Big spenders, anybody successfully downsized?

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ge1
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Big spenders, anybody successfully downsized?

Post by ge1 »

My wife and I are in our mid 40s and make very good money (mid to high six figures). We spend a lot (20k per month) save a lot (200k per year) and also pay a lot of taxes :-)

We want to stop / significantly reduce working in a few years and for the math to work we need to bring down our expenses significantly (to probably 10k per month). I know that is a lot more than many people spend, so obviously it is very doable, but I'm interested in experiences from people who retired / downshifted early and were able (or not able) to reduce their spending. What was hardest, what were the keys to success etc.

Thanks in advance
64415
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Re: Big spenders, anybody successfully downsized?

Post by 64415 »

I would suggest YNAB, (You Need A Budget). Initially you can use it as a spending tracker, just to see what your top spending categories are so you can target the low hanging fruit for cuts. Then you can progress to use it as the powerful budgeting tool it is.

The biggest impediment will be an uncooperative spouse. If you are both on board, hitting $10,000 a month should be easy. What is in your $20,000 per month total? Based on your post I am assuming that $20,000 per month figure doesn't include income taxes. Do you have children? How much of the total represents debt servicing?
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ge1
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Re: Big spenders, anybody successfully downsized?

Post by ge1 »

Mortgage is 3k per month, majority of which is principal as we have a 15 year mortgage. No second home. Vacations are easily 2.5k per month, which is an obvious place to spend less. 1 child and private school is 1.2k per month (another place to save as public schools are good). As we both work full time we spend another 1.2k per month for a nanny. Country Club membership is around 600 per month, which we would like to keep.

We bought our house fairly cheap (relative to our incomes) and spent a lot over the last few years in renovating, which has been completed now. A portion of that expense is included in the 20k mentioned earlier.

You are right with the budget, I will do that.
letsgobobby
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Re: Big spenders, anybody successfully downsized?

Post by letsgobobby »

First you need to figure out what you're spending the money on, really down to the dollar.

YNAB or any other spending program is a good way to start.

Then see what you're willing to cut back on.

I'm really not seeing enough to account for $20k per month in spending. In the past we have spent about what you spend on the mortgage ($2600), vacations ($2000), day care ($900), though not the nanny or country club. So I see you are spending about $3k more than us per month on those things. But we weren't spending $200k per year, more like $100k. So you still have a gap compared to our more 'modest' spending of nearly $65,000 per year. So where's that going? That's your job to figure out.
Ninnie
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Re: Big spenders, anybody successfully downsized?

Post by Ninnie »

I'm not understanding the dual school/nanny cost. Is the nanny just for after school? It seems like that could be modified without cutting the private school if the child is happy and doing well there. Cutting Vacations are a no brainer if you truly want reduce spending.
psystal
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Re: Big spenders, anybody successfully downsized?

Post by psystal »

Ninnie wrote:I'm not understanding the dual school/nanny cost. Is the nanny just for after school? It seems like that could be modified without cutting the private school if the child is happy and doing well there. Cutting Vacations are a no brainer if you truly want reduce spending.
I agree...that seems like an awful lot for a nanny when your kid is at school all day.

Vacations are the easy cut. If you still need to escape, start visiting national parks. They're cheap, beautiful, relaxing, and great exercise.

You only identified $8,500 of monthly spend in your post, and the bulk of that is non-discretionary (mortgage, school). That extra $11,500 is probably where you can cut.
mptfan
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Re: Big spenders, anybody successfully downsized?

Post by mptfan »

letsgobobby wrote:I'm really not seeing enough to account for $20k per month in spending. In the past we have spent about what you spend on the mortgage ($2600), vacations ($2000), day care ($900), though not the nanny or country club. So I see you are spending about $3k more than us per month on those things. But we weren't spending $200k per year, more like $100k. So you still have a gap compared to our more 'modest' spending of nearly $65,000 per year. So where's that going? That's your job to figure out.
Exactly. To be precise, the first step is not a budget...the first step is for you to figure out where the money is going. That is not a budget. A budget is a plan for how much you will spend in the future...you first need to figure out how much you have spent in the past and where you have been spending it. You do not get to go to step two without doing step one. You may find the process to be eye opening.
Ybsybs
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Re: Big spenders, anybody successfully downsized?

Post by Ybsybs »

Looking at credit card statements and checking accounts for the last six months or so should provide you enough data to figure out how you spend. Then you can decide if you are willing to vacation half as often and so forth in order to achieve your increased savings goals.
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ge1
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Re: Big spenders, anybody successfully downsized?

Post by ge1 »

Thanks for all the replies. I'll look at our spending more closely, but I know we easily have 5-8k discretionary spending between vacations, things for the house or leisure / sports. I know we can bring our spending down to 10k per month, but I guess I'm most interested in experiences from people who have actually done that, i.e. going from high earning / high spending to a low / no earning and lower spending lifestyle.
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hand
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Re: Big spenders, anybody successfully downsized?

Post by hand »

Eliminating Starbucks is obviously not going to be a critical part of your effort, however family buy in will be.

Unless you and your spouse both enjoy detailed financial analysis and planning, I would recommend starting your tracking of current spend in such a manner that includes a large "miscellaneous / discretionary" category, rather than trying to detail out each and every latte. This will simplify the effort, and likely focus attention on discussions of shared priority setting (e.g. is downsizing more or less important than $2500/ month on vacations) rather than smaller items that you or your spouse may hold in inordinately large personal importance (e.g. the morning latte).

After some success on the large shared items, your family may have a larger tolerance for cutting into the "miscellaneous / discretionary" spend
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ge1
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Re: Big spenders, anybody successfully downsized?

Post by ge1 »

Good point hand.

My spouse buys in the downsizing plan, however she is a bit more cautious (or maybe just realistic) in giving up a high income too early.
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Re: Big spenders, anybody successfully downsized?

Post by jebmke »

ge1 wrote:Good point hand.

My spouse buys in the downsizing plan, however she is a bit more cautious (or maybe just realistic) in giving up a high income too early.
Sounds like a perfect opportunity to get started downsizing the spending while increasing the funds socked away for the future.
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corn18
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Re: Big spenders, anybody successfully downsized?

Post by corn18 »

Four years ago we cut from about $30,000 / mo to $12k / mo. It seemed like an impossible task at the time, but now that it's done, it is so awesome. We now live way below our current means which allows us to save a lot (or spend money we have instead of money we don't). This has accelerated our retirement plans from never, to 10 years from now.

So how did we do it?

First task was to pay off $100k of credit card debt. That took 1 year of bonus committed to this task. Nice to make a lot of money, but we were spending above our means by about $3k / month. Thus the CC debt.

Next task was to pay off all cars (another $100k). That was the next year of bonus.

We also got rid of the camper, the horse, the horse trailer and the BMW toy car. Then started shaving the smaller bits (cable, cell phone, home phone, magazines, XM radio + who knows what else).

The goal of all this cutting was to get us down to living solely off of my salary + pension ($276k). We managed to do that and it felt great. So we went further and made a budget that had us live just off my salary ($235k). That's where we are now, with caveats. My total comp comes from my base salary ($235k), pension ($41k), bonus ($150k) and stock ($150k). Now that we have completed all the cuts, we can save all of the pension, bonus and stock. Or not. This year, I am putting $150k into retirement, $40k into college savings (now fully funded), $25k for a medical procedure my wife needs that ins might not pay for. But we also set aside $15k for a trip to Europe and an extra $25k for discretionary spending (landscaping, broadway season tickets and whatever else we want). We allowed ourselves to do this because we are ahead on our retirement savings. Next year, we may not allow ourselves the extra fun money in order to accelerate our retirement and allow me to take a lower paying job and have more time off.

Now you might say I am gaming the system by not including the $15k vacation and $25k play money in my monthly budget. And you'd be right. But the difference is we don't plan to spend that money. We make the decision when the bonus arrives in Feb what we want to do with it that year. We could save it all (taxes eat a lot of it), or save some and spend some. The best part about having a base budget is we don't need the pension, bonus or stock to have a great life. That is our starting point and we diverge from that.

The biggest step was cutting expenses. Once that happened, all our options were opened up. I could take a job paying 1/3 of what I make now at age 55 and be just fine for retiring at 65. I could keep saving at this high rate and might be able to semi-retire at 54 or 55. Never thought we could ever have that as an option.

So, that's my story.
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Re: Big spenders, anybody successfully downsized?

Post by lhl12 »

ge1 wrote: We bought our house fairly cheap (relative to our incomes) and spent a lot over the last few years in renovating, which has been completed now. A portion of that expense is included in the 20k mentioned earlier.
The cost of the renovation shouldn't be included in your historical budget numbers. Presumably you won't incur that expense prospectively, so it's irrelevant for budgeting purposes. Even retrospectively, it should have been thought of a capital expenditure that added to the value of the house. If all of the money was spent on something frivolous (e.g. fur-lined hot tub) that adds no value then that might be a different story, but even then I would think of that expense as a capital expenditure, with the annual expense being the amount that my house depreciated in value that year) perhaps offset by any market value apprection.
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ge1
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Re: Big spenders, anybody successfully downsized?

Post by ge1 »

corn18 wrote:Four years ago we cut from about $30,000 / mo to $12k / mo. It seemed like an impossible task at the time, but now that it's done, it is so awesome. We now live way below our current means which allows us to save a lot (or spend money we have instead of money we don't). This has accelerated our retirement plans from never, to 10 years from now.

So how did we do it?

First task was to pay off $100k of credit card debt. That took 1 year of bonus committed to this task. Nice to make a lot of money, but we were spending above our means by about $3k / month. Thus the CC debt.

Next task was to pay off all cars (another $100k). That was the next year of bonus.

We also got rid of the camper, the horse, the horse trailer and the BMW toy car. Then started shaving the smaller bits (cable, cell phone, home phone, magazines, XM radio + who knows what else).

The goal of all this cutting was to get us down to living solely off of my salary + pension ($276k). We managed to do that and it felt great. So we went further and made a budget that had us live just off my salary ($235k). That's where we are now, with caveats. My total comp comes from my base salary ($235k), pension ($41k), bonus ($150k) and stock ($150k). Now that we have completed all the cuts, we can save all of the pension, bonus and stock. Or not. This year, I am putting $150k into retirement, $40k into college savings (now fully funded), $25k for a medical procedure my wife needs that ins might not pay for. But we also set aside $15k for a trip to Europe and an extra $25k for discretionary spending (landscaping, broadway season tickets and whatever else we want). We allowed ourselves to do this because we are ahead on our retirement savings. Next year, we may not allow ourselves the extra fun money in order to accelerate our retirement and allow me to take a lower paying job and have more time off.

Now you might say I am gaming the system by not including the $15k vacation and $25k play money in my monthly budget. And you'd be right. But the difference is we don't plan to spend that money. We make the decision when the bonus arrives in Feb what we want to do with it that year. We could save it all (taxes eat a lot of it), or save some and spend some. The best part about having a base budget is we don't need the pension, bonus or stock to have a great life. That is our starting point and we diverge from that.

The biggest step was cutting expenses. Once that happened, all our options were opened up. I could take a job paying 1/3 of what I make now at age 55 and be just fine for retiring at 65. I could keep saving at this high rate and might be able to semi-retire at 54 or 55. Never thought we could ever have that as an option.

So, that's my story.
Thanks for sharing corn. This is basically what we are doing now: we live off our base salaries and bonus and vested stock goes straight into savings.
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ge1
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Re: Big spenders, anybody successfully downsized?

Post by ge1 »

lhl12 wrote:
ge1 wrote: We bought our house fairly cheap (relative to our incomes) and spent a lot over the last few years in renovating, which has been completed now. A portion of that expense is included in the 20k mentioned earlier.
The cost of the renovation shouldn't be included in your historical budget numbers. Presumably you won't incur that expense prospectively, so it's irrelevant for budgeting purposes. Even retrospectively, it should have been thought of a capital expenditure that added to the value of the house. If all of the money was spent on something frivolous (e.g. fur-lined hot tub) that adds no value then that might be a different story, but even then I would think of that expense as a capital expenditure, with the annual expense being the amount that my house depreciated in value that year) perhaps offset by any market value apprection.
Agree with that completely, I just know a portion of the 20k a month I quoted was used to fund home improvements (above and beyond the regular maintenance).
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Re: Big spenders, anybody successfully downsized?

Post by Toons »

It is a matter of "Wants and Needs".
I am able to purchase most anything I want.
I just don't need much .
If I had "it all" I wouldn't know where to put it.
Downsized.
Lead a Simple lifestyle.
The Birds sound great in the backyard. :happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
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Re: Big spenders, anybody successfully downsized?

Post by randomguy »

lhl12 wrote:
ge1 wrote: We bought our house fairly cheap (relative to our incomes) and spent a lot over the last few years in renovating, which has been completed now. A portion of that expense is included in the 20k mentioned earlier.
The cost of the renovation shouldn't be included in your historical budget numbers. Presumably you won't incur that expense prospectively, so it's irrelevant for budgeting purposes. Even retrospectively, it should have been thought of a capital expenditure that added to the value of the house. If all of the money was spent on something frivolous (e.g. fur-lined hot tub) that adds no value then that might be a different story, but even then I would think of that expense as a capital expenditure, with the annual expense being the amount that my house depreciated in value that year) perhaps offset by any market value apprection.
Problem is that there is always some one off expense that you don't want to include since it will not happen again:)

As people have said figuring out where money is going is the first step. Then you decide if you are getting your moneys worth out of them. Seems like in a 5-10 years you will get some natural cuts (no more mortgage, no more nanny, kid may or may not be in private school) that will save you 5k/month.Then there are spending cuts (30k/yr on vacations seems like a lot) but most of that is black box (i.e. there is about 10k of spending that isn't broken out).

When you are saving 200k/yr, you end up with tough choices between working one more year (call it 500/month more for life) or cutting spending. 500/month buys a lot of toys/experiences over the remaining 30 years of your life. On the other hand, you only have 30 years left:)
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Watty
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Re: Big spenders, anybody successfully downsized?

Post by Watty »

If you retire then you likely would not need the nanny.

Paying off the mortgage would save a lot each month.
ge1 wrote:We want to stop / significantly reduce working in a few years....
One possible pitfall is that if you do that then you will have more time to spend money or do things like travel.

You may also need to start paying for things like healthcare that you previously got through your jobs and that would tend to increase your expenses.

Realistically I doubt that you can reach your goals by just cutting back. It sounds like you need a new retirement lifestyle to make that budget.

Just for comparison $10K a month is $120K a year. A couple where they are each making $60K a year has a family income of $120K a year. There would be tons of differences between your situations but there would be a lot of similarities in your lifestyles too.
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Re: Big spenders, anybody successfully downsized?

Post by jharkin »

A family that makes 120k a year is not spending 10k a month after tax. More like 5 if they are carefull and saving.

Put in even more perspective, half of all households in this country live on less than half of that...


All that to say that cutting the OPs budget in half will be a major aadjustment, but still leave him in something like the top 2-3% of spenders so it should be doable ;)
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Re: Big spenders, anybody successfully downsized?

Post by Impromptu »

There are many more successful downsizers than we might think if you include kids leaving their parent's homes to live on their own, perhaps going off to college. While the life circumstances may be different, the biggest similarity is the downsizing of creature comforts while still remaining relatively happy. Hedonic adaptation can be done in reverse in relatively short order, and you can still be very happy.
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ge1
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Re: Big spenders, anybody successfully downsized?

Post by ge1 »

randomguy wrote:
When you are saving 200k/yr, you end up with tough choices between working one more year (call it 500/month more for life) or cutting spending. 500/month buys a lot of toys/experiences over the remaining 30 years of your life. On the other hand, you only have 30 years left:)
That's an interesting way of looking at it, thanks for that.
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ge1
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Re: Big spenders, anybody successfully downsized?

Post by ge1 »

Watty wrote:
Realistically I doubt that you can reach your goals by just cutting back. It sounds like you need a new retirement lifestyle to make that budget.

Just for comparison $10K a month is $120K a year. A couple where they are each making $60K a year has a family income of $120K a year. There would be tons of differences between your situations but there would be a lot of similarities in your lifestyles too.
Can you eloborate what you mean with "new retirement lifestyle" Watty ?
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Re: Big spenders, anybody successfully downsized?

Post by jabbahop »

We are middle 50's and retired for one year. We have reduced Substantially but not by 1/2 - at least not until we complete our downsizing when we sell our home next year (kids off to college).

The three biggest thing that has helped reduce our monthly spend are.
1) we started selling/giving away stuff that we had accumulated over the years and wouldn't need in our future smaller home. It really hit home how much "low value" stuff we had spent money on that now we are much more mindful about spending. This has lead to a significant reduction in spending.
2) once we didn't have a salary/bonus our income taxes went down dramatically (not sure it those are counted in your monthly expenses or not). We went from nearly 50% tax bracket between state and fed to about 20% this next year.
3) when retirement became a goal, it is easier to forego discretionary spending because we are getting something valuable in return (time) for not buying myself a new bike.
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Re: Big spenders, anybody successfully downsized?

Post by SpaceCowboy »

Early retiree here. Haven't had to make a 50% cut in our spending, but have cut back about 15%.
Getting YNAB and using it to see where we were actually spending our money was insightful. Like you, we kept our help, housekeeper, and most of the club memberships. Did eliminate one health club. Eliminated a car, did not lease a new replacement when the lease came up for renewal. Became much more conscious of where we spend the money. Did cut back on eating out and reduced the satellite bill. Don't spend a lot on material goods other than food. Vacation spending is the big flexible pot as we still want to vacation at least 2 and up to 4 times a year as a family. So vacations can swing from $15-30k annually for us. If part-time retirement income is good in a year, we tend to vacation more, if not we hold it to 2 significant trips.
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Watty
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Re: Big spenders, anybody successfully downsized?

Post by Watty »

ge1 wrote:
Watty wrote:
Realistically I doubt that you can reach your goals by just cutting back. It sounds like you need a new retirement lifestyle to make that budget.

Just for comparison $10K a month is $120K a year. A couple where they are each making $60K a year has a family income of $120K a year. There would be tons of differences between your situations but there would be a lot of similarities in your lifestyles too.
Can you eloborate what you mean with "new retirement lifestyle" Watty ?
Sure,

You mentioned, "Vacations are easily 2.5k per month" which I could being something like flying some place to stay at an expensive hotel or resort, eat at expensive restaurants, and do some costly activities.

In addition to your plan to reduce your budget in retirement you would also have more time for trips so to be able to travel and have a longer vacation on less of a budget a you might be going somewhere and renting a condo for a week. You can still have a great time but it is different and not much like your prior vacations.

You should also keep in mind that your expenses will likely be different at different ages. I have seen relatives that were in relatively good health but by the time they were in their mid 70's they slowed down and didn't have much interest in doing things like traveling and even things like eating out and shopping didn't interest them much since so their expenses were pretty low even though they had ample savings.
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Re: Big spenders, anybody successfully downsized?

Post by TRC »

ge1 wrote:Mortgage is 3k per month, majority of which is principal as we have a 15 year mortgage. No second home. Vacations are easily 2.5k per month, which is an obvious place to spend less. 1 child and private school is 1.2k per month (another place to save as public schools are good). As we both work full time we spend another 1.2k per month for a nanny. Country Club membership is around 600 per month, which we would like to keep.

We bought our house fairly cheap (relative to our incomes) and spent a lot over the last few years in renovating, which has been completed now. A portion of that expense is included in the 20k mentioned earlier.

You are right with the budget, I will do that.
You and your wife should read millionaire next door.
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Re: Big spenders, anybody successfully downsized?

Post by Hug401k »

I can't say I've downsized at the scale you are talking about but we did do an almost 50% cut of over $130k when I decided to stay home with the kids for a while. It was a forced decision due to the relocation of my job, so we didn't have a great amount of time to plan. Here is what we did that I feel made a real difference.

No more weekend trips. We kept our big annual trips. A week away somehow doesn't cost much more than a weekend. Dropping a $1000 for a weekend has to end (or in your case $2500!!). Also, it gives you some nice down time. If you do travel, look local. I be you've never done half the touristy things in your closest city.

Eating out: It's just shocking how much you spend eating out, especially if your child has moved off the kids menu. We ended bad habits like eating out because we were tired, and just switched to simple "tired" meals like soup and sandwiches, or breakfast for dinner. Dinners out are usually with others for fun or special occasions with pizza night every other week or so.

Review your credit card bill for re-occuring charges. Be ruthless - anything re-occuring is trouble. We cut a storage unit, a gym membership and a few small silly things, but they add up quick.

Stop buying home items unless you need them. That means you keep the decor you have for a while.

Finally, it sounds like both of you work. Does it need to happen at the same time? Could you "phase out" - go reduced work week, or maybe one of you quits first? Then you could cut the nanny. When one member of the duo isn't working, and it doesn't matter which, it does make life less hectic since they can pick up the to do list. Also, I was shocked at how much less taxes and expenses ($36k in daycare!) we were paying. It really made me wonder if it was worth it. I guess my point is that you might find some of the pressure and craziness released and not feel as urgent about retiring on one salary or a 4 day work week. Good luck!
Vilgan
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Re: Big spenders, anybody successfully downsized?

Post by Vilgan »

Various suggestions for YNAB, but if you just want to identify where you are spending in order to cut it: Mint works fine for that. I never had the patience for budgets and found YNAB to be way too much work, but Mint was great for identifying how I was spending my money and also catching things like Comcast upping the bill etc.
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Re: Big spenders, anybody successfully downsized?

Post by cherijoh »

Hug401k wrote:Eating out: It's just shocking how much you spend eating out, especially if your child has moved off the kids menu. We ended bad habits like eating out because we were tired, and just switched to simple "tired" meals like soup and sandwiches, or breakfast for dinner. Dinners out are usually with others for fun or special occasions with pizza night every other week or so.
+ 1
Also don't forget lunches at work. If both of you are dropping $10+/day Mon - Fri that can add up quickly.
Hug401k wrote: Review your credit card bill for re-occuring charges. Be ruthless - anything re-occuring is trouble. We cut a storage unit, a gym membership and a few small silly things, but they add up quick.
+1
One way to look at this is what would you get rid of if one of you lost your job? Although I did have neighbors that kept a $100+/month cable bill for many months after losing the majority of their income due to job loss in 2008 :oops:, so this might not be stringent enough for some people.
Hug401k wrote: Stop buying home items unless you need them. That means you keep the decor you have for a while.
+1
I know people who have decorated their house on the cheap by frequenting yard sales in affluent neighborhoods. A friend has a business making custom home textiles (draperies, comforters, pillows, etc.) and she gets a lot of business from repeat customers who got bored with their home décor and periodically drop a bundle on decorating.
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ge1
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Re: Big spenders, anybody successfully downsized?

Post by ge1 »

Hug401k wrote:
Finally, it sounds like both of you work. Does it need to happen at the same time? Could you "phase out" - go reduced work week, or maybe one of you quits first? Then you could cut the nanny. When one member of the duo isn't working, and it doesn't matter which, it does make life less hectic since they can pick up the to do list. Also, I was shocked at how much less taxes and expenses ($36k in daycare!) we were paying. It really made me wonder if it was worth it. I guess my point is that you might find some of the pressure and craziness released and not feel as urgent about retiring on one salary or a 4 day work week. Good luck!
Hug - that's a very good point and that's clearly one of the scenarios. Likeliest scenario would probably me that my wife gives up work and I keep on working and we adjust the lifestyle to my salary. Personally I don't need to retire in my late 40s, but I would really like to take one year off in a few years and then do something I really enjoy or simply work more flexibly, without the need of earning big $. Both my wife and I (especially my wife) would have a very hard time to find jobs which would pay close to what we are making now where we live, so giving up our current jobs is a big step.
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