The Power of Being Open-Minded About Cutting Your Household Expenses

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Here’s the short version of this depressing WSJ article Families Go Deep in Debt to Stay in the Middle Class (paywall?). Household incomes have gone nowhere. Meanwhile, housing prices are up, healthcare costs are up, and college tuition has skyrocketed. Ouch. However, you can’t control that things are worse for you than if you lived in another time period. You can only control your response, and that is why I try to focus on actionable ideas instead of dwelling on “the way it should be”.

“Make more money” advice is hard to pin down. Of course I want everyone to have a high income. I like the idea of spending money on improving your marketable skills, “investing in your yourself”. However, everyone has a different combination of what they are good at, what they enjoy, and what others will pay them to do:

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Meanwhile, I find that spending advice applies much more broadly. My most general spending advice is that you need to expand what you think is an option. Most people hang out with people around their own income level, look around, and then spend the same money on the same things. The trick is that net worth shoots up when you earn a good income, but spend like someone who earns about 1/2 or 2/3rds of what you make. It may not feel natural, but you have to trick yourself into picking from a wider menu of options. Here are some quick examples.

  • Housing. You could buy a 4,000 sf house with a 3-car garage. A family of four could live in a 1,000 sf apartment (mine did). You could share an apartment with roommates. You could rent a room inside a large house. You could buy a duplex and live in one side, rent the other. You could buy a 4-plex and live in one unit and rent out the rest.
  • Transportation. You could lease a $60,000 SUV and pay about $8,000 year in lease payments – after 3 years and $24,000, you’d have to start all over again. Alternatively, you could buy an entire car for $8,000 and own it for another 10 years. You could downsize from a 2-car to a 1-car household. Many urban residents don’t own a car at all.
  • Food. A single person could eat out at every meal, never touch their stove, and easily spend $1,000 or more per month on food and alcohol. A family of four can cook all meals at home and spend under $600 a month. These days, food has become the ultimate convenience item, but it’ll cost you.

I can be hard to stay open-minded about your expenses. In fact, many quickly become defensive. You’ll often hear a straw-man argument like “I don’t want to sit around sorting coupons, eating lentils every meal, or living in poverty”. I wonder if they have seriously considered all of the options above.

You don’t have to pick the cheapest option in every category. You probably know someone in an expensive house but drives a 20-year-old Toyota. I know someone who makes over $250,000 a year but rents a cheap, single room in a large house (while eating out every night). I know someone who owns a beautiful beachfront house, but AirBNBs the majority of it.

I’ve been looking for over 15 years, and there is no single path to financial independence or early retirement. Even if you don’t want to embrace frugality as the cure for everything, the cold reality is that it’s hard to live at life true to yourself unless you first reach at least $10,000 in savings to ride out the bumps.

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Comments

  1. Reminds me of a saying in Sanskrit
    “Ekam Sat, Viprah bahuda vadanti” – One truth, the wise call it different ways.

    As long as you keep your expenses a lot lower than your income, you are on the way to financial independence. The ways to increase your income are many
    and so are the ways to decrease your expenditure.
    The end goal should remain the same.

  2. This is by far and away one of your best posts in some time. Far too many financial advisors, well wishers, and self-appointed experts claim that they have “the secret” but the problem is that not all techniques work for all people because people value different things for different reasons. You gave some concrete and specific examples and then advised people to decide what works best for them, and everyone who says that is a hero in my book. I don’t know what will work for you; I only know what worked for me.

    I bought a modest, comfortable house in an older part of town that cost the same as renting a 2b/2b apartment. I drive a 14 year old Chevy Malibu. I try to only eat out four or five meals per week. I end up spending most of my discretionary money on travel and experiences. If you value a fancy car, spacious house and luxurious food, your choices will vary, and that’s ok.

  3. The article reminds me of the warning labels on laundry detergent…informing people to not rub it into their eyes. Is American so dumbed down that even the most basic precepts of living an economically viable life need to be explained to them? Truly, the Fall of the Roman Empire Part 2.

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