COVID-19 initially sent our investments plummeting by $100,000. I am glad we held strong, but I spent more time thinking about timing the market than I would like to.
To strengthen the resolve of my investment strategy, I created my kick-ass investment policy statement which serves as a great reference whenever I need to make a financial move. It tells me what I should be doing and what I should not be doing according to my investment philosophy, risk tolerance, and financial goals. It essentially acts as my GPS to reach my financial goals while navigating obstacles along the way.
I would say there is one thing that is much more important than an investment policy statement and that is a budget. After all, if you don’t have any money left to invest, what’s the point?
These uncertain times made us take a closer look at some line-items in our budgets and we found more than a few things we could cut down on without impacting our quality of life. I am surprised about how these small changes can make such a large impact in the future.
Budget Adjustments
March 2020: Cancelled Netflix
- It was clear that we were bigger nerds and workaholics than we thought. It was month 3 in 2020 and we barely watched anything on Netflix. It turns out that we preferred to spend more time and energy on our side-hustles and less time binge-watching our favorite shows and movies. This doesn’t mean we won’t even renew Netflix or another subscription service, maybe just not now, and definitely not forever.
Saved $9.53/month
April 2020: Reduced Mom’s Home Insurance Premium
- The deductible for my mom’s home was $1,000 so I increased it to $10,000. All major capital expenses, such as roofing, siding, sliding doors, deck, windows, H-Vac, are only a few years old. We’re not in a flood zone, in a low traffic area, no large trees around us. We get some high wind storms, but if it damages a part of the roof, we’d likely be shelling out at least a few hundred to a grand anyway. Why would I pay $200 more per year if my deductible pays for most of the cost of a rare incident? My purpose for home insurance is to protect against the black swans that will bankrupt us. It’s the same reason why young people without medical issues buy high-deductible health care insurance plans.
Saved $215/year
May 2020: Lowered Internet bill – Saved $30.00/month
- Thanks to reviewing personal capital at the end of each month, we realized our bill increased from $65 to $80 per month. The funny thing is that after we called, they decided to give us an introductory rate of $50 for even more speed.
Saved $30.00/month
June 2020: Reduced our home insurance premium
- The coronavirus also affected my in-laws. We took over the insurance bill for them and decided to increase the deductible as well. The annual premium reduced from $1,200 to $731.85.
Saved $468.15/year
July 2020: Cancelled gym membership
- Due to COVID-19, my wife and I were not eager to return to an environment where sweat, heavy breathing, and unwashed hands were not uncommon. Our decision was supported when arriving at the gym and seeing half the people exercising with masks pulled down to their chin.
Saved $23.06/month
August 2020: Other
- Restaurant/Fast Food – Since March, we have eliminated our restaurant and fast food intake which has been hovering around an average of $185/month for the last 2 years. Our plan was to reduce our consumption from 1-2x/week to 1-2x/month which should be under $50. This comes out to us saving at least $135/month
- Pending full transition away from professional home security monitoring to self-monitoring which should save $50/month. Professional monitoring has been more cumbersome as the alarm system frequently gets triggered randomly and malfunctioned last time sounding for 10 minutes before we could get the provider on the other line to walk us through how to reset the system. With currently available technology nowadays, it makes more sense for self-monitoring.
Estimated Savings $185/month
Total Savings and lifelong gains from adjusted budget
Everything totals up to a monthly savings of $304.52 or $3654.24 per year.
We are investing the money we saved and plan to not touch for 30 years. Assuming a 7% annualized return we project it will grow to approximately $29,659.63.
If we continue investing at least $3,600 extra per year for the next 30 years, we will have grown our portfolio by approximately $397,785.88.
The benefits of cutting costs don’t stop here. If you have been following our story, you know that we are very conservative in estimating what we need for retirement. Possibly too conservative as we plan on a 3% safe withdrawal rate. Meaning, we plan to save 33x our annual expenses to have enough. Since we have reduced our annual expenses by $3600, this comes down to needing $118,800 less ($3600 x 33) for retirement.
In Summary
The lower your monthly expenses, the money you have to dig yourself out of debt, spend on the things that matter, and invest the rest. The lower your expenses, the less you will need in retirement. This is why I dislike retirement calculators that solely base what you need on a percentage of your income.
What you need during retirement is not based on what you earned during your working years, but what your life actually costs. As we begin to progress in our careers, we become at risk of becoming victims of lifestyle inflation. Before we know it, we near retirement age and wonder where all our money went.
Being able to tighten your budget, increase your cash flow, and improve your investment knowledge is a habit everyone needs to practice to achieve their financial goals. Doing this regularly encourages us to save money on the frontend and allows our savings to work for us in the backend for many years to come.