Over the last 10 years, the Ditching the Grind family has followed a few common-sense approaches to help reduce unnecessary spending and build our savings. You see these types of lists all the time on websites like Yahoo! Finance and, at the risk of sounding cliché, here is our basic philosophy.
- Invest Automatically– Each month, we have a series of investments that occur automatically. We never think about them, they just happen. Over time, these automatic investments, aided by the power of compounding interest and dividend reinvestments, have helped us build a healthy stash. Below is a breakdown of our current average monthly contributions. This number has risen significantly over the last 9.5 years from only $72.49 in 2006 (3% of military O-1 monthly base pay at the time). Even if you are barely making ends meet, you need to start somewhere. Before you know it, your stash will be growing and you’ll find extra money to help it grow even quicker! Typing this out, I’m amazed at our current totals.
- Roth IRAs: $916
- Mr. DTG 401(k) and employer match: $985
- Mrs. DTG TSP: $218
- Taxable Vanguard index funds: $1,000
- Total: $3,119
- Never go shopping for fun– The purpose of going to a store is to pick up what you need and get the hell out as quickly as possible. Earlier this year, I went to a shopping mall for the first time in nearly two years. Mrs. DTG lost her wedding ring a few weeks prior and we were looking for a replacement. I was overwhelmed by the sheer number of people there. Is the mall really that much fun?
- Strategically time purchases– Occasionally, we all actually need to buy something. If you can anticipate this purchase, strategically time it to get the best deal possible. For instance, we often purchase clothes for the kids at the end of the season when everything is on clearance. We’ll buy the sizes we expect them to be the following year and save anywhere from 50-90% in the process. This is an especially good tactic for winter gear.
- Eliminate spontaneous purchases– Every purchase, aside from small, everyday household items/consumables, should be researched. You can often save 20-50% by quickly searching for the same or similar items online. Larger, more complex purchases should be researched more thoroughly.
- Buy in bulk when possible– In addition to places like Costco that are good for items like toilet paper, nuts, rice, and beans, consider purchasing an entire butchered cow or pig from a local farmer. You can generally get high quality meats at a fraction of what they would cost at a grocery store using this method.
- Eat a home-cooked dinner as a family every day– For us, this is non-negotiable except in rare situations. I can hear you now, “But DTG, I have to work late, my kids have practice/rehearsal, I’m tired and don’t want/know how to cook, etc.” These are all excuses (and topics for future posts) for poor eating habits and missing out on quality family time.
- Never pay credit card interest– For many people, this is the top thing holding them back from building their stash and reaching financial independence. If you’ve made poor decisions in the past, hopefully you’ve learned from them. This debt will grow exponentially if you do not pay your balance in full each month or, even worse, only make minimum payments. My brother got into credit card debt in his early 20s. We loaned him $4,000 to pay it off in full and worked out a repayment plan. Most people aren’t so lucky. If you have credit card debt, you need to treat it as an emergency! Until this debt is paid off, you do not buy anything except the absolute essentials you need to live. By doing so, you’ll be debt free quicker than you think and realize you don’t need as much useless shit as you previously thought. This will allow maximum participation in Step 1.
- Build exercise into your daily routine– This is an indirect cost savings. At work, I always park in the garage about a half mile from my desk even though there are several garages much closer. This ensures I will walk at least one mile per day and we can all use a little more exercise.
As you begin to incorporate some of these tips in your daily life, you’ll realize they’re all interconnected in some way. Each one builds upon another and they become habit. Pretty soon you’ll be debt free, aside from maybe a mortgage, and that’s when the fun really begins! We’ll talk about some of these ideas a little more in-depth in future posts.