On the path to Badassity, I have investing already going on - four types - and I'm doing the best I can with that, for now. Debt is gone and isn't a question. The only debt remaining is mortgage. I'll ask a question about that toward the end of this posting.
What I'm asking you about in this message is what I'm working on in 2014 and now 2015: CASH FLOW OPTIMIZATION. I want to tap into the forum Brain Trust to ask questions about CASH FLOW and how to improve my Frugality Muscles.
My objective is to build security through efficiency (both financial efficiency and energy efficiency). What I've seen in the past two years of cash outflow reduction is that you can live better and better on less and less as you optimize cash outflow. While I may not be "independent" now, if I optimize as best I can, I can live like a king on my current income and live with no threat to my standard of living even if I lose my job and have to live on unemployment and odd jobs. (I don't expect this, but it's my ultimate objective...)
Preparation Definition:
And what I mean by “prepared” is stuff like:
- having a 3-6 month “Oh Shit” (I’ll call it “OS Fund”) emergency savings account standing by
- minimizing debt loads and household costs
- cultivating alternate sources of income (however small they might be)
- “sheltering pre-tax income” in 401k funds and the like (insofar as us poor people can call that a “shelter”)
My current objective is to be able to live on $2000/month. I’m closing in on that goal and hope to beat it (with mortgage) in 2015. I’m about $2500/month basic living expenses (including mortgage) right now. That kinda sucks compared to people who are really good at this and it's what I'm trying to improve upon by spending less for gasoline, electricity, groceries and discretionary (in that order). Mortage is the major component of that, hence the refi question.
Below, I use the term "with mortgage" and "no mortgage". There's a couple slight points to make: "With mortgage" is including a mortgage payment, which means a currently-too-high mortgage payment of $1600 as well as a later payment I'll be aiming for, at well under $1000/month, via principal pay-down and refinance.
Here's the objectives I've set for myself:
In 2015, "with mortgage" objective is to get under $2000/month. That means I'm working on lowering (dramatically) my largest two bills: gasoline and electricity.
In 2016 “with mortgage” objective is to get under $1000/month, with NO EXTENSION of the current mortgage timeframe. The plan is to refi after paying down enough of the principal. I'm working on getting mortgage down to a point where I can refi and cut monthly cost without extending the loan duration. That’s going to take more time. I need another year before I can have an effect.
By 2020, I'm looking to eliminate the mortgage, dramatically drop gasoline expenses while limiting electricity costs. Objective is $800-$500/month range.
Those are very challenging numbers to meet, but if I can meet them, I get a kind of “cash flow immunity”. With cash flow immunity, I won’t be wealthy, but I will definitely be able to preserve my lifestyle in the face of income loss or sickness while continuing to invest at the highest % I can possibly manage.
My ultimate objective (the $500/month) means I could live on unemployment with zero lifestyle changes. I could live on social security/401k funds quite nicely without putting undue load on either resource. And if me and the wife still have our incomes, we'll be packing away the Mustachian-recommended 60-80% of income into investments. Our big, fat Money Mustache will be in it's full glory.
Preparation Actions:
I have a running start on the OS fund. I’m about 60% on that account and would optimistically like to double the size of it before I stop building it up. I’m thinking $12k of easily-liquid savings would be a nice 6 month OS fund.
Debt loads are about as low as I can get ‘em. All credit cards are currently paid-down and low balances paid monthly. Only mortgage debt remains, no unsecured debt.
My next expenses are gasoline (commuting costs) and electric power (in that order). I’m working on the gasoline thing right now (resurrecting my currently-inoperative Honda Insight).
For electric power, I have two conservation things left to consider: a possible heat pump replacement/upgrade and adding a solar hot water heating panel to my existing electric water heater. My goal is to reduce electric power bill by at least 30% BEFORE trying solar panels. That makes the generated solar power have a much more dramatic “percentage of total bill” effect when they come online. Those each are expensive items but they have a huge impact on power cost, so I’m going to try to get those done in 2015.
I’ll probably start experimenting with a solar hot water panel here soon and follow that with at least two solar electricity panels. Prices are very good and my conservation work at the house has paid off this winter.
I’ve not mentioned “food, groceries, cellphone, internet and discretionary” because I already spend lower than most people on these items. I've reached Mustachian levels for groceries, cellphone and discretionary. I still need to lower overall food and internet. But gasoline and electric power are far larger numbers at this point.
And for the record, I spend about $300/month on gasoline and $220-$280/month on electric power. Those are winter numbers, summer numbers are about $100-$80 less.
Questions for you:
1) Is there a way to model expenses with a spreadsheet where I can more clearly identify high expenses and monitor how well I’m attacking them?
2) Is there a way to model a mortgage with a spreadsheet so you can tell:
a. Where you are on the compound interest rate curve,
b. How well it might work to refinance.
My Mortgage Question I've alluded to above is this: If I refinance at the same % interest rate, for a term NOT exceeding the remaining term in my existing mortgage, is there a way to build a modeling spreadsheet where I can see if I'm actually saving money (dropping BELOW the current compound interest curve) or if I'm just "sliding down" the same curve?
3) Is there anything like, say, a Facebook Group or forums somewhere on money conservation and frugality that we should be reading? Right now I know of “Mr.
Money Moustache” and I read both his forums and his blog regularly.
4) I’m interested in resources on the interwebz that talk about more efficient shopping, more efficient home mortgages, more efficient “gas buying” and maybe information on how to cut electricity costs with DIY solar panels and the like. Is all that information here on THIS forum and I'm just not practicing good SEARCH FU?
5) I’m looking for tax sheltering information (insofar as that's possible for "non-rich folk like me") 401k strategies and ways to move money around that preserve or improve after-tax income.
Your experiences and successful feedback solicited. I'm looking for experience-based answers, not to debate theory or opinion. I don't want to change my path toward mustachianism, but if I'm sauntering down that path when I could be speed-walking or running, I'm interested in figuring out what tools I could be using and what incremental changes I can make to get there faster.
Please - no "religious" discussion. I don't want to hear you berate me for paying my mortgage down vs a 6% variable investment yield that can't compete against a fully-capitalized mortgage. (Right now I'm paying well over $330/month in interest, so I'm trying to get that into a less-idiotic range as quickly as possible.
And please don't tell me "sell the house". I built and designed this house for minimum living overhead. I'm enjoying the newish appliances, no upstairs, non-painting brick finish and high energy efficiency of this 3 bedroom brick ranch. My approach is to just pay down the mortgage as fast as I can.
Mefla
