How to Not Suck at Saving Money

Every blogger gets to write an obligatory post on how they cut corners to get out of debt and accumulate wealth.

Here is how I do it.

I’ll start by saying any success I’ve had with saving money is 99% attributable to my wife. She is Chinese and grew up in Taiwan. She has no formal training in investments or finance. She has never read a personal finance book in her life. But she came from a family and, to a certain extent, a society that frowns on debt.

She freaked out when she realized I had $32,000 in student loans and several credit cards while in my last year of college.

The sad thing was, I didn’t really need the loans, I just wanted some extra money to live a little larger. I was on a full scholarship and had a job in the dorms that gave me free room and board (Yes, I was stupid). One of the many reasons I married her was her attitude towards money and her ability to keep me straight.

She insisted we got out of debt immediately, and we did. While still in college, we paid off $32,000 in student loans, and all the credit cards. This was done by both of us taking extra jobs, or hustling, as I believe it is called in the PF world.  This frugal living also allowed us to pay off our $280,000 mortgage in six years.  One of the greatest accomplishments I’ve ever done.

To this day, we are debt-free.  We even invest in real estate without using debt.  We do this on a single military income.  We currently own several properties that are paid off!

We have always been able to maintain a high savings rate by eliminating unnecessary expenses. We are TOTALLY against keeping up with the Joneses. The Joneses might seem to have some great stuff, but their financials suck!

I want to share my experiences trying to save money in different aspects of life. It allowed for a decent savings rate that has done well for us. We could have cut back even further, but this is where we felt comfortable.

Houses

House Sitting in Albany Canada

If your goal is to live in a nice house and throw expensive parties for your friends at your expense, while remaining poor in all other aspects of life, then buying a big house is the right thing to do.

In all seriousness, this is where we make our biggest mistakes. It’s the American dream of owning a house. We like a big front yard, massive backyard, built in BBQs, pool and terrace, lots of bedrooms and bathrooms, and gorgeous, large kitchens. We love two-car garages to house our beautiful, brand new shiny SUVs and luxury sedans.

The conventional wisdom is, if you rent you are throwing money away. If you crunch the numbers based on your personal situation, the opposite is often true.

I purchased my personal residence in 2003 for $280k.  It shot up in value to more than $400k less than two years later.  I’m Rich!! Right???

I sold that property a few months ago (2016) for $400k.  When you crunch the numbers, the S&P 500 grew at an average of 6% per year over that timeframe.  I would have been better off renting and investing the surplus in index funds!  The value of the house would have to be more than $600k to beat the S&P 500’s growth rate over that time!

Don’t count on home appreciation making you rich.  It’s a myth.  It’s impossible to predict what will happen with home prices.

Home ownership kills you on maintenance, HOA fees, property taxes, and mortgage interest. The illusion that the tax write off makes this a better deal is just that, an illusion.

There are only very specific circumstances where it makes financial sense to buy vs. rent when you look at it purely economically. For instance, the rental market is expensive, house prices end up rising a great deal (good luck), and you end up living there a long time.

I’m in the military. I have lived nine different places in the last sixteen years. It makes zero sense for me to buy a house.

If you must buy, get the smallest, cheapest house to meet your family’s needs. I can’t emphasize this enough. It should be a house that could become a great rental, should you decide or be forced to move for some reason.

I had a friend who asked my advice where and what to buy in D.C.   He was a fellow military member, and was about to be promoted and ready to spend that extra money!

They were dead-seat on buying a house.  They had no kids, and no plans to have any. I recommended a small, 3-bedroom townhouse close to work. I recommended they buy as cheaply as they can, to free up the extra money in case something unexpected happens.

I also pointed out they should buy something that could become a rental when they move. In the end, they got excited with how much they pre-qualified for and maxed it out with a 4000sq. ft. new construction dream home.

By the way, new luxury homes do not make good rentals.

Too bad he never got that raise, and was forced out of the military unexpectedly. He now works overseas and takes a HUGE loss each month on it as a rental.

This is common in the D.C. area. You can rent a brand new house, and let your overextended landlord cover the difference in the mortgage payment. Great for the renter, no so good for the landlord.

I’m going to say this with the benefit on hindsight bias. Buying a house in Washington D.C., even years before the market tanked, was actually a poor investment.

In most cases, you are better off NOT buying a personal residence, but renting a house just big enough for your needs, close to work or public transportation, and (once debt free) focus on investing. For me, that’s mortgage free rental properties. Index funds are also awesome.

Rich on Money

If you crunch the numbers, you will see this to be true.

Furniture

printable-75-percent-off-clearance-sign

I see a lot of potential to waste money on furniture. This is especially true if you are still in debt, and have a low income. We have never wasted money on expensive, or even normally priced furniture, even up to today.

If you get a good deal when you buy used furniture, you can recover a lot of that money someday by selling it on craigslist or some other way.

New furniture is so overpriced! Buy used and pocket that extra money for a rich future.  

RoM

 

Throughout our lives, we have bought furniture for function, not for fashion.   Buying used or getting a great deal was the goal.

When I was stationed in Guam with the military, there was a hurricane that devastated the island. It caused water to leak into the warehouse that housed the merchandise from the furniture store.

For some strange reason, the military decided to sell any item that was in a box that got even a little bit wet for 75% off. We stocked up on all the furniture we would need for the next 10 years, and even bought a few extra items as an investment. Over the years, we’ve sold all of it off for a profit after getting years of use out of it.

Buying used furniture on Craigslist or on some local community Facebook page has saved us thousands of dollars over the years. Ikea is great, but you’ll save more money buying it used and assembled.

I remember buying a dining table at K-mart for $99. We used it for about 8 years, and then sold it when I was overseas in Japan for $200.

Cars

Cars cost a fortune! Cars, next to houses, can be what eats up most of our incomes. This also means that car expenses are one of the main things that keep us from saving and investing money. Cars keep us poor. Don’t let your cars do that! Before I talk about what I’ve done, I’ll mention what I’ve asked others to do in the rare case they asked me for financial guidance:

Get rid of your fancy cars! Money killer! This also applies to homes, vacations, and clothes as well.

RoM

Some people will often think they are doing what they can to save. If you have two (or more) new/newer cars financed, you are making a huge financial mistake! How about his and hers Harley Davidson’s on top of that? Maybe a boat?!? THIS COSTS YOU A FORTUNE!!!!

There are hoards of websites devoted to ditching cars and switching to bikes and local transportation. You’ll save more, you’ll be happier, and you’ll be healthier.

Even if you owe more than your car is worth, you are better off in the long run selling it, paying the difference out of pocket, and getting into cars you can afford paying cash for.   To do even better on that, consider getting by on one or no cars. Move closer to work. Work from home. Figure it out. It’s worth it in the long run!

Do I have authority to write this stuff because I’ve always been financially brilliant when it comes to cars? Yes, of course! Here’s a good example.

When I was in college and still dating my wife-to-be, I got bored one day and went to a car dealership to look for a reasonable car to buy. The dealer sweet-talked me into a Shiny 300 ZX Turbo with T-tops. Hell yeah!!!!!

300zx

Only $4,995. I asked about the funny noise it was making. He said the car hadn’t been driven for a few months, and the noise would go away when the car gets warmed up. AND I BELIEVED HIM!

When I came home and surprised the wife-to-be with our awesome new ride, I was disappointed by her lack of enthusiasm. I got mad at her for not sharing in this moment with me. I reminded her the car was for US! She reminded me that she didn’t drive stick shift. I think I probably knew that, and just didn’t care.

Long story short, I bought a black leather jacket and got a ticket in that car the first day on the road. A few more tickets in the weeks following.   I ended up lucky to find someone to buy it for $1000 a few months later when the transmission and electronics died on it. The inside of the car made Knight Rider look like nothing (before the electronics died).

nissan300zx_dash2

That was a stupid mistake, but once in a while I do something right. The 1980 Honda civic that I bought my first week of college for $600, I sold when I graduated for the same price.   My wife said it looked like Mr. Bean’s car.   I’m not exaggerating when I say the water pump literally fell off the vehicle as the new owner drove away. Timing is everything.

I’ve spent the rest of my life (so far) making what I think are smart choices with cars. I hunt for good deals on used cars that have great resale value with the intention of not losing any or much money when I sell it down the road. Toyota and Honda cars and SUVs have worked for me. This frees up more money for savings and investment.

It’s better if you buy a good used car and hold it long term, but I’m in the military, and this is not always possible.

Vacations

We all deserve a vacation once in a while. Vacations can cost a small fortune, and in some cases the cost of a pretty nice used car. Ideally, these vacations will be rare. While it seems like I’ve always had great vacations, I’ve been smart about the way I’ve taken them. Usually, I’ll take advantage of where the military has sent me, and try to vacation in those locations.

The biggest way to save money on vacations is to avoid paying for airline tickets and hotel rooms.  There are several ways to avoid this. The way I have avoided it in the past is by maximizing my use of reward programs.

I travel a lot for work, and I have followed the advice on numerous websites to rack up points for spending money on my credit cards, as wells as getting points from hotels and airlines. Even though the military reimburses me for my travel expenses, I am free to use the rewards from points for personal stuff.

My best method of all, however, is to take advantage of existing geography. Easier to say for me, since I’m in the military and I keep moving. I can get our family to the best ski resorts in the world in a less than 6 hour drive. Combine that with renting an apartment instead of a hotel and preparing most meals in the home, I’ve just saved a fortune!

Hotels are so old school!

The next big way to save money on a vacation, and vital for if you have a family with younger kids, is to rent private residences instead of staying in hotels rooms. Airbnb.com has been my go-to website, but I’ve used some others. Hotel rooms are such a pain in the butt!

  • They are expensive
  • No laundry (or absurdly expensive)
  • Parking is always a pain or extremely expensive!
  • All meals must be eaten outside the room!
  • It’s so crowded if you have kids and you have no privacy or space
  • They are tiny
  • They sometimes still charge for Wifi (are you kidding me!)

Airbnb, or something like it, excels in all the above areas. They are:

  • Much cheaper than staying in hotels.
  • Often, laundry facilities included (makes a huge difference for packing)
  • You get an entire furnished residence to yourself to use, often with designated parking.
  • Tons of space! 2 or 3 bedroom for much cheaper than a normal hotel room
  • You can cook some or all of your meals in the residence (*MASSIVE MONEY SAVER*)

Clothes

Clothes are different than cars and furniture, because it is difficult to recover any of the costs. Selling clothes usually doesn’t get you much money. For this purpose, don’t waste money on clothes.

Buy what you need to look professional. Buy what your kids need for school, but stay away from the expensive, trendy, fashion junk until you can actually afford to do so someday. At that point, you probably can afford it, but will not want to.

Buy clothes because you need to, not because you want to. This might be difficult to explain to a teenage daughter, but I know you can do it!

Phones, Cable, Entertainment

The worst thing you can do for your pocketbook is continuing to get the newest iPhone and renewing your overpriced contract that is impossible to ever get out of.  Yes, I’ve done it in the past and kick myself everyday! Stop doing it!! Any idea why apple’s stock price is so high!?!  From our contracts!

Never get a contract again.  Buy a decent smartphone that is about two or three years old model-wise, and you’ll save a fortune. Do you know how cheap it is now to simply buy a month-to-month phone plan with data and no contract? In the United States, you can do it for like $15 or $20 a month.  I’m doing it in Germany for about $14.00 per month.

Forget paying cable, that’s as old school as it gets. What a waste of money!   You can get by in life without cable. Figure out how to use the internet, there is tons of free stuff. A Netflix membership should be the most you ever spend on entertainment (probably still unnecessary, but my brother works there).

Birthdays, Anniversaries, Valentines, Christmas, blah, blah, etc.

Most of you won’t get away with this quite like I do, but do your best to not overdo Christmas and Birthday gifts. My wife is unique in her approach to this stuff. She doesn’t want anything on Valentine’s, our anniversary, Christmas, or her Birthday. I really mean it! I once bought her expensive flowers on Valentine’s day and she told me I was stupid for wasting so much money!! She doesn’t need this crap.  Many of us do, and that’s understandable.  Don’t let it get out of control.  We try not to spoil our kids by keeping birthdays and Christmas simple. We usually limit each child to one reasonably priced gift. I have saved a fortune not overdoing these overdone holidays/occasions.

This is how I’ve not sucked at saving money.

I talk more deeply about getting out of debt quickly and accumulating rental properties with cash in my first blog post.

My Wife Knows Money

Where are you with debt?

How do you cut corners?

Leave a comment below.

 

 

 

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2 Comments

  1. Donta

    Thanks for sharing your story. Unlike you (or countless other super smart people in FI space), I was terrible with money for the first 20 years of my adult life. Before I knew it, I was up to $80K in debt with zero saved for retirement. In 2015, I read Dave Ramsey’s Total Money Makeover and my mind started to look at money and debt totally different. I am slowly crawling my way out of debt and I look forward to the day when I can be debt free.

    • That’s awesome. It’s a great book. You are well on your way! Let me know if I can help.

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