Monthly Archives: September 2015

Saving our way to Financial Independence

As financially independent early retirees (I retired at age 44 two years ago and my wife recently retired at age XX – some folks refer to us as FIRE’d – Financially Independent and Retired Early), my wife and I take deliberate actions to save, be frugal without crossing into deprivation, and ensure we keep more money in our “pockets.” These thrifty actions we took to achieve Financial Independence have become a fixture in our daily lives that we continue to practice them…well, except for brown bag lunches.

Some of our efforts are “no-brainers” with direct correlation to savings while others indirectly lead to savings. Below are some of the steps we took, and continue to take, to improve and pad our bottom line…our favorite ways to keep more money in our pockets.

FICO Score from all 3 Credit Reporting agencies

1. Maintain a good to excellent FICO score. An excellent credit rating (Credit Karma considers a FICO score of 720 or higher as good with the excellent credit rating starting around 750 or so) leads to better rates on loans…which then leads to more money in your pocket saved by paying a lower interest rate on said loan. My wife and I have maintained our FICO scores at over 800 and intend to keep them that way. With our excellent credit scores, we were able to refinance our mortgage to lower our interest rates (from 5.25% to 2.5%) as well as reduce the term of the loan (from 30-year fixed to a 15-year fixed). Potential savings on a loan for $504,000 (the original value of the house less the 20% down payment to avoid PMI) is about $397,007 over the life of the loan (from $497,918 in interest paid over the life of the 30-year loan to $100,911 in interest paid over the life of the refinanced 15-year fixed mortgage).

You can check your credit reports for free from all three credit reporting agencies via AnnualCreditReport.com. Note, however, that the credit reports you will get will not be accompanied by a FICO score…that would be an additional cost to you. Additionally, it appears that a few of the major credit card companies (I know Capital One Visa, USAA Mastercard, and Discover Card offer these services) now provide a service to track your credit score. Take advantage of all these free services to track and monitor your credit.

TIP: With AnnualCreditReport.com, you are authorized to obtain your credit report from all three credit reporting agencies once a year. Instead of getting all three credit reports all at once, consider getting one credit report from one of the credit reporting agencies once a quarter. This way, you can better monitor what is going on with your credit throughout the year (or at least for the better part of the year) vice just getting your credit reports once a year.

2. Minimize Energy Costs.
We found out early enough that utility costs are quite high here in Hawaii. We already have a solar water heater so we knew the fiscal benefits to lower energy bills, but have been hesitant to pull the trigger on getting PV panels installed on our house. It took some convincing, but my wife was finally able to alleviate my concerns and talked me into agreeing to have Solar Photo Voltaic (PV) panels installed on our roof (the house was less than 6 years old when the solar PV panels were installed) to “zero out” our monthly electric bills, which were averaging about $135 a month. Our PV panels generate from 409 to 493 KwHs a month and we are now paying an average of $0.083 per kWh, for the next 20 years, vice Hawaiian Electric Company’s (HECO) current price of $0.263 per kWh (and expected to rise). We would only have to pay the monthly ~$18 connection fee to HECO as we would be zeroing out our electric bill. Talk about an inflation hedge. Potential Savings: $117 a month or $1,404 a year.

Did you know that lighting can account for 20-25% of your energy bill? With that in mind, and in addition to the solar PV panels, we have also replaced all our light bulbs with energy-efficient CFL (compact fluorescent light) and/or LED (light-emitting diode) light bulbs. Not only do CFL (lasts 10x longer) and LED (lasts 25 to 35x longer) bulbs last much longer than the regular incandescent bulbs, they are at least 4 times more efficient than incandescent bulbs. This equates to a savings of from $251.94 (CFL) to $295.74 (LED) a year!

Electric water heater timer

Electric water heater timer

Our smart savings don’t stop at PV panels and CFL/LED bulbs. We’ve adopted use of Energy Star appliances (savings of at lest $40 a year on an Energy Star compliant washer alone). We’ve taken steps to minimize impact of “energy vampires” by using more power strips that we can turn off when not in use, as well as making it standard practice to unplug any electronic device not being used. We turn lights off when not in use (my wife is always on me on this one), set our thermostat to 80 F (instead of maybe 78 F) for cooling the house (since we live in Hawaii, we don’t have a heater) and maximize use of ceiling fans instead, and use the timer for our electric water heater smartly (smaller tank), programming it to be off during daylight hours so hot water from our solar water heater tank is used instead of having to heat water with the electric water heater. I regularly check our photocell (light) sensors to ensure they are working optimally (i.e. lights don’t go on until it is actually getting dark) and have replaced defective sensors before (which seems to have a life span of about 5 years). We are investigating installation of a whole house fan to see if we can reap energy savings with that.

Realizing savings on water usage has been more challenging. My wife turns off the shower when she’s lathering soap on herself and even turns off water when brushing her teeth (my wife does this but I still have to work at it). We use a HE (High Efficiency) washer to save on water (20% to 66% less than traditional agitator washers) and energy (as little as 20 to 50 percent of the energy used by traditional agitator washers because there’s much less water to heat) and I make sure our sprinkler heads are fully operational and are aimed to maximize lawn coverage. We also try to use our dishwasher more than hand washing our dishes to save on water as well as on our electric bills.

Cut the cord…the cable cord

3. Cut the Cord…Saving with Internet and Cable TV. Have you noticed how your Internet/Cable/Phone bundle bill keeps rising? I recall initially signing up for cable TV and Internet (we ditched the landline phone a while ago) for $83 a month…and that was with the one-year promotional rate. Of course, after a year, the rates increased by over 12% once the promotion expired. I would engage the cable provider in an annual “game” to finagle another year of service at the promotional rate, by threatening to transfer my business to another provider (which is not always possible as some areas do not have viable competition, i.e. ADSL just doesn’t compare to the speed of cable Internet) and having to be transferred to the retention department to negotiate a new favorable rate. This yearly kabuki dance became tiresome, to the point where we just “cut the cord” on cable TV. We still get Internet which we augment with a digital antenna to pick up local HD channels (Mohu Leaf), and a Roku 3 for streaming services like Netflix (starts at $7.99 a month) and SlingTV ($20 a month). We also bought our own cable modem (Motorola SURFBoard SB6121 for about $50 – check your ISP’s website to see which devices they support) vice renting it from the cable provider for as much as $7 a month. Potential savings: $40 to $70 a month or up to $720 a year.

NOTE 1: You can use the FTC website to check out Digital TV Reception maps for your area. While Mohu is the “brand name”, I’ve heard of generic digital antennas sold at Walmart for as low as $15 that work just as well.

NOTE 2: You can also explore adding Kodi to your streaming options. Set-up for Kodi can be a bit involved, especially for the technologically challenged, but there are tutorials on YouTube that guide users how to install and configure it. We use Kodi to stream movies and TV shows, even past seasons of premium cable TV series such as Homeland and Game of Thrones.

NOTE 3: To harvest as much savings as you can, do not hesitate to call your cable provider or ISP and ask for THE promotional rate on your Internet service. I just did this, after noticing that the promotional rate on Basic Internet was $19.99 a month plus tax while I have been paying over $40 a month for the same service. A quick call to Oceanic Time Warner and this was resolved with little to no aggravation. The only issue is the need to call back after a year to get the same promotional rate as that rate is only valid for 12 months. Savings of over $20 a month for a quick 5-minute phone call.

4. Cut the cord…the phone cord.  We “cut” our landline phone about 8 years ago and never looked back. We initially thought we would miss not having  a landline, but we really didn’t. Our initial concern was rooted in the inability for 911 emergency dispatchers to have instant and accurate location after a 911 call from a cellphone (this is a challenge for VoIP service as well) and the exact location of the call would not be immediately available to first responders, unlike the Enhanced 9-1-1 feature in landlines. Those concerns, however, became secondary to savings.

Cut the cord…the phone cord

Cellular triangulation and possibly GPS features in cellphone would provide a location for 911 call emanating from cellphones, but the accuracy for such measures still leave much to be desired. The FCC is making efforts to improve the location reporting for 911 calls from cellphones (better than the cellphone carriers’ current capability to locate 911 calls from cellphone calls within 50 – 300 meters), but tighter location requirements may not be achieved until 2019 at the earliest.

Opting for cellphone only capability is just the first step we took towards saving money on calling capabilities. We also had to review different cellphone plans, with significant consideration given towards a carrier’s effective coverage areas, and chose an appropriate plan that is competitively priced, addressed our historical usage (i.e. what data plan is appropriate and what text plan is best according to our usage), accounts for flexibility to add international coverage when we travel in the future, and offered discounts (in our case, a 15% military discount through AT&T). We liked the AT&T network coverage so we also considered Cricket Wireless (which runs on the AT&T network) for our cellphone plan, with plans starting at $25…but in the end, we liked the competitive shared plan we have with AT&T which included access to a moderately priced international calling plan. If interested, CNN Money had a very detailed article comparing various cellular plans from various carriers that is worth checking out.

In our area, a landline from Hawaiian Telcom, with unlimited calls to the mainland US and Canada, starts at $29.95 a month (price good for 3 years). If you are looking at phone service from the cable company then you would be looking at a promotional price of $10 a month (price only good for 12 months). If bundling a home phone with your Internet service through Oceanic Time Warner, then you are looking at paying a promotional rate of $39.99 per month (good for 12 months). Potential savings: $120 to $359.40 a year

5. Take advantage of automatic discounts, coupons, sales, loyalty rewards and perks. I find it astounding, indeed mind boggling, how most people don’t take advantage of “free” stuff. Here are some of our favorite ways to harvest free stuff:

  • We use the Military Star card for purchasing gas at PX/NEX gas stations to take advantage of $0.05 and up to $0.10 off per gallon (for those non-military, use apps like GasBuddy to search out the best deals on fuel in your neighborhood). $0.05 to $0.10 might not be much but in the savings game, $0.05 off a gallon for an SUV having a 19.2-gallon fuel capacity equates to $0.96 (almost a $1!) per full tank. Assuming  12,000 miles a year, and 20 miles per gallon (mpg) for city driving and 25 mpg for highway driving for a SUV (average of 22.5 mpg), then 12,000 miles equate to about 533 gallons, or a savings of at least $26.66 a year. Additionally, use of the Military Star Card as AAFES concessionaires leads to a savings of 10% per purchase…why not take advantage of that? CAVEAT: The AAFES Military Star Card, as all credit cards, must be used responsibly. Make sure to pay off your bill in full on a monthly basis!
  • The Navy Exchange (NEX) sends us fliers with these scratch off coupons good for 5% to 50% off any purchase. We try to put off NEX purchases until there are scratch-off coupons to take advantage of the sure 5% discount (not to mention tax free benefits of shopping at the NEX or PX)…although it would be nice to scratch off something higher than 5%. UPDATE: My wife and I actually scratched off a 25% off coupon this week! And it was on a $300 purchase…so we made out like a bandit!
  • With the relatively high Cost of Living (CoL) here in Hawaii (ranking second only to Washington DC in the highest CoL in the nation), we try to realize savings on groceries as much as we can. To that effect, we make extensive use of military commissaries for purchasing groceries. I haven’t done a thorough comparison on prices between the commissary and the local supermarkets, but have seen claims that commissary shoppers save as much as 30% off prices at local supermarkets because “commissaries are required by law to sell items at cost.” For a monthly grocery bill of $500 at the commissary, this would equate to roughly $650 a month in grocery bills if purchasing groceries at the local supermarket. In addition, we try to realize savings by purchasing local produce (like papayas and local bananas) instead of fruits that have to be shipped to the islands from the mainland (like strawberries, blueberries, etc.). This reflects a savings of $150 a month or as much as $1,800 a year!820map
  • We used to clip paper coupons more often than we do now. Having opted against subscribing to the local Sunday newspaper, where a majority of the paper coupons we used to clip came from, and not inclined to delve into “extreme couponing” like we’ve seen or read about in the news and popular media (heck, doesn’t TLC have or had a TV series about this?), we limit our coupons to paper coupons available at the commissary as well as manufacturer digital coupons we “clip” via the Commissary Rewards Program. I wouldn’t say we saved tons of money doing this, but we saved enough to at least give “expected” tips to the commissary baggers who work for tips only. Potential Savings: $1 – $4 per visit to the commissary…or up to $16 a month
  •  I make it a point to sign up for as many frequent flier or frequent stay programs that we would likely take advantage of. My reasoning, we’ve already paid for the flight or the hotel stay, why not see if we can recoup some of that money with a free stay or a free flight. Arguably, it takes a very long time or a lot of points to qualify for free stays or flights…but we found that if we focus our hotel stays in one hotel chain (in our case, Hilton) and one airline (Delta for us), then it would be relatively faster to accumulate those points. To date, we’ve actually only had one free stay in an Embassy Suites and a free flight (actually cost $10) for a flight from Honolulu to Washington DC to Los Angeles then back to Hawaii. Not bad at all for something that requires little effort. You just have to stay on top of frequent flier miles and points and ensure you submit requests for credits on flights with partner airlines. Another perk, by achieving Silver Elite status on Delta, we avoid having to pay what most Americans consider the most hated fee travelers have to pay…yes, that despicable checked luggage fees of $25 per checked luggage.
  •  We all receive, and give, those “impersonal” gifts cards…I think they are convenient and allows the recipient the option to spend it at their favorite restaurants or a home improvement store. In any case, it happens so often that we lose track of those gift cards and don’t redeem it at all…or just partially spend it’s face value and file the gift card away…never to be redeemed in full. I know I’ve received a phone call from my sister asking me if I’ve already gone to Cheesecake Factory to use the gift card she sent me/us for my birthday…and realized then that I filed the card away and forgot about it. Now, we place gift cards where we would see them (sometimes I just keep them in my wallet so I would see them often) and be better able to track them to ensure we use all the funds in it.

6. Do your research for the best deals. Before making a large purchase, be it with household items or travel-related expenses, we make it a point to do our research to unearth the best deals (as long as we don’t sacrifice convenience too much). We’ve researched and compared life insurance policies (Term4sale), dental insurance (DentalPlans.com), and homeowner’s insurance. Our health insurance through Tricare can’t be beat so we didn’t have to devote much to researching alternatives. We also trawl through various Internet travel website to find the best deals. I like using Skyscanner and Kayak to compare flights, and we’ve used Skiplagged to save on flights back to the mainland. I also like to use RetailMeNot to look for coupons and deals and have on occasion looked into Groupon deals as well.  For those who wear glasses, check out Zenni Optical and Goggles4U…the savings are amazing! The possibilities for savings are seemingly endless.

7. Ask for discounts and haggle.  As Americans, haggling doesn’t come natural. I know my wife loathes haggling but I derive a certain level of perverse pleasure in haggling. I look at it as a game, a competitive sport. I love competition and there’s nothing like getting a better price on something you want. I also don’t hesitate to ask about discounts, like military discounts and AARP discounts (at least for my wife). You would be surprised what discounts a vendor might give you. One time, we inquired about a military discount at a specialty footwear store and was informed they don’t offer military discounts…but the salesperson offered us another discount, that we may or may not have qualified for, instead. What have you got to lose?

Penny pincher

Penny pincher

One of my friends quipped that I am so tight I make Lincoln’s nose bleed (i.e. penny pinching to the point where Abraham Lincoln’s image on the penny bleeds)…I took it as a compliment.

8. Learn to DIY. My wife and I are not the best “Do-It-Yourselfers” (DIYers) but we try to do certain home maintenance tasks such as fixing leaky toilets and faucets, replacing sprinkler heads, replacing our garbage disposal, replacing faucets and shower heads, minor vehicle maintenance, and floor tiling. I’ve also learned to make picture and art frames (can lead to huge savings) at the military base’s Arts and Craft Shop.

Before undertaking a DIY project however, we would normally consult my brother-in-law who is a General Contractor, or look up YouTube videos for additional instructions and insights on a project. We also try and recognize our own limitations…and we try to err on the side of caution when undertaking certain projects, where we might not be as confident with our abilities, and just pay a professional to do it for us. Nothing worse than undertaking a project, buying the materials and any special tools, installing said materials (not to mention the time and effort it took), only to realize that the problem remains unsolved and now you need to call a professional to fix the problem, which you hopefully didn’t exacerbate with your lack of skills.

Facebook, Pinterest, and YouTube are valuable sources for ideas to utilize what’s readily available at home for concocting cleaning solutions, pest control solutions, weedkillers, and mosquito repellent, just to name a few. Who knew blue Dawn dish detergent had so many uses?

9. Learn to grow and make your own food. This might not be for everyone as not everyone likes to garden, let alone grow their own food. But there is something about being able to grow your own food…a certain therapeutic quality to it…zen-like even. Even though our backyard’s existing landscaping limits our gardening efforts to mainly container gardening, we still manage to plant pineapples, papaya, Roma tomatoes, eggplants, bell peppers, and various herbs. Nothing like fresh produce and herbs from your own garden…brings new meaning to the term “farm to table.”

Since compost, fertilizers, weed killers and commercial pesticides can cost a pretty penny, we’ve taken to composting on our own, and to making homemade weed killers and pesticides. I can’t quite quantify the savings with these actions but the knowledge alone that we are growing our own food organically while minimizing use of harmful chemicals is satisfying in itself.

During our “working years” (i.e. those days when we had earned income requiring W-2s), we would, more often than not, bring lunch to work (i.e. “brown bag” it) and cook dinner at home. This equates to some tremendous savings. Just imagine, 2 working adults eating out for lunch daily at maybe $10 each…for a 5-day workweek, this is $100 a week! That would be a good budget for a couple’s weekly grocery. As early retirees, we don’t have to brown bag lunches. Interesting though, we’ve expanded our horizons and harnessed our foodie tendencies and experiences with our travels to try and broaden our culinary repertoire at home. Baking our own rustic Italian bread (a typical loaf costs $4.99 at the supermarket) paired with pesto chicken made from Italian pesto bought in the Liguria region of Italy? Check! Chicken paprikash made with Hungarian paprika bought at the Budapest Central Market Hall? Check! Memorable meals indeed!

9. Adjust your behavior and take advantage of your flexibility with time. As early retirees, our main asset is time, so we try to time errands and entertainment to when it’s more convenient and more economical. When we make trips to the city or have an appointment in the city or even it’s outskirts, we time it to when we would be able to avoid rush hour traffic. Not only will avoiding stop and go traffic be better for gas mileage, we are also able to maximize our time doing what we set out to do vice being stuck in traffic. In addition, we plan our trips to optimize the route we would take to ensure we hit all the locations we need to visit in a logical sequence, minimizing gas consumption. We also plan to watch movies during matinee showing instead of paying full price for non-matinee movies. With flexibility, there are many adjustments we are able to make to ensure we save money as well as avoid the hassles of daily working commute.

10. Maximizing our assets’ ability to generate returns. A famous quote goes: “The art is not in making money, but in keeping it.”...this quote is apropos for early retirees. We are technically on a “fixed” income and “need” to keep as much money in our pockets as we can…and to that end, the following are additional “uncategorized” actions we have taken and continue to take to keep  more money in our pockets:

  • We make additional principal payments on our mortgage to further whittle down the principal. A 15-year mortgage would effectively be paid off in 12 or even 11 years. Some people would argue that we do not need to accelerate payments due to the very low interest (2.5% for a 15-year mortgage)…but there is something about having a mortgage all paid off.
  • Our investments are mainly in low cost, well-diversified index funds as well as in the Thrift Savings Plan (TSP), the federal government’s 401k equivalent and arguably the lowest cost, well diversified fund out there, with Expense Ratios (ERs) as low as 0.029% or as little as $0.29 per $1,000 invested!. If you want to learn more about how high ERs erode your profits, take a look at PBS Frontline’s  expose “Retirement Gamble”…it will open your eyes much like the red pill from Morpheus awakened Neo from his “slumber” in the movie “The Matrix” (or you can opt to be ignorant of the truth and choose the blue pill instead).

    Red pill or Blue pill?

  • We try to purchase big-ticket items with cash to avoid financing fees. An exception, of course, is our house where our mortgage has tax benefits.
  • We pay our credit card balances in full every month…while we reap those points and cashback rewards. It’s like the credit card companies are paying us to use their cards.
  • After much analysis and discussion, we didn’t see the benefit of keeping more than one vehicle, especially as early retirees. So we sold my wife’s BMW 328i (paid for in cash) and just kept one vehicle in our household. By limiting the number of vehicles, we are saving on auto insurance, vehicle registration, and maintenance.
  • Unlike some people we know (you know who you are), we try to keep our vehicles for a long time. We kept our 1997 Toyota 4Runner for over 18 years before we sold it recently and bought a new 2015 Toyota Highlander as a replacement vehicle, which we would likely hold on to for 15-20 years. While we understand that we could’ve saved more money by buying a used vehicle, we just didn’t want to compromise. Clark Howard quotes an analysis done equating length of vehicle ownership to financial security. The analysis points to owning and keeping a vehicle for at least 10 years results in people able to retire 5 years earlier than folks who keep vehicles in a “normal” cycle of 3-5 years…an additional 5 years of “financial freedom” in one’s life!
  • We recycle our tin cans and plastic bottles. We figured we’ve already paid $0.05 per can or bottle so just throwing them away would be wasting money we could get back. So every few months, we would load our tin cans and bottles in the truck and collect maybe $6 – $12 from our “loot.” Not a boatload of money, but it makes us feel better. Not only are we making our part to help the environment by recycling, but we are also padding our bottom line.
  • EDIT (Added 8FEB2017) Take advantage of the opportunity to relook your insurance coverage prior to renewal. Do not just just allow your insurance to renew without shopping around for more competitive rates. We recently shopped around for a home owners insurance policy (and hurricane coverage) prior to a renewal and saved close to $200 on the annual premium.
  • Just because we can afford something, doesn’t mean we have to buy it! We try to live by this.

We aspire to live below our means and spend our assets on experiences that would last a lifetime rather than spend our money on the latest and greatest gadgets or other purchases with fleeting gratification. By doing this, we’ve been able to achieve financial independence and enjoy early retirement. Financial Independence affords us choices and options…choose to work or not…opt to enjoy life (as short as it is or can be).

What actions do you take to save your way to financial independence?

Too many people spend money they earned..to buy things they don’t want..to impress people that they don’t like. – Will Rogers