. 6% increase to effective tax rate. No incentive for me to itemize this year, add the changes to those with children and it was a double whammy. I don't have an underpayment penalty or anything but was surprised. Usually my income is all over the map though, this was the first 2 years it was about the same in a while.

I don't know what that comment about using an income tax refund as a savings account means, but if you are doing that...scary. I'm sure a bunch of people that aren't on this forum probably do though, or they blow it on vacations, things etc.

Refund amount means nothing. It's your overall tax liability that should matter. If you simply got less this year because your withholding was more accurate, then you are not necessarily worse off. I think getting a big refund is what was meant by using that as a savings account. You are best off getting $0 refund.

In any case, I really doubt that going from itemizing to the larger standard deduction with no exemption is really cause for anyone to have to go to extreme budget cuts. Why would you even associate the two?

 

[W2R]

SO, what could WE cut that would give us 25% savings in total budget?

This is an interesting question! Just now I looked at my 2018 records very closely and here is what I decided I would cut if I had to get 25% savings in total budget:

1.) Clothes; TBH, I have enough clothes already to last me until I die of old age.
2.) Gym
3.) Miscellaneous except Norton and four 9V batteries for my keypad entry.
4.) Video gaming. (sob!) I already have enough un-played video games to last an eternity.
5.) The $1000 worth of grass fed steaks that I had delivered last year.
6.) Restaurants. I could afford $10/day for groceries though, so I wouldn't be limited to lentil soup and top ramen.
7.) Air conditioning in the summer. Not pleasant in New Orleans to do without, but I have done it before and could do it again.

I was surprised to discover that 20% is easily do-able, a veritable "walk in the park", but 25% is a lot more difficult.

 

[RunningBum]

My SHTF strategy has always been to not necessarily try to trim a few % from the budget here or there, but instead to sell my house and live in something much smaller. I should be able to net a couple/few 100K from that. It probably wouldn't work in a economic meltdown as few would be looking for a larger house, but if I had a personal situation were I could see money would be running out in a few years, this is what I'd do. I'd rather do this than turn the thermostat down 10 degrees or stuff like that.

 

[athena53]

Within our "what ifs" and "belt-suspenders-elastic waistband" planning, we have looked into the "big slash" possibilities. MOST of the things OP mentions bring very small savings, but doing them all WOULD get you to the 10 to 20 percent cut. We kind of looked at it the other way. What 2 or 3 BIG things could we cut which would allow us to not worry so much about ALL those little things. Let me 'splain further:

<snip>As always, this is one of those really BIG YMMV calculations we each have to make for our own situations.

I think that for a lot of seniors living close to the edge, the big items are housing and maybe a car payment. Both are hard to change, especially in the short run. When I was church Treasurer I had a couple of retired people who were having financial difficulties adjust their pledges, which were already modest. One said they'd had more out-of-pocket medical expenses than they could handle and couldn't continue their pledge payments; another found it harder to manage in retirement than she'd anticipated and decreased her pledge by $300 from the year before. I suppose she'd gone through all her budget items and found enough places to cut $200 here, $300 there that it added up.

It made me realize how hard some people have it.

 

[FreeBear]

My old company was averaging 3 layoffs a year for over a decade, its one of the biggest motivators for me to FIRE and I had already limited my lifestyle creep a long time ago. Its a good thing to look at, I know lots of people who never changed their lifestyle even when unemployed for long periods of time. If you can stem the bleeding early, you just leave yourself more options. My neighbor refused to pull her kid out of private grade school (even though public grade school was rated one of the top in the region and private cost $5k/kid/yr), even after both of them had been unemployed for more than 6 months. I eventually got them to shop at Aldis for groceries but that doesn't offset private schooling costs. It was very painful to watch people not admit they had to cut back and they eventually got foreclosed on, divorced, etc it was very painful to watch and probably could have been avoided if they had just tightened their belt early on but they assumed it was temporary instead of permanent underemployment.

You must live near some of our friends!


Friends of our took a 75% drop in income as they turned 50 yo. Consecutive layoffs over a few years... Still, they hung on to the big house in an exclusive area, fancy food, new cars, and private university (yes university!). I don't even want to say how it ended.... The nicest people in all the world too.


My old w*rkplace also liked to telegraph the future with layoffs 1-3 times yearly. This started just a handful of years into my career! In retrospect, this was a great blessing. I had a "long runway", lots of advanced notice that I had to make my own future.

 

[pjigar]

My mantra is "focus of what matters" i.e. biggest ticket items. Cutting corners will not get you anywhere. Tackling big ticket items will take out-of-the box thinking. e.g. most people will have housing as their biggest ticket item which can be only addressed by moving to LCOL area.

 

[FreeBear]

Gasp! Life’s too short for drinking bad wine.

You must live near my neighbor, who is both a friend and a wine geek! I just meekly agree and extend my class for a refill. His booze is much better than ours!


Oh, restaurants, travel, charitable giving, and just Blowing Dough represent at least 25%-35% of our yearly budget. The crazy thing is that eating out is the largest of these categories. And I even hide "eating out on trips" in the vacation spending... Sure, we can find even more savings, but it would be a fair amount of fooling for a modest gains.

Well, for a couple of reasons, we've greatly cut back on eating out and I've started cooking again. I would have never bothered doing this while w*rking; sadly I needed my "food reward". DW and I has lost 10 pounds each just from cutting back restaurant meals.

So, like most of you guys, we can cut back, and are doing so even though it's not required financially. I'd rather cut back than go back to w*rk.

 

[NW-Bound]

I think it is common for people to be in denial mode, and to carry on normally when their financial situation deteriorates.

And the same happens with physical health and mental decline.

Time for some music.

Yesterday
All my troubles seemed so far away
Now it looks as though they're here to stay
Oh, I believe in yesterday
Suddenly
I'm not half the man I used to be
There's a shadow hanging over me​

 

[haha]

I don't really understand the point of this thread. Why cut back? Markets are near all-time highs, inflation is mild, who knows what happens tomorrow but must we practice feeling poor so we are ready to act poor should that be required??

Ha