I strongly believe there is always room for optimization in Personal Finance (PF). This is true to both income and expenses; however, the latter continues to be my focus because is the one I can control and influence the most.
Even though most of my finances are on auto-pilot I continue to challenge myself so that I can identify ways to further increase the gap between our income stream and expenses.
Some people might say there’s just so much you can cut and they’re probably right; however, you’ll be surprised with ideas that might come up if you really pay attention to your spending habits and lifestyle choices. Below are 5 decisions that led to $3,500+ in annual savings.
1. Got Rid of Cable – $768/year
It is very well known in the PF community that getting rid of cable is a no brainer. I had been reading about it on numerous blogs that talked about the benefits and alternatives such as having a digital antenna, Netflix, Hulu, SlingTV or Amazon Video. I got excited about these options and discussed with my wife; however, the conversation did not go well.
My main argument was primarily around cost and on the fact we were not maximizing the benefits (if there are any) of having live TV. Her response was that our kid (2 years of age) really loved the Disney Channel and that getting rid of cable would probably piss him off.
Emotional Intelligence was key in my response … but internally I was about to blow up … Babe, I love you 🙂
I remember telling my wife I understood where she was coming from, but that I wanted her support in at least considering my plan. She wasn’t enthusiastic but was willing to give it a shot.
Before getting rid of cable, we signed up for Netflix and started exploring all the features (individual sessions which she loves) and available shows … that same day she was sold and was ready to kiss our cable bye bye!. In the following days, I gave Comcast a call and they were able to set me up with just Internet service.
Netflix has been phenomenal but since I love shows on AMC, I went ahead and signed up for SlingTV… Please don’t blame me for that. Anyways, this is what the numbers look like today:
- Comcast Package (Before): $180/month
- Comcast Package (Internet only): $86/month
- SlingTV: $20/month
- Netflix: $10/month
- Total Saved: $64/month or $768/year
2. Increased Insurance Deductibles – $446/year
This option might make some people uncomfortable so no worries if you happen to disagree with my approach.
Before you run with the thought of not having insurance let me stop you right there. I strongly believe we need to be prepared and protected to deal with possible eventualities. For that reason, we carry the following:
- Life insurance
- House insurance (primary residence & rental properties)
- Car insurance
- Umbrella insurance
Historically, I’ve used defaults when signing up and renewing insurance with a deductible of $1,000 for our primary residence and $500 for our cars. I assumed everything was fine and did not bother to look back. It wasn’t until I listened to one of my favorite podcasts that I heard a discussion around insurance and how premiums and deductibles related to one another, i.e. the lower the deductible the higher the premium and vice-versa.
Initially, my take away was about risk and reward but after careful thought, it became more about comfort and what ultimately gave me peace of mind. For our personal situation, I did additional research and realize I felt comfortable increasing my deductibles on all my policies. Here are the numbers:
- Primary residence ($1000 deductible): $1,532/year
- Primary residence ($5000 deductible): $1,245/year
- Car insurance for two vehicles ($500 deductible): $1,471.6/year
- Car insurance for two vehicles ($1000 deductible): $1,312.6/year
- Total saved: $446/year
3. Got rid of Satellite Radio – $239.88/year
We have two certified pre-owned vehicles that came with a temporary subscription to SiriusXM. Once expired, I decided to keep the subscription on my vehicle because I liked this particular radio station I thought I couldn’t live with.
After reflecting on how much I was spending, I realized it didn’t make any sense to keep it so I went ahead and canceled.
At first, I struggled but then transitioned to more productive alternatives such as listening to PF podcasts.
Today, aside from listening to podcasts almost every day, I take advantage of Pandora, Youtube and Amazon Music (free if you have Amazon Prime) using blue tooth. These options are free and allow me to pick and choose without having to pay Sirius XM $19.99/month.
I know some folks will say that if you call SiriusXM they will give you a sweet deal for 3-5 months but remember at some point, the rate will go up to $19.99/month and you will find yourself calling them either to cancel or to bargain one more time.
- Total saved: $19.99/month or $239.88/year
4. Made Adjustments to Life Insurance – $1,507.39/year
I have term life insurance which I bought through PolicyGenius. This company does a great job walking you through a series of questions that help their algorithm suggest the insured amount. They are very transparent on how they calculate the final number and also give you the option to make adjustments (up or down) as you see fit.
On the web you can also find some basic rules of thumb such as the insured amount being 7-10 times your annual salary; however, that is a very simplistic approach. In my case, I decided to go with the recommendation provided by PolicyGenius.
As I mentioned before, insurance is nothing more than buying peace of mind. In my case, I bought a 30Y policy for $2,521.8/year and decided to make monthly payments instead of paying the lump sum and receiving a 10% discount (don’t ask me why).
At the beginning of the following year, we were talking about financial goals and life insurance came up. After careful thought, we realized I may have been over insured. As a result, I decreased the coverage amount, paid the lump sum to get a 10% discount and still went for a 30Y policy.
- 30Y term policy (before): $2,521.8/year
- 30Y term policy (after): $1,014.41/year
- Total saved: $1,507.39
5. Challenged Fees Charged by Financial Advisor and Ultimately Canceled Service – $530+/year
Before I discovered the PF community, my sentiment towards money management was not the best. We were actually super frugal folks but investing came across as something that required expertise and professional help.
At that point in my life, the only investment vehicle I was using was an employer-sponsored 401(k) contributing to at least the 6% match I was getting. Inside the 401(k), my decision criteria (can’t even remember) was complete nonsense primarily driven by past performance and rating in the Morningstar snapshot (what a dumbass).
Around this time, my employer announced a partnership with Financial Engines for providing employees financial advice and management of individual 401(k)s. Thankfully, I paid attention and decided to signup for their services. I realized they were going to charge me a fee for assets under management (AUM) but 53 basis points annually did not seem like a lot (or so I thought).
I used them for a couple of years and right around the time I discovered PF, I started to become more involved paying more attention to what Financial Engines was doing to my portfolio.
At one point I started to analyze my investments and realized they had put me on this bond fund (low % – as my investment style was aggressive) but the expense ratio (ER) was really high at 46 basis points. I remember telling the lady over the phone about another bond fund I had available that charged 4 basis points.
The lady said she did not know how that had happened and that she was going to have to get authorization to make this change. This conversation was both rewarding (the lady was impressed with my level of knowledge) but concerning because I was giving advice to the advisor?. In the end, I was soft and decided to give them another opportunity.
My ongoing interest in PF led me to a ton of information. When it came to investing, the big lesson I learned early on was to focus on the only things you can control and that is “lowering FEES” as much as possible.
In 2016, the stock market hit a bump and I called Financial Engines to finally cancel their service. The reason was not the state of the market or performance … it was investment FEES … 53 basis points of my hard earned money … no way!
I won’t give you the details behind the amount I’ve been saving but it is significant. Assuming I had $100K in my 401(k) that’s $530/year!!!
- I know these 5 ideas are not applicable to everybody but they were relevant to my particular situation.
- Assuming the fees on the $100K hypothetical 401(k), my decisions led to an indirect annual raise of ~$3,500+.
- Avoid getting attached to material stuff. Saying you can’t live without A or B is simply a stupid argument.
- Having a partner that has the same goals (maybe if not at the beginning) makes a HUGE difference; however, be patient.
- Human beings adapt, all you have to do is put a little bit of effort.
- Some folks say there is so much you can cut; however, check your expenses every now and then to avoid complacency.
- You’ll be surprised by the things you can do if you put your heart and soul into it.
If you have other ideas I should include feel free to leave those in the comment section.
Until next time … JJ