So, what’s your thing? Are you trying to get out of debt, plagued by a mountain of student loans or a crescendo of bad late night shopping decisions? Or, are you utterly SICK of the corporate world and longing to retire from the rat race but can’t afford it. Or, maybe you are hoping to simply live a better life, unfettered by too many purchases or debt?
No matter what your goals I am going to pass along the most valuable financial advice given to me by a former CFO of mine. Robert, thank you, you have always been a great friend and a wise advisor.
After a long term job came to an end due to the company being sold off and literally everyone being laid off, I had lunch with a former CFO. Robert was helpful in my job search but he thought this secondary to good financial habits. With solid financial habits, he advised, one has the freedom to make better choices. Choices that could include waiting for the right job, striking out on one’s own, joining a high risk startup, retiring early…all that I’ve been able to do save for that last one. The number one way to do this according to my friend is to live well below your means and you do that, he said, by drastically reducing your burn rate.
This bears repeating, reduce your burn rate, the rate at which you burn money every month, the sum total of your monthly expenses. This is critical and at the heart of frugal living. Once your pay off debt, downsize your expenses and generally live a more frugal life, you suddenly have more choices. So, below is my personal top ten list of items to review in your quest to reduce your monthly burn rate.
1. House, Hearth and Home. Find a way to reduce your mortgage or rent. It is usually your biggest ticket item. Mine has been low for more than 20 years because I secured a very low interest rate. I continue to review refinance offers but nothing has been worth the points and effort yet. My mortgage is less than what most people fritter away on car payments here in the Bay Area.
2. Speaking of cars, cars, cars. My car is 15 years old. It’s a classic BMW and was gently used from the beginning. I keep it well maintained and spend very little on it. For me this is easy because I don’t care about having a shiny new status symbol. I care more about my burn rate. I do own half a second car with my long time partner. When he retired, we knew we would need a reliable second car. It cost about $40K and I paid cash for my part of the down payment. I then paid off the balance of my half from income I made on side jobs in less than 6 months.
3. The Plastic Monster (aka, credit cards). Don’t. Cut them up. I am serious. I had one card and an AMX when I started on this frugal journey. I used my side gig to pay off my credit debt. The stories I could (and will) tell about plastic debt. I live credit debt free and while I use my card for certain reoccurring charges because that is the most convenient way, I also pay the small balance off every month.
4. Utilities. Sometimes you have to spend to save. After 20 years, I gave in and had AC installed. I also had my dead heating system replaced. My heating and cooling bill actually went down as a result. Money well spent though my adult daughter resents that I didn’t do this when she was at home. In my own defense, where we currently live, we have less than three weeks a year that are in the triple digits. I therefore just did not think that warranted an AC system until my long time partner retired and moved in. He genuinely cannot handle the heat. To him anything hotter than 60 is painful (or so he claims). And while I keep the thermostat at a neutral 68 degrees, I never realized how inefficient an old heating system could be until I did.
5. Other basic living expenses. Garbage, cable, all of this can be negotiated and should be. I don’t have any secondary services like Amazon, Netflicks or the like. These add up. I routinely call my cable provider and often negotiate a new deal. Same goes for my cell phone. There is always a deal to be had. For expenses like garbage or water, a significant discount can often be had for low income families or seniors. Ask. You won’t know until you ask.
6. Food. As you know, I am really big on food savings. Keep reading the blog, it is chock full of tips and savings when it comes to the care and feeding of you and your family. Make it a personal goal to reduce your food budget by 50 percent. It is absolutely doable. Start by refusing to eat out for a solid month and see just how much you save. My partner (finally) retired and moved out to California to be with me, embracing my frugal ways. He went from eating out multiple times a week to just a few times a month and was thrilled to find more elbow room in his budget to travel.
7. Frills and thrills. I know far too many people who take outrageously expensive brag-worthy vacations, have brand new cars but struggle to pay their cell phone bill every month. Until you master the frugal lifestyle, put dream vacations and every other frill on the back burner. Not forever, mind you, just for now.
8. Don’t buy stuff that requires you to pay it down every month like furniture, etc. Another wise person, my friend and former CEO used to say, buy what you need, not want you want. You would be surprised at what you don’t need.
9. Do simple math to figure out what expense is wasteful and what is not. The answers may surprise you. For example, I teach yoga once a week at a gym where membership is actually free to those of us who teach there. However, once I factor in the cost of gas and sitting in traffic (there is always heavy traffic in the Bay Area), the cost of using that gym ‘for free’ just five times a week (I go nearly every day) would actually end up costing me more than a basic membership from the gym around the corner where the commute time is literally two minutes and the cost of gas is minimal. When my partner and I bundled, we got a slight discount on our membership to boot. I need to work out daily in order to keep my health concerns in check. I therefore spend a whopping $40 a month and it is money well spent, not wasted. On the other hand, I would never pay someone to do my gardening. That’s a waste given that my yards are tiny and require only quarterly maintenance.
10. Health insurance. This is a huge expense and a real sticky issue for far too many Americans. I am fortunate enough to be inching towards Medicare and when I work full time within corporate America, my health insurance is always inexpensive and the coverage excellent. Keep researching to find alternatives. New options are cropping up all the time.