Reader Case Study - how to change my savings rate to at least 50%

[Jeremy E.]

I make approximately $2800 USD per month, I'm single living alone
Monthly Expenses:
Mortgage - $705 ($75,000 3.25%, 1200 sq ft, right now $340 of this goes to principal, am I allowed to call that $340 part of my savings since I'm building equity with it?)
Utilities - $120, 68$ for water/sewer and electric averages to around $52(higher in winter lower the rest of the year)
Student Loan - $115 ($5500 3.5%)
Car Loan - $115 ($6000 loan 2.49%, 04 Subaru Impreza 30mpg)
Auto Insurance - $75 (I have a few speeding tickets and need full coverage because of my dang loan so that's the best I can currently do)
Auto Maintenance - $10 (oil changes brake changes etc., the emergency fund will be used for major car problems)
Gas - $120 (I live 20 miles from work and 20 miles the other way from the city that my friends and family live in, but I will start trying to bike to work at least a few days a week)
Internet - $80 (I live in a small town of about 300 people and there is only 1 internet company)
Cell Phone - $27 (republic wireless)
Netflix - $8
Groceries + misc - $150 (includes things like soap, toilet paper, tooth paste, etc.)
Misc Renewals fund - $10 (for when I need to get license renewed, registration, etc.)
Parties - $50 (if I have a get together with friends/family, I might bring pizza or beer or ground beef and hamburger buns to barbecue)
Emergency Fund - $100 (currently $1500, when I get enough equity on my house, I will stop funding this)
TOTAL MONTHLY EXPENSES - $1685
Savings - $1115 (getting thrown at my car loan)
to hit a 50% savings rate, I need to cut $285 worth of spending, although saving more than 50% wouldn't hurt.
I can think of 3 options to help me save a decent amount of money and might do a combination of them
1. Selling my car and getting an electric conversion kit for my bike. Will save approximately $315/month - the cost of recharging the bike battery
2. Getting rid of internet and netflix - $88/month savings, downside, will only be able to access MMM on my phone, potentially could spend more money with my spare time, upside, could make more money with spare time.
3. find a way to make more money
So what do you all think? are there any other areas where there is decent room for improvement? What are the most non-mustachian of my expenses?(The car of course being one of them)

Current 401k balance = only $10,000, and not currently contributing to this because I'm focusing on wiping out my car loan(this is the smallest interest rate, but paying it off will allow my insurance to become liability and go down to $35/month), however my company contributes 10% of my pay to me in company stocks, however I'm only 40% vested right now so it is more like 4% currently, but if I am here 3 more years I'll be 100% vested.

[Travis]

No reason for you to have that car loan for very long if you're saving $1100 a month.  What are you doing with your savings?  How much is your student loan?  That's $230 right there when you're finished with them, and a lower insurance rate to go with it.

[flyfig]

How big is your emergency cushion? Depending on the size and credit limit on your credit cards, you may be comfortable with home equity as a backup but as it is not super liquid, home equity isn't the best emergency fund.

If it is possible to increase income by side gigs, that would be great. I think that would really kick up all your savings. Alternatively, if you can rent out part of your home, that would help as well.

Would agree with Travis- if the car is in good shape and will last a bit (my Corolla just hit year 15 and she refuses to die), pay down the loan in a few months and tweak your insurance. If you can live without the car, then look at the conversion kit. If you can bike a few days, you'll increase your health and save on gas. =)

[foobar]

get a roommate. If your living in a studio/1 bedroom I suggest a SO since otherwise it gets awkward.

If not having 50% savings rate was keeping me up at night, I would count the mortgage principle as savings.

[Jeremy E.]

Added answers to your questions into my post above

[Travis]

Setting aside $50 a month for entertainment and $10 for vehicle maintenance is probably backwards. It'll take you months to save up for even a minor repair.  I don't know anything about electric bikes (though your fuel bill seems a little high) so I won't address that, but like I said before you'll have your savings rate as soon as you finish paying off your loans over the next 12 months.

[Mrs. Frugalwoods]

Your idea to get rid of your car seems wise. But, wondering why you're living 20 miles from your friends, family, and work? Any chance you could sell or rent your current home and buy/rent something cheaper in either the city where you work or the city where you play? Although I'm guessing you're going to say that you're splitting the difference between the two :)

Not sure what your specific circumstances are, but that's what jumps out at me. Your spending is really quite low (except for the car & the gas for said car). If you want a nitpick :), $50 for parties is really high in my opinion. We spend maybe $10 max a month in that category by homemaking whatever we bring to friends' houses.

[dandarc]

A lot of people here do count the principal as savings - so by that metric, you're already over 50%.

Are you investing at all?  401K at work?  If you are contributing to 401K, then your savings rate might be higher yet than you're computing here (depends on how much you're putting in).  If not, this could be a way to increase your income without any extra work - put money into 401K (or traditional IRA if 401K is not available), save 15% on federal taxes right now = more money to play with each month.  Does require you to be somewhat philosophical regarding the debts - you'll be putting some of your surplus into the 401K, rather than paying down debt.  All of your debts have low interest rates, so you're in a close to best-case scenario for the pay-minimums, invest the excess approach.

You're also at an income level where things like delivering pizza a couple nights a week could significantly raise your income as well, so if you really want more income right now, find something you can do in addition to the main job, and don't be too picky.  You can always ask for a raise, or look for a higher paying position in your field as well.

In any event, the savings rate is just a tool to keep you motivated - seeing that you're only X.XX years away from FI helps to keep the eye on the prize.  I do agree that 50% is a pretty big psychological tipping point, but being super-precise is not necessary.

[Weedy Acres]

Simple: pay off your car and student loan.  Once you're throwing those payments (and your car insurance savings) into your stash, you'll be at 50%.

[merula]

I see paying down debt as a form of savings, so if the 50% threshold is what you're worried about, I think you're there.

If it were me, I'd save as much of an emergency cushion as you need to feel somewhat comfortable. Not totally "I can do anything" comfortable, but not "Oh no what am I going to do about this small unexpected expense" base. Some healthy medium. Then I'd pay off the car and student loans. Once the car loan is gone, you can switch your insurance to liability-only.

One simple thing you can do to spend less is drive more efficiently. You don't say what kind of mileage you get, but if you're habitually speeding, you can probably do a lot better with some entry-level hypermiling. This will also keep your record clean and be a savings down the road when those tickets fall off your record.

Your utilities seem high, but I don't know what's normal in your area or how big your house is. There are a bazillion and one websites with tips about how to lower your energy costs, most are pretty easy but they add up.

I don't think $50/month as the sum total of your "fun" spending is a big deal. Yeah, you've got some debt, but I don't think anyone with a 60% savings rate is really in "hair on fire" territory. (I'm counting your debt principal payments as savings.)

[mozar]

I think you aren't going to be able to get as serious as you want about saving until you make a few lifestyle changes. I would sell the house or rent it out completely and move to a studio in your work town. Spend the whole weekend in your family/friend town. In three years find a job in your friends/family town. Your current lifestyle is going to wear you out eventually.

[flyfig]

I think that you are doing really well! I think you are above the 50% once you count your mortgage paydowns, 401k and stocks (company contributions).  If living somewhere closer to work / family is a reasonable suggestion or becoming carless works for you, then by all means.

You're on track to pay down your car loan in 6mos or so and then another 5 mos or so if you want to hit student loan next. You can pretty quickly change your primary financial focus to address different needs (pay down car loan now, mortgage next, max out 401k, etc)

One thing that may be useful is to 1. Calculate your net worth and 2. evaluate your net worth changes based on how you might balance debt paydowns vs investing over the course of a few years. I would also start from gross income versus net income. Per Dandarc, when you look at your 401k calculation, check if what you will save per year in car insurance will be greater than your tax savings. Also model out your vesting in company stocks. I think you will be pleased to see your net worth growth really change over the next few years between equity and stocks.

I keep getting back to if there is a side hustle that gets you a bit extra- I think you will really supercharge your progress. Per foobar, a roommate if you have an extra bedroom would be easy. 

[Rage]

Consider going intermittent on your Internet/Netflix.  By that I mean, have it for a few months, cancel it for a few months.  If your internet company doesn't charge anything to enable your internet, you could just go every other month.  Otherwise, 6 months off / 6 months on. 

I know it sounds a little crazy, but as an experience it's not that bad.  You won't miss Netflix for a month (or even a few months), and if you hear about a good show or movie just put it on your mental queue (I say mental queue instead of writing it down somewhere because if you forget about it, it wasn't that great).  If there's some youtube video or something, use Pocket or some other app to save it so you can watch it at work or when you get internet again. 

I agree with others that you should count your principal payments as saving, that you should consider getting a roommate if feasible, and that long term you should move closer to work.

Also, electric bike?  Only if you have a physical condition.

[Jeremy E.]

I looked into the electric bike, but you either spend $500+ on lightweight batteries, or you spend $100 and your bike weighs 80+ lbs, so I decided a normal bike will work fine,

 I will keep my car and pay it off asap, try to do cheaper party food alternatives, maybe make homemade pizza.

I will then do minimum payments on house/school loans and max out my traditional 401k and an IRA, get into a nice low tax bracket.

The reason I live out of town is because the houses in city's are $200,000+ and mine was only $100,000.  If I had a $200,000 house I would have huge payments and be saving significantly less.  The gas/car maintenance would not make up the difference, period.  I should of rented, but now I'm very attached to my home and don't think I could go back to renting.

However I do have a spare bedroom that I can try to rent out, I don't know how desirable it will be to live in a 300 person town, but I'll throw an ad on Craigslist.

Thank you all for your much appreciated advice

[mozar]

So in the city you work in you would have to pay another $500 a month in mortgage payments. How does that compare to car(insurance and price of the car as well)/commute/life energy costs in the suburbs? MMM talks a lot about how expensive commuting is. So, something to think about.

And I get it. I live in the suburbs and will be commuting to my job in the city. But my city is ten miles away, I will take the train, and prices in the city are average $500k for a house vs $100k for mine. And I have a roommate.

[Jeremy E.]

My family/friends are 40 miles away from where I work, I've read all of MMMs articles, still think it's best I live out of the city financially.  If I cared about the environment as much as MMM does(I know, I'm a horrible person), or if I had a brand new car that I paid someone else an exorbitant amount to fix and maintain it, then maybe it would make sense to move.
Also, after running the math between a 75k loan at 3.25% interest, vs a 175k loan at current rates, say 4.5%, the difference is $900/month, not too mention the fact that I would also have PMI payments if I did that.

[mozar]

If you need PMI that says to me is that you should rent where you work, you can't afford a house. It all depends on how you serious you are. I'm making suggestions on how you can get your savings rate up. You're being a complainypants.
Here is the MMM article about commuting.
http://www.mrmoneymustache.com/2011/10/06/the-true-cost-of-commuting/

[merula]

He doesn't have PMI, he would have it if he bought closer to work. I don't think it's complainypants to point out that the numbers don't work out.

If he lives in the city, he could own at a cost of $1600/month. He could maybe rent at $1500/month. (1% rule would say market rent is $2000, but maybe he settles for a smaller place or worse neighborhood.) Currently he's paying $1025 in combined mortgage and car costs. I'd guess that the intangibles of time spent commuting versus ability to see friends and family would weigh on the side of staying. So both economic and non economic factors point towards staying.

That said, there might be alternatives. Renting, getting a renter, public transit, car sharing, carpooling, etc. Run the numbers for everything you can think of and see where they lead you.

[Gerard]

However I do have a spare bedroom that I can try to rent out, I don't know how desirable it will be to live in a 300 person town, but I'll throw an ad on Craigslist.

Might be more desirable if a potential tenant could carpool into your work city with you.

[mozar]

To clarify: if he needs PMI to own in the city, he can't afford it. I'm aware he doesn't  have PMI now. I agree that the numbers don't work out for him buying in the city.
1500 rent seems like a lot. I never paid more than 500 when I lived in my very expensive city. But I lived in a "bad" neighborhood. So it depends on how serious one is.

[Rage]

I don't think anyone is being a "complainypants".  Let's separate this into immediate, short term, and long term changes:

Immediate:
Try to find a roommate
Bike to work when you can

Short Term:
Try to find a solution to your Internet bill.
Pay off your loans

Long Term:
Move much closer to your job (perhaps your house would make a great rental and you can retire there once you reach FI)
Get a job that pays more.

Everyone agree?  Bear in mind that long term actions take some time and consideration.  At this point he's not excited about selling/renting his home and trying to find a reasonably priced place in the city.  That's normal.  And if he were to bike to work every day, it wouldn't cost him a thing in terms of Mustachianism.

[Jeremy E.]

I wasn't trying to complain, just trying to explain why buying in the city where I work doesn't work.  To rent in the city where I work it would cost $800/month for a crappy small 1 bedroom apartment, about $1500/month for something similar to what I'm in now.  I would probably even keep my car, since riding my bike 80 miles round trip every time I want to see friends or family is a little much for me.  I usually visit my friends family 2 or 3 times per week(used to be I'd go there everyday after work, but I've made some new friends in the city I work in), the city they live in doesn't have any career oppurtunities for my field of work.  If I count my commuting time as work and try to charge my time, then it would be slightly cheaper to rent a crappy small 1 bedroom apartment next to my work, but since I get to listen to good music on my drive to work, or exercise myself on my bike, I don't really consider it work and often enjoy it.  I also prefer to have my nice decent size house.

[mozar]

My point is that your preferences are not obligations. You don't have to visit your family 2-3 times a week. The weekend could be fine. You prefer to live in a nice house rather than a crappy apartment. That's your choice, and you are paying for it with your time. MMM is about thinking outside the box. It's about getting serious about your money, and only buying nice things once you can afford them. And avoid your clown commute of course. If you lived near your job you could get to know these new friends better rather than sitting in a car.

[Jeremy E.]

Family trumps money, also most people wouldn't consider a 20 minute commute a clown commute.  My mortgage is cheaper than renting a crappy apartment, especially since I'm currently looking for a roommate.

[eboyette]

A $5000 contribution to a traditional IRA or a 401K, would reduce your taxes by $750 (Reference 1040 Instructions).

750/5000 = immediate 15% gain irrespective of market growth.

Decide for yourself if double payments on your auto with no savings results in a larger net gain.

Depending on your actual earnings you may even qualify for the Savers credit, I think you are close to the threshold but uncertain what your gross income was.

[alsoknownasDean]

Could you get something a little more fuel efficient or take public transport to work? A better-paying job?

Honestly once you get rid of the student/car loans, you're not doing too badly. The commute sucks, but I get that you need to balance housing affordability and length of commute.

I'd try and bring in a bit more income honestly. Stick every cent in the student/car loans.

Get a housemate if you want, but it's up to you if you want to do that long term.

Good luck:)