The $400 Food Challenge (January 2017)

Welcome to the $400 Food Challenge! One of our first steps when starting this journey towards financial independence was to create a monthly budget for ourselves.  When I came to the item for groceries/food, I was stumped. How much did we spend? I didn’t know.  I made a rough guess by tabulating the amount we spend at the grocery store and came up with $500 monthly.  But that number doesn’t include restaurant meals, alcohol, coffee from the cafe, or any other of those little “incidental” purchases.  All told we were spending quite a bit more. All of those incidental purchases add up.

After working out budgets, we decided to get by with only spending $500 a month.  If we get to the last week and only have $50 left then we’ll just have to get creative.  However, after a little thought we decided we can do better than that. $400 a month. Roughly $100 a week.  Thus begins our January $400 food challenge.

I’m writing this part of the post at the beginning of January 2017.  At the end of the month I will look at the results.

One aspect of this challenge is that we eat relatively healthy. We could easily live off of less than $400 a month if we ate only cheap ramen noodles or rice and beans.  But we also make it a priority to incorporate local, organic produce, dairy, and grains as much as possible.

Recently while talking to a couple I work with about this challenge, I was surprised to hear that they spend well over $1000 a month on food.  This seems incredible but it certainly isn’t hard to do.  Going out to dinner a few times a week, buying packaged foods like frozen pizzas, getting coffee or other snacks; all of these things may not cost much independently but they can easily add up to hundreds of dollars in a month.

So how do we intend to spend so little? Easy. Only make food at home and do not buy alcohol. If for some reason we do go out to a restaurant or buy alcohol, any money we spend will come directly from this budget.  Being vegetarian helps keep the numbers down as well. Meat tends to be the most expensive portion of a meal, especially if you’re looking for locally-sourced, hormone-free and humane options.

We also try to strategize our visits to the grocery store. Our local co-op store has %10 discounts on produce and bulk items on Wednesdays and Thursday respectively.  We strategically plan our purchases on those days.

END OF MONTH RESULTS:

FAIL.  We almost made it.  In total we spent $483 for the month.  Now this includes a $54 restaurant meal and 2 separate visits to local breweries.  These extra expenses total $96.  So if we subtract that from our $483 monthly total, we spent $387 total on groceries.

If we stuck with our plan of no restaurants and no alcohol we would have been successful. Fortunately we are financially secure enough that we are not bound to the $400 monthly budget.  That being said we are going to keep striving to hit that goal.  We certainly don’t need to spend money at restaurants.

I hope that by sharing this information, anyone who is on a strict budget can find inspiration.  Or anyone looking to reduce their spending. Even if $400 for the month sounds impossible to you, try another number.  Lower your usual costs by $100 to start.

Food costs constitute a huge portion of everyone’s budget.  There is also this myth that eating healthy is more expensive. But there are ways to eat healthy while keeping costs low. It is possible. In a future post I will expand upon our simple strategies for keeping food costs down while maintaining healthy eating habits.

Changing Plans

homeHappy new year!  A new year brings a new financial plan.  If you’ve followed from our earlier post, you’ll know that initially we planned to pay off all non-mortgage debts before saving and investing. Well, we’ve decided to throw that idea out of the window.

I was able to pay off my student loans in full in December by using money from a year-end bonus and by juggling some of our other cash accounts.  This leaves us with our auto loan (2.99% APR) and home equity loan (3.99% APR).

Initially I was quite adamant about wanting to pay off these loans.  However, after researching and listening to podcasts such as Radical Personal Finance and Afford Anything we’ve decided to continue paying those loans since they have relatively low rates.  The remaining money we are able to save will be used for investments, and in particular to finance a new house.

We work 10 to 12 miles from our home. This equates to a 20-40 minute commute by car and a 70-90 minute commute by bike or bus. As we feel this time spent is a drain on both are available time and energy, we’ve decided to move a bit closer to work. Additionally, we intend to purchase a duplex as our primary residence so we can rent out the other unit. Eventually, when we move elsewhere and stop working full-time, the rental property will be used as additional monthly income.

Hopefully we’ll be able to save enough and/or get enough from selling our current home to make it feasible later this year. We’ve been doing lots of research into investment properties, particularly as it relates to financial independence.  Even so it definitely seems daunting and we have a lot of work ahead.

Here are some resources we’ve found that are quite useful:

https://radicalpersonalfinance.com/early-retirement-faqs-should-i-pay-off-debt-first-or-should-i-invest-an-interview-with-joe-aka-arebelspy-rpf0095/

https://radicalpersonalfinance.com/78/

http://podcast.affordanything.com/episode-4-beginner-guide-real-estate-investing/

Bigger pockets

In the meantime, it’s back to work!

Keeping the FIRE Burning

cold - no fire

Right as we begin this journey we hit the first bump in the road. Our furnace stopped working right before the first cold wave of the winter hit.  Upon inspection, the HVAC technician said “Didn’t your home inspector say anything about this?”.  Things are not looking promising.

Our home inspector did mention that it seemed odd. It turns out that the furnace was oversized, in too small a space, and installed in a way that servicing it was impossible.  Long story short, we ended up paying for the installation of a new heater.  A $4000 set back right from the beginning. Ouch!

The lesson is that setbacks and surprises can come at any time and one should be prepared to handle them.  Luckily we had the extra money accessible.  But it made us think about have some sort of emergency fund.

Our take on the concept is that instead of having some amount of money sitting in a low interest earning account, we go about our usual business of investing; being sure to have enough liquidity to access emergency money if we need to.  Additionally, under most circumstances we will pay emergency expenses via credit card, giving us time before the bills are due.  Our monthly savings money can be diverted as necessary.  Others espouse the idea of opening a HELOC to have money available when needed.

So because of this we are abandoning the notion of an emergency fund in the traditional sense.  Time will tell how this strategy works out.  For now, we may have hit a small bump in the road but at least we’re staying warm.   The FIRE burns on!

Assessing What We Have

Welcome!  If you are unfamiliar with this blog, see the first post for a brief introduction.

Today I am going start detailing our current financial status and our immediate plans to becoming Financially Independent / Retired Early (FIRE).

Collectively, my wife and I make $98,000 / year ($73,000 net pay) through our full-time employment. I make a negligible amount of additional money (a few hundred dollars a year)  through art-related projects but those are generally treated as hobbies and are done for passion rather than profit.  Other than minimal interest and dividends through bank accounts, our jobs are our sole source of income.

We live on about 25% of our net income ($18,000). This amount does not include any payments towards debts.  It goes up to around 30% if you include our mortgage payment in the amount.  We live relatively cheaply through various lifestyle choices that I will talk about in future posts on this blog or on a separate blog we are setting up (which I will link to in the future).

As you can see, we are far from being ready to retire but we have a plan.  The first step in becoming FIRE is to pay off our non-mortgage debt.  I am putting $2800/month towards my student loans.  Those should be paid off in a few months.  After that, the money will be put towards the balance of our home equity loan.  Once that’s gone, we’ll pay off the auto loan.  So our goal is to pay off these loans as fast as possible.  At the current rate, I hope to have these eliminated by August 2017.  Then we can finally start saving & investing. [Edit: this plan has changed since first writing this post… we are going to save/invest rather than pay off the home equity & auto loans due to their low interest rates. More on that in another post!]

 

I’ll give a brief synopsis of our current savings and loan accounts below (Current as of Nov 1st 2016).

CASH ACCOUNTS

MAIN CHECKING : $5,300

This account is for monthly spending, paying bills, etc. This is account is our primary spending hub. Our direct deposits from our employers are linked here and all of our other accounts receive transfers from this account weekly or bi-weekly.

MONEY MARKET SAVINGS : $6,500

This account was initially set up to hold excess home repair / investment / saving money.  We will still use it to hold excess money we’re saving for short term purchases.  $4000 of its current value will be going towards replacing all of the windows in our house.  The remainder will be for minor other projects but is generally unaccounted for.

SECONDARY SAVINGS : $4,400

The secondary savings account holds money from which our mortgage & auto loan is pulled from bi-weekly.  The excess money that accumulates is used to pay our property taxes ($3,500 or around 3% annually) and quarterly water/sewer bills.

PERSONAL SAVINGS : $360

We each have our own account for personal projects spending allowance. We send $20/week to each account.

CREDIT CARDS

We use credit cards to pay for most of our day to day expenses.  The cards are paid in full every month and offer cash back rewards which are always applied to the balance as credit.

LOANS

STUDENT LOANS : $7,700 @ 4.75-5.25%

HOME EQUITY LOAN : $9,500 @3.99%

AUTO LOAN : $10,500 @2.99%

MORTGAGE : $101,500 5 year ARM @ 3.5%

We pay $100 bi-weekly to the home equity loan, $150 bi-weekly towards the vehicle, and $250 bi-weekly towards our mortgage… all automatically withdrawn from our Secondary Savings Account.  All of these payments are slightly more than the minimum payment.

INVESTMENTS

STOCKS : $1,900

At the beginning of 2016 I started an investment strategy involving stock options which I will talk about in another post.  I have pulled most of this money out to pay down my student loans.  Once the remaining stock can be sold for profit, I will use it to pay down debt or invest in index funds.

401(k) ACCOUNTS : around $6,000

So there’s a good synopsis of where we’re at right now.  Had we have been smart, we would have paid off our debts (or not acquired them in the first place) long ago… before taking on major repairs and updates to our house. The point to take away is DO NOT BORROW MONEY FOR ANYTHING OTHER THAN A HOME & PAY OFF DEBTS AS SOON AS POSSIBLE!!!

Updates will be slow until the debts are paid off. As of right now, paying off those debts are my singular vision. I can’t seem to think beyond that point. Until then, it’s back to work for me!

Beginning the Journey

It is November 2016 and I am 36 years old. I am going to retire within 10 years. I am Becoming FIRE.

My wife & I recently discovered the concept of FIRE (Financial Independence / Retired Early). It’s a concept that seems so simple and straightforward and yet one that is so counter to our society and culture. It’s also a concept I wish I had discovered years ago. If I had started when I was 30 I could be retired by now. But it’s better late than never.

The purpose of this blog is to help document our journey and to give inspiration to others starting on their own journey towards becoming FIRE. We can document our successes and our failures to hopefully help others on their journey. By creating more fulfilling and rewarding lives for ourselves we can help create a better world for everyone. When you don’t have to work for money, you are free to do work that you are passionate about; work that helps others. Or free to do nothing at all.

There are many amazing people with amazing websites that help to educate and inspire the world with the concept of FIRE.  Much of the concepts I am practicing and learning has been adopted from them.  They can articulate these ideas far better than I ever could. Please investigate these sites and learn about the FIRE idea.

Here is an incomplete list:

MisterMoneyMoustache

Mad Fientist

jlCollins

http://www.frugalwoods.com

http://www.frugalvagabond.com

http://www.gocurrycracker.com/

In the next post, I will begin detailing our current financial situation and our plans to become FIRE.  In further posts I intend to document the path towards FIRE as well as sharing lifestyle ideas and strategies that my wife and I have developed. This is a subject I think about constantly but finding time to write posts will be a challenge. But if you’re patient, please share this journey with me.  For now, it’s back to work!