05 Sep Optimize Spending: Why I Disagree with Rammit Seti and Others That Say to Forget About Trimming Lattes.

Optimizing spending is a critical step and consideration in the financial path to freedom, what I find interesting is that we and no one ever really seems to get it right on their first pass.  As a result, it is a step that needs to be repeated at least once a year, maybe twice at most but surely anytime you have a significant change coming in your finances.  This subject was huge in March of 2020 when Coronavirus was buzzing and about to have its way with America, we saw real estate investors re-evaluating deals they thought were great three weeks ago but now under the new uncertainty decided to step back.  We saw high profile CEOs recommending you expand and draw down your lines of credit to get cash in the bank if you had access to it.  We saw and heard from countless people in the FIRE Community suggesting this very process, pulling out your bank statements and giving everything a hard look.  While not every review may be as drastic or dire as a pandemic might cause, it is an important exercise to eliminate lifestyle creep and remove spending that doesn’t provide equal cost to joy value in your life.  My recommendation is that anything that is subscription based or that you buy systematically is always up for review, it may not change but it must be considered.  Scott Trench did a fantastic job in “Set for Life” hitting on the big three expenses which are home/rent, transportation, and food.  Beyond those, here are a few examples of wins we’ve had in our budget getting money back that was buying value than we were okay with.

Prior to my son being born we had been talking about getting rid of cable TV and the DVR box that went with it for over a year as the price always rose up and then I’d call and get the price back down.  At one point my bill hit whopping $245 a month but I always managed to get it back down to $140-$175.  Finally with our son coming and the fear of the cost of kids that is out there we did a major review of our finances and cable was one of the first things to go.  We reduced our monthly internet from $95 down to about $70 at the time, since then speeds have continued to go up and prices for the speed we want and need seems to always go down.  Additionally, I realized we’d been paying $10-15 per month to rent a modem/router, which I bought and replaced myself for something like $75 in late 2016 and they continue to work great.  In the summer of 2020 we currently have our internet through Xfinity for $45/month for 75 MBPS speed.  We don’t play video games or stream on countless devices at the same time, and I think Netflix wants a minimum of 25 MBPS so we are well in the clear.  Getting rid of cable and having nothing but Netflix to replace it probably wouldn’t have worked for us and eventually we would have brought cable back into our lives, instead we stepped down in strides.  We added Hulu and Hulu live but that didn’t last long because we just didn’t find ourselves watching as much TV and there was no DVR filling up with shows we “had to watch.”  It didn’t take long before we settled into Hulu with no ads, Netflix, and Prime Video comes free with the prime we already purchase anyway.

Another victory in the subscription savings space that we found was putting out our home and auto insurance for a quote.  I had been with Farmers for several years after getting quotes from a friend who had newly become an agent and he was able to save me money at the time.  After several years or even a couple of years things change in your life are bound to change such as credit and the marketplace. You can also take insurance into consideration.  I suggest finding a broker that can sell multiple brands, rather than going direct to State Farm or Progressive and getting one quote, head to a broker who can run you forty quotes with the push of a button.  We did this and saved somewhere in the ballpark of $115 a month, through a combination of changing to a different brand as well as reconfiguring what we were insured for, and we raised our deductible.  I like to quantify what that $115 really means, not through the longer-term time in the market strategy, but I see that as my rental house insurance is free!  I didn’t reduce my coverage anywhere it was necessary, I increased coverage in some areas, I lowered a deductible by choice, and get to keep $115 a month to increase my savings rate.  Win.

While I won’t break down the details in full, if you have life insurance and disability insurance with a firm like Northwestern Mutual, New York Life, or the other bigger firms I highly recommend looking at this. We didn’t the first time around and in short saved $125/month switching companies, while being insured at a higher age, for the same life insurance levels and higher disability income levels.  We used Dave Ramsey’s recommended broker Zander Insurance and the process took some time but was well worth it for the long-term savings.

I want to take on one last reoccurring expense that many have and is a bit controversial in the finance world.  Those $5 lattes.  On one end of the FIRE Community you have MMM that probably has a post titled “lattes are for millionaires,” and the other end of the spectrum you have Rammit Seti who says forget about trying to pinch pennies.  I’m somewhere in the middle, as I’m not going to live on $25k a year like MMM does but I’m also not going to go to Starbucks every day for $3.29 for a cold brew with a tiny splash of heavy cream totaling roughly $100 a month.  I would go every single day, no question and have created a subscription type expense in my life so instead I optimized it.  Phase one was to buy the one-liter Starbucks Cold Brew from the store, I think they run about $4.50 per liter and that lasted me maybe four days or so, six liters a month, a $27 total and $70 a month saved.  Did my life decrease in quality by $70 a month? Nope.  I can promise you Starbucks drive throughs didn’t increase my life by $70 a month worth either, they frustrated me.  Since then I actually was gifted a cold brew maker for Christmas in 2018 and since then I’ve made my own cold brew and only buy a couple liters of the other stuff per month.  While the savings is fairly insignificant, I think I dropped my total cold brew spend to $14 a month or so.  Additionally, my wife is an iced americano superfan so while my Starbucks costs dropped years ago, her spending stayed level until Christmas of 2019 when I bought her a Nespresso and that dropped her three to four a week visits down to maybe one, and she can have a Nespresso as often as she wishes.

I led with the frequency of the exercise being one to two times a year, anything that is a subscription, or anything we buy regularly being up for consideration.  We hit on the big three of house, transportation and food being the big ones you can make the biggest impact with.  From there, get creative in looking at your spending, in this article I hit on two types of insurance, cable TV and coffee and came up with $370 a month without impacting my lifestyle in a negative fashion.  Below you’ll find a list of other areas we found ways to cut back on but didn’t break down in this article.  Take an hour this weekend to print a few months of bank or credit card transaction statements, grab a marker and put a dot next to anything up for consideration and aim to find a way to eliminate something that doesn’t bring joy or value equal to its cost, isn’t used at all, could be reduced in cost for the same product or service, or could be optimized by doing it yourself without a significant time trade off.

• Mortgage / rent
• Refinancing (see post about refinancing pitfalls vs. benefits)
• Transportation: Driving a more affordable vehicle
• Food: Focus on meal prep, well priced stores like Target, avoid excessive junk food, leverage bulk
• Get a SodaStream and reduce the La Croix/Bubbly (we do both)
• Insurance
• Life / disability insurance
• Cable TV reduced or eliminated
• Reduce internet and check online every so often for new rates, don’t rent a modem/router
• Drive through coffee, we make our own espresso (Iced Americanos), cold brew, and tea.
• Eating out, invite friends over for a celebration instead of going out
• Hobbies: Invest in equipment and reoccurring costs are low or free. Bike, free trails, cross country skis and trails are $70/year.
• Off brand items that make no difference like zip lock bags or facial tissue
• Programmable thermostats that allow you to set time frames to heat or cool your home
• LED light bulbs
• Consider Craigslist or FB Marketplace for certain purchases instead of new
• Kids clothes/items off clearance racks (shout out to my wife who buys 97% of my son’s clothes off the deeply discounted clearance rack and he always looks fly)!
• Library to borrow instead of buying books or audible credits
• Find the balance in new purchases like couches or TVs, you don’t need a $2,500+ 50” when a $700 model is plenty. Who needs a $4,000 couch?  Be patient and find something you love for a price that you can live with.
• Try fixing things yourself (unless it’s unsafe like electrical)
• Paint your own house: I painted my house in three days and saved $3,500
• Get four friends together and buy a cow split it four ways, or ¼ yourself etc.
• Avoid trading up technology like phones, cameras and computers unless you need it
• Bulk fill foam soap refills vs. the Method $5 bottle, refill counter top spray bottles for counter top cleaning instead of with ready to use