I got my car title in the mail today…I’m officially debt free! Woohoo! It’s true what they say, not owing money to anyone feels great!
I paid off the approximately $40k car loan, which had a term of 60 months, in 23 months, and in this post I’m going to share what I did during this time period to save aggressively and pay down my debt. I’m not against debt, especially low interest rate debt, and I will likely borrow again in the future to finance an asset I’m acquiring, but for now I’m going to enjoy the monthly expense reduction that paying off my car loan has produced.
Before you can pay off debt, you need to have your savings dialed in so that you are putting money aside after paying your expenses. There are two ways to do this: increasing your income, and decreasing your expenses. In this post, we’re going to focus on decreasing your expenses. For more on increasing your income, see Get Promoted by Making Yourself Replaceable, 21 Reasons You Won’t Get a Raise, Make Extra Income: 4 Alternative Strategies, and the Investing Page.
Here are the top ways I keep my expenses low, while leading a very high-quality life, living in a great neighborhood, playing sports, and eating organic food. Basically, I save as much as I can, and after my monthly expenses are accounted for, I use a portion of excess savings to pay down debt.
Like an umbrella protecting you from weather events, savings protect you from financial events outside of your control. When you’re able to save, you should, because you don’t know what’s on the horizon. I’m going to discuss the strategies I use, which focus on reducing food costs (while eating high-quality food) and limiting discretionary spending. I won’t touch on topics such as housing and cars, because I choose not to focus my saving on those items. I could live in a cheaper house and I could drive a cheaper car, but I don’t, so I won’t be sharing my experiences there. I could also eat lower-quality food, but one of the points of this post is how I maintain a high standard of living while still limiting my spending considerably.
Master Food Costs
Limit Eating Out
I didn’t say this was going to be easy or fun. Well, actually, cooking for myself and eating in can be plenty of fun, and I sometimes have a lot of fun maximizing my frugality. So look at saving as a challenge rather than a chore. When I do that I actually do have a great time being a frugal minimalist!
Eating out comes at an enormous price (excluding some cheap fast food places, which hit your health rather than your wallet, leading to a healthcare price). Instead of buying coffee, lunch, and dinner, learn to make your own healthy food, and pack your lunches. This doesn’t have to be complicated or time-consuming. We get by easily with basics from Kroger and Trader Joe’s, while eating mostly organic food, at a fraction of the cost of the lower-quality food available at restaurants. When we do go out, it’s on rare occasions and to our favorite places, because we’ve learned that most of the time eating out leaves us dissatisfied relative to the high-quality meals we cook at home.
The same approach can be applied to going out. Instead of drinking out on the town, we invite friends over for drinks, or have house parties. There’s nothing wrong with going out and spending some money once in a while, but if you’re trying to kick off saving and paying off debt, you may want to prioritize your finances and take a break from dining and drinking out on the town.
Use Rewards Cards and Apps
I maximize the cash back I get on my purchases, within reason. The rewards card I currently swear by is the Blue Cash Preferred Card from American Express. It provides 6% cash back at supermarkets for up to $6,000 of spending per year. This gives me $360 back on the first $6,000 at supermarkets, and 1% back after that. The card also provides 3% cash back at gas stations. Because food and gas represent most of my spending, this is extremely beneficial for me.
I also use the ibotta app to get even more cash back at the grocery store. More on the Blue Cash Preferred Card and the ibotta app can be found on the Money-Saving Tools Page. These tools actually make grocery shopping even more enjoyable, because I get the sense that I’m getting a great deal by getting cash back on high-quality food items which I’m already finding cheap or on sale.
Use Money-Saving Tools
I don’t buy bottled water. Instead, I have a great water filter and fill up my own water bottles. I don’t buy coffee unless I’m treating myself or traveling. Instead, I make my own, delicious, organic coffee at home and take advantage of free coffee when I can get it, saving over $1,500 a year on coffee. See more tools I use on this page: Money-Saving Tools, and let me know what tools you use to save money!
Focus on Basic Necessities
Worry About Your Needs, Not Those of the Joneses
I stick to basic living necessities and a few fun items, and that’s it. I’m disconnected from the Joneses, so I don’t know what other people are buying and I don’t care. It’s almost completely outside of my reality. I don’t buy new gadgets or cell phones. I don’t have a tablet. I’ve had the same high-powered desktop computer for 5 years, and plan to keep it until it kicks the bucket. I have two TVs, one of which is 9 years old, and which is doing just fine and which I’ll also keep until it refuses to work any longer. The same goes for my furniture. I either have cheap pieces or hand-me-downs, or, if the pieces are nice, they’re ones I’ll have for many years if not a lifetime.
The stuff I buy is generally what I need and can think to come up with on my own. To help with this, I avoid advertisements in the mail and on TV. If it’s not something that I can think up on my own, I probably am not lacking it! I feel better with less stuff, anyway. If I buy something and regret it or am stressed out by the acquisition, I return the item and return to my status quo. Less is more for me when it comes to things.
As far as travel goes, I do mostly road trips, and I’m happy relaxing in the locations that are accessible by car. I understand that others prefer to travel more than I do, and I probably could stand to do a bit more exploring, but I’m happy, and not going on elaborate vacations keeps a significant chunk of change in my pocket each year.
I cut the cable cord over 5 years ago and haven’t looked back. Instead of subjecting myself to broadcast television and its commercials, I enjoy Netflix and Amazon Prime Video. Reducing my exposure to commercials also helps me stay disconnected from the Joneses, making it easier to avoid unnecessary purchases simply because I’m not aware of the new products out there. If there are sports channels you really can’t live without, get them a la carte from Sling or Sling-type services.
Okay, that about covers it for what I do to keep more than half of my paycheck every month. Let’s move on to emergency (rainy day) funds and debt payoff.
Emergency Funds and Debt Payoff
The saving strategies described above help build my savings accounts so that I have ample emergency funds, and also have money left over to pay down my debt and for discretionary spending. How much should you have saved up in your emergency fund before you start attacking your debt?
There are many recommendations out there on this point, ranging from no emergency fund, to, more commonly, 3-6 months of expenses, or more. I think this needs to be a personal decision that is based on an individual’s circumstances, and must take into account the stability of one’s employment and the highest interest rate of outstanding debt.
For example, for someone who is working in a stable industry, and whose spouse also has a job, a 6 month rainy day fund may be adequate, and an even smaller fund may be okay if savings are being used to pay down very high interest rate debt, such as credit card debt. I think 3-6 months of living expenses is the bare minimum here, along with an emergency cushion of several thousand dollars, if possible, of course.
Once this emergency fund is in place, begin paying off debt starting with the highest interest rate debt first, to get the most bang for your buck. After it’s paid off, do not incur it again! Swear off credit card debt for good. Use credit cards for the rewards, and pay them through the auto-pay feature, so that you never miss a payment and are never charged interest. Interest on credit cards is so high that it can make saving money and escaping debt very daunting.
Prepping for a Layoff
For me, I built up approximately 1-2 years worth of expenses before I felt comfortable paying off my car loan. That may be too much for some, but it’s the amount that I needed because I’m in an unstable industry, and I am in fact preparing for a potential layoff. Renewable energy in the Trump era = not so much!
So with tax reform that’s harmful to my industry in the works, I was considering stopping my early debt repayment, but I decided that because I had a solid 1-2 years saved up (and also helped by regular passive income from my bond investments), to go ahead and be done with debt for the near future.
I have calculated and recalculated my monthly budget, and the reason I am at a 1-2 year savings range is because I may be facing significantly increased health insurance costs if I’m laid off, and there are some additional expenses I will be facing as some other of my employment benefits will disappear.
Knowing that I’m dealing with this level of uncertainty in the near future also helped me decide to pay off the last of my debt instead of buying bitcoin. Even if bitcoin skyrockets, I’m glad I went with the sure thing of paying off my debt.
Preparing for a potential layoff has been a good learning experience for me. Although it is certainly stressful, I think my stress level would have been significantly increased if it weren’t for my mostly frugal way of life, which enables me to save most of the money I earn. Money can’t solve every problem, but it can certainly solve a few, and it can help to take the edge off some unpredictable and uncontrollable events such as layoffs. As I approach my job’s potential cliff, I’m focused on saving as much as I can by avoiding any unneeded discretionary spending, so that I can have as much cushion as possible in the near-term.
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