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The numbers amaze me
Old 02-02-2007, 09:38 AM   #1
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The numbers amaze me

Just one year ago, my DH and I were saving about 10-11% of our income, now it is 30% and we haven't signifiantly changed our lifestyle. Reading this board, I decided we needed to do better tha 10-11% if I was ever going to FIRE.

Part 1. First I started tracking expenses. I had done this well while single, but with DH, kids, pets and all, I had let that slide. Second I set a budget of total expenditures/month. Then I stopped using my CC for all purchases - even though we paid it off each month. Just doing these things reduced spending by nearly $1,000/month completely painlessly. I still can't figure out what we were doing with it since we didn't eat out or spend on a lot of extra entertainment, just stuff, I guess.

Part 2. We also recently received an inheritance, invested with Schwab, and we wanted this $$ to keep working. In talking with my brother (CPA) he suggested we increase our deferred payments, generating significant tax savings, and then because our income was now too low for our budget, we withdraw funds from the taxable account to make up the difference. Because of the actions in step 1 (critical or this withdrawal stuff could get out of control), we have always taken less than I had initially anticipated. We also fully fund Roths.

All this took some explaining to my DH who was skeptical, but he agreed to give it a try. He is now convinced.

So, now we are saving 25-30% of our income, no real change in lifestyle, the balances are rising nicely and FIRE in 5 years for me is feeling more doable each day. No doubt the inheritance adds flexibility, and I could kick myself for not doing the first part sooner, but, I won't be too hard on myself since I am looking to the future.

Thanks for the inspiration.


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Re: The numbers amaze me
Old 02-02-2007, 10:40 AM   #2
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Re: The numbers amaze me

Congrats! Good example of how it doesn't have to be that painful. It's more a matter of paying attention!

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Re: The numbers amaze me
Old 02-02-2007, 11:00 AM   #3
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Re: The numbers amaze me

I noticed that if I pay in cash (actual cash, not a debit card) that i'll usually defer buying expensive things and just keep it to the small basics. Its painless to hand over a piece of plastic...counting out the bills and seeing the actual cash in the transaction makes it harder to do.

Works in 2 year olds too. If I give gabe the credit card, he hands it to the cashier right away. If I give him cash, he wants to keep it.
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Re: The numbers amaze me
Old 02-02-2007, 11:34 AM   #4
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Re: The numbers amaze me

Quote:
Originally Posted by Sandy
...First I started tracking expenses...Just doing these things reduced spending by nearly $1,000/month completely painlessly. I still can't figure out what we were doing with it since we didn't eat out or spend on a lot of extra entertainment, just stuff, I guess...
1000 bones / month ... good heavens! That's enough to make me faint... great find, though. That has to feel pretty good.
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Re: The numbers amaze me
Old 02-02-2007, 12:01 PM   #5
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Re: The numbers amaze me

Sorry, I'm confused. You now save 30% of your income, but withdraw that (30% less $1000) from after-tax accounts to make up the monthly shortfall?
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Re: The numbers amaze me
Old 02-02-2007, 12:32 PM   #6
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Re: The numbers amaze me

I have read about the cash only diet, but always have been skeptical of it since I have "buyers remorse" when I buy somehting I dont need...love my credit cards...
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Re: The numbers amaze me
Old 02-02-2007, 12:43 PM   #7
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Re: The numbers amaze me

I couldn't give up my credit cards since
1) I work for MegaCorp credit card company so it helps pay my salary
2) I buy most stuff over the Internet
3) I am getting a couple of hundred cash back next money
4) I never pay interest
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Re: The numbers amaze me
Old 02-02-2007, 12:54 PM   #8
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Re: The numbers amaze me

Quote:
Originally Posted by Cute Fuzzy Bunny
I noticed that if I pay in cash (actual cash, not a debit card) that i'll usually defer buying expensive things and just keep it to the small basics. Its painless to hand over a piece of plastic...counting out the bills and seeing the actual cash in the transaction makes it harder to do.
Yes. I believe this is a key budget tactic.

As for me, I withdraw $400/month cash ($200 twice a month) from the ATM. I'm "allowed" to spend this money in any way I wish, but I cannot withdraw more than $400 and I don't allow myself to use my credit card at retail stores or similar businesses (supermarket, drugstore, Walmart, gas station, pet store, hardware store, restaurant, movie theater, ball game, etc.) Hence, my budget funds must go for food, gas, clothes, pet food, household products, entertainment, recreation, etc. I see the green looking bills in my wallet, and I know how much I have or don't have. This forces me to prioritize my purchases, which in turn helps me avoid unneeded items. If I want to splurge and buy something that will eat up most or all of my monthly budget, then I need to save money each month from my $400 allocation. In fact, the first thing I do when I withdraw money from the ATM is put $40 in an envelope ($20 twice a month), and I put unspent funds at the end of each period into the same envelope. I usually have $1000 - $1500 saved by the end of the year, which I deposit.

Exempt from these restrictions are fixed or mostly fixed expenses (mortgage, property taxes, utilities, etc), unexpected needs (medical or veterinary bills, major auto or household repairs), and charity/gifts.

I must say, though, that occasionally I cheat.
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Re: The numbers amaze me
Old 02-02-2007, 12:55 PM   #9
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Re: The numbers amaze me

Quote:
Originally Posted by Cute Fuzzy Bunny
I noticed that if I pay in cash (actual cash, not a debit card) that i'll usually defer buying expensive things and just keep it to the small basics. Its painless to hand over a piece of plastic...counting out the bills and seeing the actual cash in the transaction makes it harder to do.

Works in 2 year olds too. If I give gabe the credit card, he hands it to the cashier right away. If I give him cash, he wants to keep it.
There was a study that showed you pay more with credit card than if you handed them cash... why do you think they now have debit cards?? and want to go to 'blink' cards??

But, I can say that I don't buy much extra using the CCs instead of the cash... and I get 5% back on the gas, drugs and groceries... and 1% on the rest..
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Re: The numbers amaze me
Old 02-02-2007, 12:55 PM   #10
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Re: The numbers amaze me

Quote:
Originally Posted by LOL!
Sorry, I'm confused. You now save 30% of your income, but withdraw that (30% less $1000) from after-tax accounts to make up the monthly shortfall?
In very rough numbers:
We contribute an extra $3,200/month for deferred payments and Roth, decreasing income about $2,500 because deferred payments reduce taxes. To make up the shortfall in income, we withdraw about $1500/month and reduced spending by $1,000. But because we only withdraw $1500/month our net savings increased $1700/month over what we were saving before (3.2K-1.5K=1.7K) After all the moving and shifting our net savings went from 10% to 25-30% of gross income.

Quote:
Originally Posted by Cute Fuzzy Bunny
Works in 2 year olds too. If I give gabe the credit card, he hands it to the cashier right away. If I give him cash, he wants to keep it.
Definately a lesson there.

Quote:
Originally Posted by bow-tie
1000 bones / month ... good heavens! That's enough to make me faint... great find, though. That has to feel pretty good.
While I was always frugal when single, as a family it started spinning out of control. While we were still debt free (except for mortage), I was feeling very uneasy and knew it shouldn't be as tight as it was. Now it is still as tight, but with a purpose.


Quote:
Originally Posted by bssc
I couldn't give up my credit cards since
1) I work for MegaCorp credit card company so it helps pay my salary
2) I buy most stuff over the Internet
3) I am getting a couple of hundred cash back next money
4) I never pay interest
Haven't given them up, just don't use them as much, and as CFB noted, spend less. I never pay interest and also get cash back (actually it's deposited into a 529 account). But it is harder for me to to track in my mind what I was spending, so the bill was always a few hundred higher than I expected. Still paid it, but it put the squeeze on the next month's cash, which encouraged more card usage, and the I could see it starting to build.

Now this may be an accounting thing, but when tracking expenses I put the CC payments in the month the bill is paid, not in the month the charge was incurred. If I recorded charges when incurred, it wouldn't be credit, but I could track more closely. This is working for now, so I will change if and when needed.
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