A Chair for Reading; A Room for Living

I have been trying to pick up an ancient and sometimes forgotten form of entertainment these days: Reading books. I realized that I didn't really have a good place in my house for this. I had my computer chair, my bed, which actually sits in front of the TV for the before-bed-episode (bad habit, I know), and a couch. I mostly read in bed as we did not have a functional living room. I hate laying in bed to read, it's just not right and I ended up always going to sleep instead. My living room has been set up as an extension of my workshop for woodworking and letterpress for the last year and was not conducive to reading either.

Last weekend I set out to change that*. I consolidated the workshop equipment back into the single room and cleared out the living room and started doing research. I haven't had a proper living room setup in several (read: ever) years. I wanted a traditional non-electronics/TV living room that would fit my goals:

• Provide a specific place for reading
• Entertaining guests
• Get us out of the habit of using the bedroom as a living space
• A place to play board games
• A place to relax/unwind with a wonderfully beardly drink at the end of the day.

A lot of these bullet points actually have some cost savings associated with them. I plan to entertain guests more often rather than going out to bars/restaurants, but I have not been set up to entertain. This is the major step towards that and by providing a space for my newly formed reading and board game habits, this allows me to focus more on that, rather than other costly entertainment hobbies.

To start, we decided that we would keep the couch (of course), and add a coffee table, two chairs with a side table between, some lamps and, budget permitting, a rug to bring it all together.

The first purchase was a Queen Anne wingback chair for $350(!). Holy crap, though! No wonder these are/were popular chairs! Coming from a $50 dollar task chair in front of my computer and the $600 office chair at work, this chair is the holy-grail of comfort and relaxation. I could happily sit in it for hours... which I have done now. It was the perfect purchase to complete two of my objectives: A place to relax/unwind and a place for reading.

Next, Ms. Frugal Beard is picking us up a wooden industrial cart-style coffee table she's been eyeing for several months. The only reason we are justifying and it's costs - $250 - it is because it is built to survive the apocalypse and we've agreed that this coffee table will be placed into our will and passed on in 60-70 years. My wingback is the same way.

We have also decided to purchase a second wingback for the "her" chair. Originally she wanted a big lounging chair, but after using my chair several times, she has fallen in love as well.

I have found the plan has worked quite well, I have people over more often, and my reading habit has picked up significantly and we even have broken out a few board games. Most importantly, it's a cozy room that we can relax in.


*If you have debt, or are in a "Hair On Fire" situation (ie. your finances are not COMPLETELY under control. Do. Not. Do. This. Fix your debt situation and get on track before you start 'optimizing' like this.

The Cascade Effect of Cycling

I have talked to a lot of people about my lifestyle change and whenever I get to the topic of cycling the first response is usually something like: "Yeah, I don't want to bike" or "I can't bike to work where I live!" or even worse: "I'm too out of shape to bike."

After my first ride to work.

I don't think I can stress enough how hopping on a bike was the single best thing I did to become financially independent. I even had an inkling about the momentous occasion while I was doing it. In my RunKeeper log on the very first ride to work I put "First ride in two years and the trial ride to commuting to work! Life changing day. But damn I'm tired." - and I was.

7 months of cycling

The ride took over an hour for 8 miles and I stopped multiple times and went through all my water. Sitting with my back against my office building, I thought about calling for a ride home. But no, that would be giving up. If I couldn't get there and back again, then I couldn't do the trip. I sat and cooled down, drinking water from a water fountain and refilling my bottle. After 30 minutes I hopped back on my bike and I headed back. It was a little easier that time, but it was still slow going. Rides to work incremented slowly. One day a week, two days, three... After two months of riding, I was cycling to work every day, rain or shine and I had taken my time from ~1 hour down to 30-40 minutes. A 40 minute ride was me lollygagging around and an easy pace now. I was not in shape and I had thought 8 miles one way was 'too far'. Those were excuses. After the first ride, seeing that I could do it, there was no going back. Miss Frugal Beard (MFB) is now cycling as well and loving it.

I've been riding to work for 9 months now and I will never go back. But how does this habit actually help me towards financial independence and frugality?

Cars are Money Pits
Here's an exercise to really illustrate that a car is the most wasteful and worst purchase anyone could make. Take all of your expenses that fall anywhere into the "auto" category (you are tracking your money right?!) for a 12 month period and divide it by 12. I'm talking everything from the car payment, insurance, taxes, tags, gas, maintenance, car washes, wiper blades, tires, etc... Everything! I'm not even going to ask you to calculate depreciating asset value of your car, that'll just make you cry.

So I did this for myself shortly after I started cycling and my total monthly cost of the car was ~$580/mo! My car payment was only $281. There was an additional $300 a month being thrown at owning and operating my car. And my household had two of them! Both of our cars were costing us ~$1160/mo. That's more than our rent payment.  Beyond any reasonable doubt, cars are what you buy when you want to throw a bunch of money away and end up with an asset (if you pay it off or buy it in cash) that is worth significantly less than you bought it for. Even if you don't use it and keep it in prime condition, the value decreases.

So back to cycling: My primary mode of transport became cycling to and from work and our second car started sitting in the drive way. After talking with MFB, we decided that I had to keep cycling through the winter before we sold the second car and became a one-car household. That was a huge decision for us to make - we always had a car for each of us. So I concocted a plan. I wanted to pay off, in full, the car we were going to keep - a 2011 Ford Fiesta that averaged 34mpg combined, and then sell the other car, a 2006 Honda Element, come January.

Paying off the first car had several benefits. I saved $2,500 in interest, no longer had a $281 car payment and reduced my insurance by $100 and I no longer paid to park at work, an additional $50/mo savings. Not bad. I've now increased my monthly savings by $431 (as I still have tax, tags, gas, etc... to worry about it on that car).

Selling the second car was so so sweet, especially after the months of worrying about getting a good deal for it. We still had a loan out on this car, so I didn't want to Craigslist it, so we took it to CarMax in January and actually got a fantastic deal. There's 580 additional dollars in savings. Boom, just like that.

Remember, this was all because I started cycling to work. I have reduced my monthly expenses by $1,011. I could by a nice bicycle every month for that.

Exercise, Food, Dining
Cycling is an excellent form of exercise, but it also changes your outlook - I don't know the science behind how or why, but it does. Because we have both started cycling, neither of us need gym memberships. $30/month in savings.

We stopped going out to eat - we packed our lunches and we stopped by the grocers on the way home to pick up ingredients for a healthy meal for dinner instead of just going out ("since we're already in traffic..."). We actually crave healthier foods - we want to cook so we can get the nutrients we are now craving. My body now demands fruit and vegetables. I mentally taste them when I get hungry instead of a Bacinator from Wendys. We reduced our restaurant budget from $600 to $100! $500 in savings.

Our grocery bill spiked a little bit when we first started, but has settled on $350, an increase in $50. But that additional 50 dollars in my grocery bill saves me over $500 from going out to eat. That's a helluva trade off.

Finally, because we don't go out to eat as often, we are saving money on gas. I don't have exact numbers on this, but I'm going to estimate $25/mo - it's probably more.

In total, that is an additional $505/mo in savings. And I could reduce my grocery bill further if I shopped at Costco, Publix or Walmart, but I'm a lazy bum and shop at the Trader Joes and Harris Teeter that are close by - because I can easily cycle to them. :)

So by cycling to work that one faithful weekend on July 1st 2013 and sticking with it, I have increased my savings by an additional $1,516 A MONTH.

There are plenty of non-monetary benefits as well, from happiness, healthiness, I look better (I've lost 30 pounds!), reduced stress levels, larger temperature comfort zones because my body acclimates gradually to changing weather, and the list goes on.

But lets take the monetary piece alone and further the math. Everyone should know about the 4% rule that states you can withdrawal 4% of your total investments safely and forever. That means if I have an investment of 1,000,000 (one million) dollars, I could safely withdrawal $40,000/year indefinitely - no really, it's that simple.

The inverse of that rule is the 25x rule, which states you take your yearly living expense times 25 and that is how much you need in investments to be financially independent. Using this rule you can see how much a reduction in your expenses has actually reduced what you need to retire. By cycling to work and making the changes above because of it, I have reduced how much I need to save by $454,800!

That is, I need 454,800 dollars less in investments now in order to be financially independent because I bike to work.

It gets even better, though. Stay with me. Assuming a 7% return on investment in index funds, that $1,516/mo will grow to $251,349 over 10 years! The Double-whammy. Reduce the needed money and increase how quickly you save. Cycling.

This is why myself, and many others who are on the journey or completed the journey of financial independence cannot stress enough how important it is to get out of your cars and hop in a bike. Too far away from work? Move closer. Out of shape? HOP ON A BIKE. Don't like cycling? Try walking, public transport, rollerblading, long-boards or any other means of transport that isn't a car. Actually - how do you know how don't like cycling? Give it a try.

So stop making excuses and get cycling, you may find it's the best decision you ever made.

America's Disgraceful Savings Rate

According to Trading Economics, in September 2012 the average american was saving 3.9% of their take home pay (also known as "disposable income" - what a monstrous term). The average income in 2012 was $42,693. That is a savings of $1,665 a year, or $139 a month.  5-6% is sadly what we're told by retirement planners, investment companies, bankers, economists, and everyone else we look to for guidance as an appropriate savings rate. Americans aren't even hitting that on average according to those numbers. Last year, - even while getting my expenses under control - I spent $32,500. $8,500 of that was paying off my car. This year The Frugal Beard is looking at spending $19,500-$23,000. I may go a little over, but not much. And that's for two people as I'm currently supported my significant other while she goes back to college. 3.9% savings rate is why the american people are loosing hope in ever retiring - It's a fixable problem, but they can't see the solution. And how could they? Not even the experts aren't willing to push the truth and marketing is pushing the blindfold back down constantly.

I'd like to make an important point before moving on. Sear this into your brain:

Your income does not determine how much you need to retire.

The amount you need to retire is based upon your expenditure.

It has been shown that reducing you spending is as great of a change, if not greater, than receiving a raise of the same amount. Why is that? By reducing your spending you are helping yourself out (at least) two fold: 

• Reducing yearly income needed in retirement
• Increasing available cash to put into investments

And, if available or applicable to you:

• Reducing your tax burden by increasing contributions to tax-advantage accounts
• Recouping money that would normally be spent on interest-bearing debts.

To make the math very easy to play with, NetWorthify put together an Early Retirement Calculator. Just be aware that the displayed savings rates of each country is out of date. Put in your salary information then the average savings rate of 3.9%, and then move that to, say, 25%. Big difference isn't it?. Lastly, put in 50% - which is easily achievable for most people. You'll notice that by increasing your saving rate, more than anything, reduces the number of years you have till financial independence. I'd like to point out that this doesn't mean you have to retire. It means you have financial freedom to pursue your dreams in any capacity you'd like. If that means you continue being on someone's payroll (or on your own payroll) that's fine.

The current savings rate for most Americans places them at 46-50 years of working till they can retire. Even at 6% (which is consider 'great' savings) there is 40-45 years of work left. This is a disgusting amount of time to reach financial independence. No wonder a lot of people think retirement is a pipe dream with these numbers.

Frugality is a Compliment

There seems to be a social stigma against being frugal these days. Hell, a year ago I think I was in the same boat! Frugal? Why would I want to be so stingy or miserly? I'm not poor!

This thought process isn't uncommon in our society. Frugality is mistaken for being poor, cheap or stingy instead of being responsible. This may be because people widely associate success, wealth and riches to how much someone outwardly spends - not saves. Like becoming House Poor in order to own an ostentatious home.

I recently had a conversation with a friend who didn't understand why I wouldn't replace some of my clothes because I had had them for about 3-6 years depending. They weren't worn out, faded or have holes them. They are perfectly functional, comfortable and still in-style shirts, coats, shorts and jeans. They still had good value. I told them that. "Yeah, but they're so old!" was their response. If they had worn out (like a recent pair of jeans of mine), I would quickly replace them. But replace good clothes just for the sheer hell of it? No thanks. Just seems a waste!

I've noticed this mindset carries over to all aspects of life. Everything is to be renewed and refreshed constantly. The throw-away society. Cars every 2 years, phones ever 1-2 years, clothing is purchased on a monthly or even weekly basis, new TV's, the latest gadgets, new shoes, appliances and equipment... We use something for a short while and toss it out or put it away forever in long term storage. It is like using a battery for only 20% of it's capacity and then throwing it away.

There is a huge feedback loop of wastefulness. Buying things makes people 'happy' for a short time and then it subsides and they have to purchase again for another high (it's actually an endorphin release!) - so society has created disposable everything so we can buy again and again (this also helps profits, of course).

Before I had started really looking at the world, I would unknowingly feed this addiction of my Significant Other's (to no fault of her own). If she were sad, we'd go shopping. Bad day? Shopping. Celebration? Cap it off with some shopping. It was classical conditioning, except everything was the trigger. The high of purchasing was the reward.

I currently drive a (paid for) 2011 Ford Fiesta. It is my last big consumerist purchase and I will drive that car into the ground - something I've never done with a vehicle before. My significant other recently sold her car and we are living as a single-car household and relying on carpooling and bicycling. We aren't poor by any means and could afford that second car, but we are frugal. There is more value for us being a single car house hold right now than having the cost and burden of a second car (and yes, cars are ALWAYS burdens or liabilities, not an investment.) We totaled 2012's total automotive cost of one of our cars in mid-2013 and divided it by 12 to get the averaged monthly cost of that car. It was $580. A month. The car payment was $271. Was a second car really worth 580/mo? Even without the car payment we were looking around $280 (factoring in insurance savings). It was a frugal decision to move to a single car - and in my opinion. A very smart, responsible one.

If we get to the point where we need a second car, we plan on paying cash for a used high quality car, probably from the 2002-2005 range that has good engine/transmission ratings, high gas mileage and low cost of ownership that is versatile. Probably a hatch back. Think Honda or Toyota.  

If we do make this purchase, it will not be a display of wealth or success in the traditional sense. People who learn of our purchase might think we're on hard times or strapped for money. They'll assume we took out a loan as well - because that's how you pay for a car in our society these days, after all. Few will think it was a responsible and economic decision with many benefits.

The definition of frugal is:

Frugal - Adj. - sparing or economical with regard to money or food.

That sounds pleasant, but lets also define economical so we have a good grasp of the full meaning of the frugal definition:

Economical - Adj - Giving good value or service in relation to the amount of money, time or effort spent.

I'm not sure why that's looked down upon! Sounds like a hell of a compliment to me. If someone met me and told me I was frugal, I'd tell them "Thank You!". We want economical cars and electricity. We want economically run businesses and economical sustainability. But from looking at the definition, these words can be interchanged pretty easily. Tell me the difference between a frugal car and an economical car (Really! In the comments below please. I'd love to hear your thoughts).

However:

Cheap - adj - Inexpensive because of inferior quality. Miserly; stingy; of little worth because achieved in a discreditable way requiring little effort.

I believe a lot of people have confused the word frugal with the word cheap and some people who label themselves as frugal are actually just cheap bastards in disguise. There is a line. I would not expect a frugal person to go dumpster diving or obsessively horde items because "it was a good deal!" or "it was on sale!" at the time even though they have no defined and justified need of the item. Cheap does not mean good value in any capacity.

Going forward, especially if you are just starting out a lot of people will probably see you as 'cheap' or 'poor' for some things you are doing. No cable? Poor. 7Mbit internet instead of 20Mbit? Don't want to go out to eat for lunch every day? Cheap. Just shrug these people off. There isn't even any need to confront them unless you think you can calmly and rationally explain your position in a way that would get them to change their mind. Realize that being frugal is rewarding in its own right and a huge compliment.

I'd love to hear some stories about what frugal actions you've taken to better your life that have been looked at as being cheap, stingy and miserly by those around you.

Put Together Your Own Case-Study

A case study is, in this instance, a full financial picture of yourself or your household that includes line items for all your income, bills, expenses, debts, interest rate on those debts, category break downs, your thoughts, comments, questions and unique situations that aren't represented in the numbers and your current plans. Just by putting one of these together you get a much better understanding of where your finances are.

When I started out, I couldn't build a simple snapshot of my finances like this. I had no clue what was actually going on. This is why tracking expenses is the most important first step there is. You can't fix what you can't measure.

I am going to share the first case-study I put together for myself and posted for public critique. I put this together in May 2013, 4 months after beginning work on being frugal. Honestly, it took me that long to get a good financial hold of myself that I could actually build one of these and thus it doesn't show where I was at the beginning of all this, but it's close. Remember that 4 months prior to this snapshot, I had $0 savings and well over 10,000 in debt.

I challenge you to work through and build a case study yourself to better understand your finances and see where your money is going. For those who don't want to build one from scratch you can download a template here (Google Drive). Once you are comfortable, I'd suggest heading over to the "Ask A Mustachian" Forum and post it for critique and feedback. They are truly helpful!

Below is my case study. If you are interested in seeing how people responded to it and provided great feedback the link is here

How This Started

In January of 2013 I was spending my entire paycheck and then some. My net-worth (that is, my assets minus my liabilities and debts) was about -$10,000. I had one car, one credit card, no house, no student loans (because I was never a college student), but I was still worth 10,000 dollars less than zero. At the end of each pay period I was scrounging to make it to payday so I can start my spending habits all over again. Feast to famine. I didn't even have much to show for it.

At the time, I didn't think much of it. I knew that I should be absolutely comfortable on my very respectable salary, I had just been given a pay raise to $86,000. Two years prior I was making $38,000 and was in the exact same spot. What gives?

In February '13 I learned my credit card was charging me 16% interest on my $1,500 credit card debt. I had been under the impression that I was fixed at 9%. I wiped out what little savings I had to pay it off immediately after discovering the credit card company was tacking on ~$240 each month in interest - I was paying $250, well above the minimum payment, but hardly making a dent. This left me with zero savings, and very little in my checking account due to my existing spending habits. I think I had about $80 to my name till pay day.

But that wasn't really the catalyst that made me rethink my finances and become frugal. It was what happened a week later, when I did my taxes, expecting a 1-2K return (which is what I had every year) to help offset some of my expenses. I was miserably surprised to find out that due to some stupid mistakes I made throughout the year (withdrawal of my old company's 401K to pay for crap instead of rolling it over, raises mid year bumping me into a new tax bracket, etc...) I owed $2,200 dollars between state and federal taxes!

How the hell was I going to pay a $2,200 bill in two months when I had 80 dollars to my name and was having a hard time saving a single penny to the point that I rack up credit card debt each month?! I went into a bit of a panic, disbelief, I rechecked my numbers, I called my mother. The best thing I did, however, was start Google searches for "saving lots of money" "cut expenses", etc.. I didn't know what I was doing, but I knew I needed to suddenly come up with more money than I was use to and I needed advice.

This situation was, as I later learned to call it, face-punch worthy. There was no reason that I shouldn't be able to save 2,200 dollars in two months on my income - or already have it. However, a lot of people are in this situation right now and have no clue how to get out of it.

I was lucky that the phone call with my mother yielded 1,000 dollars to help cover my expenses - "I was in that situation once and someone gave me 1,000. I'm paying it forward to you now." I am incredibly grateful to her and it still pains me that I had to take that money. That still left me with another $1,200 to come up with and the desire to never be in this situation again. It was unacceptable.

A lot of the finance sites I went to were worthless. They were of no help at all. Think things like finance.yahoo.com, Forbes and other "financial" news sites. I finally discovered one site that I looked at in passing called MrMoneyMustache - considered a "personal finance blog". I'd be fooling myself if I said it all of a sudden clicked and I knew what I was looking at. It took me quite a bit of reading and looking at other sites before I came back to MrMoneyMustache and spent about an hour reading his "Getting Rich: from Zero to Hero in One Blog Post" article.  It was an astounding amount of information to take in on this second pass but I sat through it and it suddenly clicked. The most important part for me wasn't the tangible things to do such as cutting your cellphone bill, reduce your grocery bill and going out to eat, but rather the philosophy behind it. I'd be doing a disservice if I paraphrased, so this is the exact quote that really helped drive it home:

The bottom line is this: by focusing on happiness itself, you can lead a much better life than those who focus on convenience, luxury, and following the lead of the financially illiterate herd that is the TV-ad-absorbing Middle Class of the United States today (and most of the other rich countries). Happiness comes from many sources, but none of these sources involve car or purse upgrades. No matter what the herd or the TV set tells you, this is the truth. Far from being a social outcast, this new perspective will make you a hero among your friends. This is not a fringe activity anymore – millions of people are fixing their lives these days. And the earlier you can accept it, the sooner you will be rich. - Mr. Money Mustache

Stop here. Go back and reread that quote, it's really important. I'll wait..

Holy shit. It sounds so obvious now, but at the time I was throwing away my money to buy things that really didn't impact my happiness at all. Most of the time, all my spending actually increased my stress and anxiety! Why was I doing this to myself?  I couldn't tackle everything at once, I knew, but I did immediately perform a few changes after reading this post:

• I created and setup a Mint.com account and pointed it to all my accounts. ALL of them. Car, credit card, savings and checking (notice: no investment accounts at this time).
• I started tracking my expenses to the penny.
• I set up a $150/week budget for anything that was not a bill
• Note - this was critical in my 'first steps' success, but a mistake. I'll cover this below.
• I dedicated to going out to eat as little as possible. 
• I started packing lunches for work.
• I started looking at how to cook at home better.

That's it. That's all I started with. I saved 1,200 in ONE MONTH. Looking at that list, what did I give up? What was so hard? Going out to eat as often and unchecked spending. That's all. Just by observing every expense and setting an arbitrary limit on myself, I went from saving little to nothing, to saving  a LOT of money. I'm not going to say it was all roses, it was very difficult when I first started. I was changing habits, after all. I had to resist giving in to cues that triggered spending routines without thinking about it. I still remember the first day that I didn't spend anything. It was an exciting accomplishment!

When was the last time you went 24 hours without spending anything? No transactions clocked for that day. 

The $150/week budget was a mistake, as I mentioned earlier. There's a reason people setup monthly budgets, not weekly budgets. I noticed that certain expenses fell at different times and completely ruined my budget for the week for important things... like food. Although, this did have an upside. Weekly budget tracking is significantly easier to do than monthly. It's in smaller chunks. However I eventually moved this to a 600/month budget. (same numbers, different way of looking at it). This worked out a lot easier.

This is not to say that I stayed within this budget every week or month. It was very trying. But this got me going. Needless to say I paid my taxes come April and had some money left over. All the while I continued to consume all things frugal, with the optimism of Mr Money Mustache as my go-to source, but I picked up many other sites, joined some online communities, started learning about investing. Fast Forward 12 months later and I have a $34,000 positive net worth, a paid off car, no credit card debt and no liabilities and $24,000 in invested accounts and it's only going to keep growing quickly from here.

There was a lot done in that 12 months to achieve those numbers and more to do still! I'll be going through, in depth, the different things I did through the first year, and continue all the things I plan to do going forward as well.

The Frugal Beard

Hello and welcome to The Frugal Beard! I am a person who has recently smelled the sweet aroma of frugality, financial independence and the (very real) dream of early retirement and have found it quite pleasant. I am not an extremest in any fashion and actually quite new to the whole way of thinking. Everything I've done and plan to do, is within the capacity of every normal human being without being labeled as extreme in any way. Honestly. I am just a normal guy with a beard.

What I plan on sharing here is a rare glimpse into a real live person's mindset and finances. As a public employee, my paycheck is public knowledge and posted online for all to see. I am not shy or worried about offending anyone with my salary. I have found that because of the social stigma and taboo of talking about money (especially details of your own!) that a lot of us have no idea what's going on except what marketing and advertising is feeding us ("BUY, FINANCE, CREDIT"). We have an illusion of what we should be doing with our money and because we can't talk to each other about it many ideas on how to live well within our means and succeed financially is not shared or worse, it's only shared by people who are trying to make money off of us.

We should have no problem talking to our friends about how we are affording our lives, what we are doing to make it better and sharing our successes in the world of finance without bragging or instilling jealousy. I make more than some, and others make more than me. It does not mean we are not facing the same challenges and that someone who makes less cannot offer important advice on how I can manage my money or myself better.

There are people making $250,000+ a year and are broke and there are people who make $40,000-$60,000 a year who are going to retire millionaires before their 40th birthday. Your salary is not nearly as important as what you are doing with it.

And that's where this blog comes in. I want to open communication and discussion about what myself and others are doing with our money to come out ahead. I want to show that, yes, some things may be difficult to change in our daily lives, but I'm not doing anything that is impossible or, looking back, all that difficult at all! But we have to be willing to share our successes and failures and have open and honest discussion about it.

I hope you'll join the ride. It's going to be fun.

- The Frugal Beard