Recurring expenses are the silent killer of Financial Independence
To get FI, the well known 25X rule says you must have saved 25 times your yearly expenses in order to be financially independent. But how many of your yearly expenses are collected on a monthly basis? If you pay a monthly fee then the rule becomes the 300X rule. 25X per year times 12 months = 300X. So if monthly, a couple has an $80 cable TV bill, a $100 cell phone bill, a $40 book bill, and a $80 coffee shop bill, that is a total of $300/month. Using the rule of 300X you need $90,000 in savings to sustain these expenses. What are your current expenses for these 4 items?
Reducing the cable TV bill
In 2010 I realized that our cable TV just wasn’t being used that often. We had a lot of channels, but rarely was there something worthwhile to watch. When we did use it, a lot of viewing was network TV. Another negative was our cable box (that we were renting) had begun to advertise to us. The solution was a home theater PC (HTPC) running windows 7 media center hooked up to an antenna. We are still using it today and even in our rural area of Eastern Washington State we get the following channels for free over the air (OTA): ABC, CBS, NBC, FOX, PBS, Justice Network, Decades, SWX sports, This TV. We supplement this with Amazon prime video and Sling TV. Amazon prime was purchased on sale for $72. I value the Amazon 2 day free shipping at over $100 per year based on the fact that the speedy shipping allows me to avoid at least ten trips to hardware stores over the course of a year to keep the homestead running. So prime video I consider free. We’ve enjoyed several movies and series like Vikings using Amazon prime video. Sling TV is $13.99 per month with our T-mobile rural internet discount and gives us access to the cable shows we were missing. The full price is $20/month. Sling isn’t perfect and during heavy viewing hours it often freezes and we have to back it up ten seconds, but it is good enough (meets Dear Wife test). Setting up a HTPC is a significant project, but an alternative is a Tivo Roamio OTA that includes a channel guide service, currently $389 on Amazon. The choice of antenna is very location specific, but let’s allocate $120 for antenna, cable and installation supplies. If we assume the setup will be in use for at least 5 years (hopefully more) we can spread the cost over 60 months: $389 + $120 = $509 /60 months = $8.48/month. So it’s possible to reduce TV to $28.48 per month (20$ for Sling TV and $8.48 for the Tivo-antenna setup) and still have access to network and also many cable channels.
Reducing the cell phone bill
On July 29th, 2017 T-mobile shows $50 per line for a couple for $100/month. Verizon shows $70/line for $140/couple/month. I would like to have data for my phone, it would be convenient. But not at that price. Instead we have an AT&T prepaid that costs $100/year per person but has no data. $200/year for two people for 12 months is $16.66 per month. Most of the time I am at home or at work and my android phone connects to the internet through wireless. When I am on the road I can often connect to free wireless. I have to admit there are times I wish I had data when I am on the road, but not for an extra $83.33 a month. We don’t talk a lot on our cell phones and the plan we have is 10 cents per minute. Adding $100 gives us 1000 minutes and a year of use. We don’t even use ½ of the 1000 minutes per year. Unfortunately, AT&T no longer lists the 10 cents a minute prepaid plan (previously called gophone) as available for our zip code, even though we are still using it. Republic wireless advertises a $15/month plan with unlimited talk, text and wifi data for $15 /month per person. Using that service would be $30/month for a couple. In that case giving up data would save $70 /month per couple.
Reducing the $40 book bill
If a couple each buy two $10 books per month that generates a $40/month book expense. To me that’s quite reasonable, but there’s a little known secret to reduce this… the library. I work at a university and can take a 10 minute break and walk over to the university library. I also have a county library card that gives me access to the county library electronic collection. These two services save us over $360 per year. The university library is great for harder to find nonfiction books the DW enjoys. It has a service called Summit that accesses other university libraries. Our university will allow local non-university-employed people to use its library. Our county library has an electronic collection that allows me to download audio books onto my android, or electronic books onto my Kindle… for free. We average about 3 free books per month. Most audiobooks are more than $10, so we save at least $30 /month. We still buy about 12 books per year for books that are either not available from the library, or we just prefer to own them. The great thing about the county library is after you make a trip to get your library card, there is no need to make a trip to the library to access the digital library. Just log in from home and download the titles. I haven’t been to the county library in over 8 years, but I’ve downloaded over a thousand dollars worth of audiobooks. Utilizing the library can easily save $30 /month.
Reducing the 80$ coffee bill
This is the cliché money saving approach, but it is a simple one many people can use. One day driving by a Starbucks early in the morning I saw a line of 6 cars. I wondered, are those people’s coffee experience really worth it? Are they spending their money to get value? I can make a cup of good drip coffee at home for less than 30 cents, and I don’t have to wait for 5 cars ahead of me to order. While I enjoy a coffee out once in a while, I really don’t need it on an ongoing basis. I tend to go out for coffee twice a month, and DW almost never does. So we pay about $10 a month. Savings, about $70 a month over going out regularly.
Progress to FI
Using the above examples the monthly totals are: Cable TV $28, 2 cell phone plans $30, books $10, Coffee $10 for a total of $78 per month. Using the 300X rule you would now only need $23,400 to cover these expenses. You are now $66,600 closer to FI ($90,000 – $23,400).