Save Money While Living a Rich Life

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Imagine you are at the airport trying to get from point A to point B and you approach those moving walkways.  If you hop on the one moving towards you, you may still be able to make some progress moving forward, but you will get there a lot slower even though you need to work harder.  Living with debt is like this.  As you try to move forward (make money) the moving walkway working against you (debt payments) slows your progress, making you have to work even harder.  Paying off that debt slows the walkway down until it eventually stops and it’s like you’re on normal ground, able to move forward at a normal rate.  Eventually, as you put your money to work by investing, the walkway starts to move again, but this time pushing you forward faster and faster until eventually you don’t even need to walk anymore. 

The average household spends $1,162 on credit card interest alone each year.  The average credit card charges 15 – 20% interest on debt not paid off each month!  By paying off your credit card debt, you’re basically getting a 20% return on your investment.  Any investor would kill for that rate of return!  To get an idea of how insane this is, if you invested $1,162 every year with a 20% return, you would have over 1 million dollars in 34 years, and almost $20 million in 50 years.  If you have any credit card debt focus on paying this off first as quickly as you can before you even think about investing!**  And if you do have any investments, unless they’re getting better than a 20% return, you should probably sell them to pay off your credit card debt first.

In some cases, you could also save money by transferring your credit card balance to a new card with a lower rate, or taking out a lower interest loan to pay off your credit card debt.  The post, Debt – It Costs A LOT More Than You Think goes into more detail on the pitfalls of debt and how to pay it off.

According to AAA data from 2019, the average cost to own and operate a vehicle in is $9,282 per year!  And that doesn’t even include the estimated over $1,100 public/tax burden for road construction and repair, crashes, and pollution induced health damage. 

If you’re in a place where you can get by without a car, selling your vehicle will save you a ton of money, let alone the cash you will get from the sale.  While taking public transportation can be slower, it could free up more time for reading.  If you can walk or bike, you’ll also improve your health.  Perhaps you could carpool, or Uber/rent a car for the occasional trip outside biking distance.  If you’re renting, you could look for a place closer to work, or maybe work from home.  Even if you’re spending $300/month for public transportation, the occasional Uber or car rental, a bike, etc. you could still save at least $5,500/year here.  Plus the good you would be doing for the environment, your health, and reducing traffic.

However, I understand not everyone can do away with their car.  In this case, here are some other ways to save:

• Keep and drive your car longer.  The older your car is, the less you lose each year to depreciation.  According to carsdirect.com, “on average, a new vehicle depreciates 19 percent in the first year, half of which occurs immediately after you take possession. Fortunately, depreciation does not continue at this rate. You can expect a 15 percent drop in the second and third years. As your vehicle approaches five years old, depreciation slows considerably until it becomes negligible, usually at the 10-year mark.  In other words, the first couple years a new $36,718 car will lose about $5,400/year (15%) in value, while 5 years later it might only lose ~$1,800/year – saving you $3,600/year. 
• In 2019, the average cost of a new car purchase was $36,718.  If you must buy a car, buy a cheaper one, or even better buy used from craigslist, where you can find a decent used car for less than $5 – 10,000.  Sure it’s fun to play with and brag about all the cool new features your car has (for a couple months at least), but are they really worth all that extra money?  New vehicles lose an average of $15,000 in value during the first 5 years of ownership.  Buying a car 5 years old can help you avoid a huge chunk of depreciation costs (see above) while still getting something reliable.  In addition, you can avoid car loan finance charges, which average over $700/year.
• Paying less for your car also means saving money on insurance, especially if get liability only vs. comprehensive coverage.  Shopping around for insurance could also save you an average of $859/year. 
• Get a car with better fuel economy.  Assuming you drive 15,000 miles/year and gas is $2/gallon, a car that gets you 30mpg will save you $1,000/year compared to a truck getting 15mpg. 
• Find ways to drive less.  At an average fuel cost of 10 cents/mile, shaving 5,000 miles a year off your driving total could save you an extra $500, not including money saved from lower maintenance costs and depreciation as well.

If you own a home and current interest rates are lower than when you bought your home, consider refinancing.  The average mortgage debt in 2019 was ~$202,000.  Try this refinancing calculator to see how much you could save.  Let’s assume you have a balance on your original mortgage of $202,000 with 20 years left at 5%. Refinancing at 3.5% means that even with $2,500 in closing costs, you would break even in 16 months and save over $100/month after that, for a total savings of almost $40,000 over the duration of the loan.  In some cases, you could even increase the amount of your loan in order to pay off higher interest credit card debt or shorten the length of your loan to save money on interest and potentially get a better rate.  This site is a good resource if you’re looking into refinancing.

Determine what’s really important to you.  It’s easier to move if you’re renting, but think about your current place and how much you’re paying for it and the amenities.  For example, if one place has a pool but is $200 more a month, that’s $2,400 more you’ll pay over the year.  If you only make it out to the pool 20 times in the summer, is it really worth $120 per swim?  Same with a guest room – is the extra cost worth the use you actually get from it?  And while it may be more expensive to live in a city or closer to work or a train station, if that will save you from needing a car and hours each week in commuting, it could be worth it.

Rent out your extra room.  If you do have an extra room, consider renting it.  If you’re still young and single or don’t yet have a family, renting another place with a roommate or even buying your own two bedroom condo and renting the extra room could save you hundreds of dollars each month and in this case could be worth the extra bedroom.

In 2018, the average household spent $7,923 of food.  $3,459 was on dining in or takeout from restaurants, with that number likely being much higher for millennials.  With restaurant markups averaging about 300%, you could save over $1,000 just by cutting the amount you eat out in half.  While take out can be convenient, cooking at home can be too.  Make a big batch and have leftovers.  Or use it as a chance to learn a new skill or spend more time with your kids or partner instead of watching Netflix on the couch.  Once you learn the basics, you can often make your meals healthier and taste even better than your favorite restaurant too.  Do your friends go out to eat a lot?  Suggest hosting each other for dinner from the comfort of your own homes instead.

There’s also plenty of opportunities to save money on groceries.  Buy generic (see what chefs recommend buying generic), stock up on sale items, and wait to purchase that expensive rib eye until it goes on sale.  You can also shift food preferences towards still delicious, cheaper items.  These healthy foods also happen to be some of the cheapest.

The average household spends $1,700 on clothes each year.  This is an area I care almost 0% about, so I spend almost $0 on it.  Although my closet is full, I usually wear the same 5-10 of my favorite (meaning most comfortable) things over and over again and still have many of the same items from 10 years ago.  I also happen to have a younger brother roughly the same size who does enjoy getting new clothes, so when I do feel like mixing it up, I’ve got plenty of “hand me ups” to choose from.

If you do love clothes, avoid designer brands with huge mark ups.  Take advantage of, but beware “huge sales” and the clearance rack.  If you don’t absolutely love it, you won’t wear it, and it won’t be worth it even if it is “half off.”  In terms of value, you’d be better off buying a few things you absolutely love and will wear often instead of many items that you hardly wear.  Get your clothes used from places like ThredUp, or even better, find a friend or family member your size to exchange with.  If clothing gives you confidence, focus on being healthy and in shape, which has a similar effect.

In addition to helping you live a longer, healthier life, healthy habits can save you (and the country) money too.  Cutting smoking, being more active, and cutting down on excessive alcohol use would save almost $450 billion/year ($3,500/household) in public health costs, driving down taxes and insurance for everyone.  Eating healthy and reducing risks of diabetes, heart disease, and others would save hundreds of billions more.  And even if you won’t benefit directly in terms of dollars, you will tremendously in terms of quality of life.

• If you smoke, not only is it costing you your health and years of your life, it’s expensive too: The Cost of Smoking. 
• A gym is worth it if you use it often, but at $50/month or more, it can be a poor value if you don’t.  Instead, find ways to work out at home.  There are plenty of bodyweight exercise you can do to build strength or cardio.  Or, with a $50 set of workout bands, a bench, a pullup bar, and some free weights, you can do almost anything.  Here’s how Mr. Money Mustache works out.
• If you drink, consider cutting back to save on health and public costs associated with drinking.  Otherwise save money like you did in college by drinking at someone’s home.  Unless you’re meeting new people, what’s the point anyways?  You’re leaving the comfort of someone’s home with your own clean bathroom that never has a line, your own music at your own preferred volume, and where you can watch TV, play games, or do whatever you want to go somewhere else and pay over 4 times as much? 
• If you pay out of pocket for insurance, consider switching to higher deductible insurance.  If you live a healthy lifestyle and have enough in savings to cover the occasional expense, it could save you money over the long run. Combine your high deductible plan with a Health Savings Account (HSA) for tax benefits.

Man oh man do the marketing teams of corporate America pull on your heartstrings to make them money when it comes to special occasions – to the tune of well over $1,000 each year.  I get that they are a time to celebrate and be happy – but that does not have to mean spending money on worthless junk!  The true meaning, joy, and value of almost all special occasions comes from being with other people and showing them you love them, not from spending money on them.  Play a game together, make something or volunteer together, do something nice for each other, and if you must spend money, spend it on an experience.

When it comes to one time events these also do not need to mean spending big!  Most of the costs from these stem from marketing to make you think you need to do these things because everybody else is doing them.  The average American spends about $1,000 on prom!  Cut the limo, the fancy dinner, the expensive dress, and instead focus on having a good time.  If at 18 you invested $1,000 at 7% instead, it would be over $24,000 when reaching “retirement age” at 65.

The average wedding costs $33,000 – and that doesn’t even include the hundreds of dollars each of your guests spend on gifts, travel, accommodation, etc.!  Instead, why not rent a party tent in a friend or family member’s back yard, put together a playlist of your favorite music, buy your own booze, have the groomsmen and bridesmaids wear their own suits and dresses, and cater from your favorite restaurant or hire a food truck and save tens of thousands of dollars?  Shouldn’t the wedding be about the person your marrying and the people you’re with and celebrating in the moment?  A 25 year old couple cutting $10,000 in costs and investing that money at 7% instead would have almost $150,000 when they turn 65.

Same goes for the ring, which on average, accounted for $7,829 of wedding costs.  Instead of making the marketing team of a monopolistic price-setting DeBeers rich or contributing to controversial mining practices, consider much cheaper alternatives.  Try a nearly indistinguishable lab grown diamond or purchasing one at a 25 – 40% discount from an estate sale website.  Or, since diamonds aren’t really that rare anyways, look to other gems.  If you still want it to look like a diamond, try nearly indistinguishable, much rarer and more brilliant moissanite, for a fraction of the cost.  And if you really want to show your fiancé how much you love them by spending, put that money into a 529 plan for your future kids instead.  By the time they’re ready for college 20 years from now, the $6,000 you saved on a ring and invested instead will help pay over $20,000 in tuition.

The average household spends 8 – 10% of income, or about $6,000 on vacations each year. 

After teaching high school Math in Mississippi, a friend and I did a month long road trip across the western US, visiting a dozen national parks and cities, and a handful of ballgames – all for less than $1,700 each.  We planned our trip around which national parks we wanted to go to and cities where we knew people, so where possible (about 90% of the time) we stayed with friends, or camped.  Since we were driving, we were also able to bring a cooler around and eat food from grocery stores instead of eating out all the time.

Drive or fly?

If you’re going a long distance by yourself, it’s usually cheaper to fly. If you have a family of 4, or are going a shorter distance, you may be better off driving, especially if it means you also save money on a rental car when you get there. If it’s just you and your partner and you’re not in a rush, the bus can also be a great, extremely affordable option.  When I would travel back home from Memphis/Mississippi to Chicago for the holidays, I sometimes took the bus which was ~$60 round trip, while plane tickets were well over $400.  Many buses now even come equipped with free wifi.

Save money on lodging

Do you have friends in the area you can stay with?  If you’re without kids, how about staying in a hostel or couch surfing?  What about making it a camping trip?  If you must stay in a hotel, stay across the street from the beach, or at least skip the ocean view. How much of your time do you plan on spending in the room anyways?  Is that one sunset you’ll watch from the balcony worth an extra $100/night?   If you really must go big on the hotel, try a destination where even a 5 star hotel is as low as $38/night.  In South East Asia, many of the luxury beachfront resorts had rooms for under $100 and you could find an hour long massage on the beach for $20.

Travel hacking

If you love to travel, consider getting a job that pays you to travel.  I worked as a project manager for 6 years traveling every other week.  For some reason, adding a 3rd destination vs. a normal round trip flight usually doesn’t cost that much more, so almost anytime I wanted to add personal travel, it would cost me less than $100 out of pocket to add an extra flight.  I also earned millions of travel points towards free flights and hotels, which funded a large portion of my pretirement travel (along with status upgrades) with plenty left over for future travel.  Some credit cards offer significant sign up bonuses, plus additional rewards for normal spending, that can be used on travel.

Being flexible

If you can be flexible, travel during the off season when there’s less crowds, cheaper rates, and you’re more likely to get upgraded.  Then save the holidays for “stay-cations” when everyone else overpaying for crowded beaches.  And think about how much your trip is costing you per day.  When you factor in flights, you could be spending over hundreds of dollars a day for a quick trip, but half as much per day for a longer one.  For some destinations, it’s better to take fewer, but longer trips.  If you’re staying long enough, you could also look into renting an apartment vs. staying in a hotel and save even more.

Activities

Finding activities doesn’t need to break the bank either.  National parks are certainly among the most beautiful, and at ~$20/vehicle, are certainly a lot cheaper than Disney World.  If you can’t make it to a National park, there are plenty of local state parks nearby that offer a low cost adventure and a chance to unplug and enjoy nature.  Spending time at the beach is another great affordable option.  Instead of spending money on commercialized tours, do a little research to be your own tour guide and avoid the crowds.  In Maui, we spent $8 on a GPS based self-guided tour for the Road to Hana, and it was one of the best things we did.  Pack a cooler and your own food and drinks to save even more.

Travel Insurance

In most cases, avoid travel insurance.  At about 5 – 10% the cost of the trip, unless there’s a high chance of cancelling (i.e. you’d cancel 1 out of every 10 – 20 times and not get anything refunded) it’s usually not worth it. 

Avoid gambling. A few dollars here and there can be fun, but unless you’re one of the best tournament poker players in the world, understand that you’re basically throwing your money away.  The odds are just not in your favor.  In 2013, the average U.S. adult lost ~$500/year to gambling.  As many as 23 million Americans go into debt because of gambling and for them, the average loss is estimated to be around $55,000.

Other hobbies, like boating, skiing, flying, scuba diving, etc. can also be pricey.  Unfortunately, I also love to do all of those things.  For some, I’ve found a cheaper way to do them.  My girlfriend’s dad lives near a mountain and got us a local season pass.  My grandmother, the most selfless woman in the world who lived very frugally and modestly, also left each of her 24 grand children $1,000 to spend on something for themselves, which I used for a pair of skis.  With a place to stay, points for flights, the freedom to make fewer/stay for longer trips, a free shuttle to the mountain, and making our own breakfast, sandwiches for the mountain, and dinners, I was able to ski over 20 days this year almost for free.  I know – I’m extremely fortunate. Not many have a dad that lives near a mountain or an inheritance from their grandparents. But there may be other areas in your life you could take advantage of in order to pursue your hobbies.  One guy I met on the mountain made friends with another local couple one day he was out there and now stays with them on their couch for free every weekend he drives to the mountains.  Perhaps you could work as a dive/ski instructor or volunteer as ski patrol for free tickets.  Or get a bunch of friends together and splurge on a boat rental.  Unless you’re using a boat more than 15 times a year, it’s usually cheaper to rent than buy anyways. 

For others, you could replace your more expensive hobbies with cheaper ones that offer similar value.  As much as I love to scuba dive, you can often see just as much snorkeling for free.  Mountain biking can offer as much of a rush as a more expensive dirt bike. Organized sports are fun and a great way to exercise, but pick up games offer just as much for free.  Here’s a list of other ideas, some you could even use to make you money.

Kids can be expensive.  It’s estimated the average kid costs around $233,610 by the time they turn 18, or over $13,000/year – and that’s not even including college.  One obvious solution is to have less kids, but that’s definitely not for everyone, especially your parents.  I know, I know (or so I’ve been told, since I don’t have kids yet), having children is priceless.  If you do choose to have kids, they don’t need to cost that much. 

Housing accounts for the largest share of costs at 29%, food 18%, and child care/education 16%.  You likely need an extra room for your first child, but maybe they take over the guest room that you rarely use or share a room with the second child.  See above for how to save money on food.

For child care, if you live close to relatives, they might love to help out.  Or when you factor in how much one of you actually earns from work (minus commuting costs, taxes, other work related expenses), could it be more worth it for one of you to stay home, spending invaluable time with your child?  Or maybe you could make some arrangement with another stay at home parent, or (disclaimer: not sure what the law says on this – it’s basically babysitting, right?) make some extra cash watching someone else’s child at the same time?  When your child is old enough, look into pre-K opportunities which can be extremely beneficial to early childhood development vs. day care only.  Once your child is old enough for school, maybe you could make arrangements at work for one parent to go in/come home early to be there when your kids get home or work remotely some of the time.

When it comes to education, I strongly believe this is one of the best investments we can make in our children.  But this doesn’t need to mean spending more money on private schools, which aren’t always better.  And there are plenty of nearly free things you can do as a parent to help them succeed.

Many public universities offer discounted tuition for in state residents while still providing an outstanding education.  My Alma Matter, University of Wisconsin, for example, is now offering free tuition for students from in state families making less than $56k/year.  Apply for scholarships and financial aid, which reduce the average college cost from $72,000 to $32,000.  Or, consider going to a lower cost community college for the first two years before transferring into the school you want to get your degree from.  And while the college experience is incredibly valuable, it may not be for everyone.  Trade schools are also a great option that come with decent future earning potential.

Children outgrow things quickly.  Is there a sibling/cousin/friend you can get hand-me-downs from instead of buying everything new to be worn for such a short time (by someone who literally couldn’t care less what they’re wearing)?  Same with strollers, cribs, toys, etc.  Many children are more interested in playing with cardboard boxes the expensive toys came in than the toy itself.  They will thrive much more from interacting with you, being curious, exploring the world, and using their imagination – all free!  For toys you do buy, look for items like these.

What about pets (basically our children)?  The average household spends about $500/year on pets.  I absolutely love dogs and may get one some day, but understand that not only are they expensive, they come with huge opportunity costs.  When making your decision, be sure to also consider how much harder it becomes to leave the house for long periods of time, travel, time you need to invest in training, walks in the cold rain, picking up poop, etc.  If it’s still worth it, consider adopting from a shelter – not only might you save that dog’s life, you’ll save hundreds of dollars too. 

In 2018, Americans spent an average of $9,081 on home improvements.  With YouTube, you can learn to do almost anything these days.  And with handymen charging $60 an hour (and professionals even more), you can also save a lot of money (or even help others and make some) by doing some simple things yourself.  You might also enjoy it!  Still not interested?  Perhaps you have a handy friend or family member who will work for beer and company, and may even be able to teach you a few things along the way.

Please don’t ever pay for this – it’s a waste of money.  If the stuff will be in storage for longer than a couple months, is it really that important to you?  And is it worth the cost?  If not, sell it instead to save and make money!  Almost 10% of households pay for storage unit at an average cost of $87.89/month.

Take a look at your credit card statement to see what monthly services that you’re subscribed to and which are actually providing value.  We cut cable a few years ago, saving over $100/month, and never looked back.  If sports are the only thing holding you back from doing the same, buy an HD antenna for less than $30 to get all the local networks for free and catch the big games. For ones you can’t watch there, go to your friend’s house or a sports bar.

For us, internet is a must, but we were careful to not be sold into overpaying for extra bandwidth we’ll never use and bought our own router, saving at least $20/month there.  We have Amazon prime, but the free shows, movies, and Kindle book rentals make it worth it for us.  We also subscribe to Spotify at their student rate of $4.99/month, since my girlfriend is a graduate student, which includes free Hulu and ShowTime.  (And we use her parents’ Netflix.)  What subscriptions can you save on?