Speaking in the way of the honorable Ace Ventura, “Allllllllll-righty then”.

In the previous post (magically named the same thing except Part 1) we went into a checklist of sorts on the fundamentals or pillars of the F.I.R.E community. These fundamentals included areas of people’s finances and budgets that could be easily cut down (large fundamental) to increase someone’s savings rate (another large fundamental) and rate of return on their investments (another large fundamental). It also included increasing one’s income (yep, another fundamental) to grow that same savings rate even faster over time.

What we are going to do in this post (part 2) is dive a little deeper into the aspects outlined in the first post. Hopefully, these deeper points will both make you curious enough to take the steps needed to increase your savings rate, and to improve your motivation and belief that you can accomplish this goal of being financially independent with the ability to retire early. Much of what is discussed in these F.I.R.E conversations can seem far out of reach for people (being financially free, for instance), but you need to understand that almost anyone can do this, especially with all we have available in the United States.

Also, side note, I don’t believe Ace Ventura was the greatest at managing his finances (at least based on the movies). So, though I enjoyed opening this post with his quote and picture, we should probably state it is not recommended to duplicate his financial habits.

With the disclosures completed, we can now proceed. Let’s go into detail on the areas of focus within the F.I.R.E Community.

Fundamental Number 1- Living Below your Means and Cutting Your Spending–

Most American’s, traditionally, have the mindset of “If I can afford it, I’ll buy it”. Even though you can’t see it in those quotation marks, the words “afford it” are also in quotation marks in my brain because that is a very loose term that is widely interpretable. Much of the world attributes “afford it” with “if your income allows you to pay for it over the next 2 to 10 years, by making minimum payments on credit and paying a bunch of interest over time”, than you can “afford it”. The true “afford it” terminology, in the actually being financially independent world, means you can purchase it outright (in cash) or with payments that you will be able wipe out in super short time frames. In so doing, you will either owe nothing or pay off the debt very quickly and not reverse your financial freedom clock (which keeps track of the time it takes you to become financially free. Duh!).

Regardless of the “afford it” conversation (which I want you to take seriously so you can actually afford things not say you can), lets go through some of the biggest cutting steps you can often put in place so that you can live below your means and be super smart in your savings habits to boot! For an added bonus, you get to stick it to the man because you are not being tricked into spending money by big media or big business (though I think they are still going to do just fine, as they seem to have the rest of the world hypnotized).

• TV subscriptions – whether you still have cable or you are one of the many who has four different streaming subscriptions at once (Netflix, Hulu, Disney, HBO, Paramount, Stars, etc.), for the love of all that is holy, get rid of almost all of them. You cannot tell me that having a cable package is increasing your quality of life. Is 34 channels peddling the latest vacuum really that impactful to your family? But it sure as heck is increasing your monthly expenses. Get rid of it for good and put that money towards your investments and paying off debt. As far as the streaming sites, for the love of common sense, cancel all but one at a time. While you watch everything on Netflix (which will take years), you do not need the others. Once you complete what you wanted to watch on Netflix, cancel the subscription and go to ONE other site and watch what you want there. All of them are MONTHLY subscriptions. You can start and stop them whenever you like. Between the over one hundred bucks on the average cable package, and the (at this point) fifteen bucks each or more for each streaming service, you can cut a couple hundred dollars from your budget and still watch the TV shows and movies you love. Oh, by the way, you can also just buy some cheap bunny-ears and get local TV channels for free. I have like 18 channels that my bunny-ears pulls in locally.
• Phone Plans – I’m going to keep this simple, you are probably paying $75 a month individually, or over $100 a month for family on your phone bills. There are plenty of services (Mint, etc.) that are like $25 a month and use the same cell towers. Yes, data usage may vary but if you are going to be on WIFI like almost everyone is all day, it doesn’t matter. Why pay 400% more for the same thing. If you save another $100 here, and $100 on your TV pieces, that is already $2400 a year you can be using to pay off debt or invest. Most people tell me they couldn’t find that much to save, but pretty simple here.
• Food Costs – My goodness, people pay so much for food and then blame restaurants and inflation. Guys, it is not inflation, the government, or business owners that are the problem. You are spending way too much money on food costs because you are choosing to do so. Get this in your brain and change your mindset now, please. If you are eating out for lunch, breakfast, dinner, deserts, snacks, etc. more than a couple times a week, YOU are the problem. Not to mention paying for coffee or Monster/Redbull drinks instead of just making your own coffee or tea at home. Cooking large, home made meals (which is not difficult, in case you are not a “cook”) can seriously cost 20% or less of what you pay for eating out for any of those above reasons. It is not unreasonable to expect a dining out scenario to cost $10 to $30 for one meal, whereas I can make a giant stir-fry at home that lasts 6 meals (3 for each my wife and I – our kiddo is still on bottles) and spend $10 total to make it. Rice, and frozen veggies are both dirt cheap (get it, because they come from plants). Even if you spent $10 on your one meal, that is still almost 600% more than my example stir-fry cost per meal. Have some fun with friends, family, etc. and cook together at home. Do potlucks or cook offs for parties. You will likely have better food and better company anyway (plus, leftovers). It is not unreasonable to plan for large, at home, food costs to be somewhere between $1.50 to $2.50 per person when you make yourself, in bulk. For some website ideas with food for cheap, check out – Cheap Dinner Ideas. Seriously though, the average American can probably save $300 a month right here.
• Housing Costs -Oh my, we are going to have to do a full, separate blog post on this one (and we have/will). Housing costs can be hugely troublesome, especially in the “American Dream” state of mind most of us are taught to be in, where you are supposed to buy the biggest home you can “afford” (there are those air quotes again). Sadly, all this does is make you house poor and have very little money left over for retirement, savings, debt payoff, helping your family, and so on. Currently, the average American household housing payment is around $2120 a month¹. Little secret for you, I am in the field of Real Estate as my primary (historical) profession and I am routinely irritated about the push my clients are getting from outside influencers (most often they are family or other real estate professionals), on what my clients are “supposed” to buy for a home. The influences coming in almost always are driving towards buying “bigger and better”, without any regard for what puts my client in the best financial, emotional, and mental position moving forward. All-in-all, you want to focus on getting your housing costs as low as possible. We have quite a few posts on where your housing ratio is supposed to be, ways to house-hack, and more. Read those and get your brain wheels turning.

• Vehicle Costs – We are going to keep this one simple. Vehicle costs are astronomical, especially if you are just going out and buying a new car (average car payment for a new car is over $700 a month). Please read this post (below), buy used and cheap and put those payments towards monthly investments instead.

Fundamental Number 2 – Cutting Your Interest Costs

As we mentioned in the last post, we are talking about debt. That is where you pay interest, clearly. One of the fundamental aspects of financial independence is having zero debt (outside of your mortgage – but eventually even there) and instead, getting interest paid to you as an investment. In today’s world (post COVID), inflation has rocked through the world (and our country) and the Federal Reserve had to respond with increasing there Federal Funds Rates. These rates have direct impacts on personal, vehicle, and home equity loans, as well as credit cards. They also have non-direct impacts on long-term debt like mortgages. People are paying 7+ percent for personal debt and some mortgages, currently, as well as 20+ percent on credit cards. These high interest costs are absolutely destructive to anyone’s ability to accrue wealth. With the average household debt showing around $104,215², even an effective interest rate (between all debt balances) of 9% would have the average household paying $781.61 a month in interest. Please focus on paying off debt (outside of the mortgage, at first) and never get back into debt again.

Jumping off topic a bit, even without going much further into this post, we have seen the average household have average debt costs of over $700 a month, average food costs being over $700 a month, average housing costs of over $2100 a month, and average vehicle payments (we will say used cars) of over $500 a month (for one vehicle). Not including cable/TV subscriptions, phone plans, or any other expenses that is already $4000 a month (with the one vehicle payment). According to Motley Fool, the average expenditure of the average American household is $6,440 a month.

Our household (which is working towards financial independence) has our total household expenses averaging around $4000 a month (and that includes day care which is flipping expensive). We are not living like we are homeless or something. We just have no debt (personal, credit card, etc.) outside of some student loans for my wife. We have no vehicle payments and inexpensive vehicles, to boot. We cook most of our own meals (which are quite tasty and do not take much time, if you are worried about either yourself). We don’t often buy coffees or other one-time treats (and still are happy, crazy huh?). We have no cable costs and low subscription costs. We were strategic about the home we purchased. And we optimize the fundamentals further along this post series. All of that allows our expenditure to be less than the average by a good amount, all while living quite well. Oh yeah, then we invest the difference (which compared to the average household, would be almost $2500 a month just in cost savings).

Fundamental Number 3 – Cutting Investment Costs

I am also going to keep this one short and sweet because you can read some other posts that sum this up. Many people’s investment costs (that most people do not understand they are paying) can add up to hundreds of thousands of dollars over your lifetime (NO JOKE). The F.I.R.E community largely agrees that if you are going to be investing in stocks, bonds, etc. (such as in your 401k, IRA, brokerage account), you need to be focusing on very low cost, passive Mutual funds and ETFs. This could cut your expenses, also, by hundreds of thousands and allow you to keep much more money for your retirement goals and other goals. THIS IS VERY IMPORTANT. Please focus on this piece for your future. For a better breakdown of the savings and a tutorial on how to find low cost funds on Fidelity, see these posts.

Ok. This was a lot. So, let’s take a break, an intermission, here and give you some time to review your finances and investments with this information. If you can take some time to put a plan in place (such as immediately change your investments to low cost index funds, then cut some of your monthly recurring bills immediately after that, and then formulate a plan to pay off all debt as soon as you humanly can), we can have you move on to part three. In part three, we will jump into the greater details of getting all your free money, increasing your income, focusing on your savings rate, cutting your tax costs, and cutting your travel expenses.

Enjoy!

Also, Enjoy a completely non-related photo of the 2024 “Best Science Images” –

1. average-monthly-expenses – Housing ↩︎
2. average-household-debt Statistics ↩︎