Financial Freedom - First Steps

Owning your shit at home covers many things and one of the most important areas for long term success are finances. Having a financial vision, understanding the trade-offs, having the frame to bring it to existence, and becoming successful has many benefits to anyone, married or not. To a degree, it is simply Adulting 101 but I see many posts all the time that betray a complete lack of understanding of how to run household finances. What follows is a summary of the path I took over the last 2 years, generalized so it is applicable to anyone.

Many concepts borrow heavily from /r/personalfinance/ (PF). In fact, it is crucial that you become familiar with the concepts that are explained on this subreddit and in their wiki. I try not to duplicate content but some concepts here will have a specifically MRP-oriented slant. MRP brings a unique set of options and skills to the table that can make you much more effective than the general population.

Financial Freedom

What is Financial Freedom and why should you care? To me it is the freedom to quit my current or future job if I choose to, and to walk away from it all if that's what my path leads to. That freedom will happen when my investment income surpasses either my expenses or my current job income - depending on what metric I want to use at that time. My plan is to reach this goal in 9 to 11 years.

The key to this plan is the magic combination of saving, investing, and compound interest. I will not explain how this works here - there are many resources available for these concepts. Most people understand this as a really long term avenue to riches but it is actually much faster in its effects than one might expect. If we use the very attainable numbers of saving 30% of your income and getting a 10% return/interest, you can accomplish the following:

  • In 3 years you will have saved up one annual salary and it will generate an extra 10% income.
  • In 5 years you will have saved up almost 2 annual salaries for extra 19% income.
  • In 10 years you will have saved up 5 annual salaries for extra 50% income.

If you can improve your rate of return to 15% (not easy):

  • In 10 years you will have extra 100% income.

Are these numbers attainable and is this something you want? Only you can decide. It is, however, important to understand that this possibility exists and if you decide you don't want to take these steps, it should be a conscious decision. Assuming your regular income improves, and/or you can get your wife to work more, you can reach these goals even faster.

The Steps

The steps are very simple in principle.

  1. Study /r/personalfinance/. Learn from other people's mistakes and get to the point where you can predict the answers to most posters' questions.
  2. Increase your saving rate to 30% by cutting down expenses. This is the bulk of this post and how I did it with an MRP lense. It is, however, not enough to just save. You must also invest but you have a year of work before this becomes critical.
  3. Study investing and how you can generate 10% or higher returns. Not covered here except with a side note - many options exist that are not obvious but count: eliminating high interest rate debt, using employer or government subsidized savings plans, reducing your tax burden by using tax advantaged plans.

The Vision

The rest of the write-up is how you create a financial system for your household. You will be in complete control. You are the one who is ultimately responsible for it succeeding or failing without blaming anyone. With that in mind, you design it in such a way that you could do it all yourself if your spouse will not/cannot contribute but you make individual portions of it possible to delegate. The more responsible your spouse is the better and you can reward her contributions by giving her more control over individual items. It is, however, always your responsibility to track and enforce that the system is followed.

As a general rule, you will be moving to a save first, then spend model. In each budget category (see below) you will not spend more than allocated for each month until you saved up some money to buy it - by under spending in that category in the previous months. The only exception is existing loans and obligations until you find a way to eliminate them. This also creates a very simple method to determine when you should be spending on items like new cars, house upgrades etc. You create a category with a budget, and when you save enough - you can use it. In some cases this will guide you to do more if needed: E.g. if you are accumulating a lot of saved up money in the household repair/update category, you need to fix more stuff around the house.

How quickly you implement and enforce these changes is related to the strength of your frame and your ability to run this system. Do not go Rambo if you suck at this but do implement quickly if you are capable. There are a ton of areas to gradually improve so it will take time to do all of it - no need to stress everyone out with a complete overhaul instantly.

This system has had a huge positive financial impact with minimum or no negative impact on what we consume or spend on. It has had some unexpected benefits to our quality of life outside of the financials.

The Details

This is the order that I used. As you progress through the steps, the order becomes less important. The individual items are a list of options available.

Track your spending

Devise a system to track all of your spending and start tracking it for a month. A month is good enough to get a good idea of where your money goes and how to set up your budget categories. Estimate the rest. No need to tell your wife that you're doing this as this is just for your information. I use Excel because I like to make my own spreadsheets but there are many better options available.

You will likely find that your wife spends way more than you do and you will be spending a lot of energy in curbing that spending initially. How you do the next step takes that into account.

Make an initial budget

Follow the PF guidelines but I suggest adding the following features that I found incredibly useful for MRP purposes. This assumes you are the more responsible spender and you also make more money than your spouse. The guiding principle is not fairness but accountability. If in doubt, make it harder on your spouse than needed and later you can be more benevolent. You want to track accurately who actually spends what without making any judgments about it.

  • Budget for saving early - more than you save now. Force the spending cuts immediately. Start with 5% more than you save now.
  • Make common categories for joint spending like mortgage/rent, utilities, groceries, household repairs etc. You will control all joint spending going forward but no need to force that issue yet. (PF) has good suggestions for categories.
  • Make a discretionary spending category for yourself and a separate one for your spouse. I suggest to make them equal and way less than the sum of your current discretionary spending now. That most likely will mean that your wife will have less to spend unless you are the big spender right now. The goal is to have each adult spend this money how they wish. No need to enforce this yet.
  • Make a spending category for each kid you have. This is mostly for your info. You don't let the kids control this money unlike the adults' discretionary spending.
  • Put everything attributable to individuals in their categories, including the kids. You might find that you spend way more on one kid than the other. I did, unsurprisingly, on my daughter.
  • Put joint loans as a separate spending category where it belongs. E.g. mortgage under house. I suggest using as few loans as possible joint, in fact, I only have mortgage under joint. Rest is individual loans.
  • Put individual loans in your or her category as you see appropriate and subtract the monthly payments immediately from the discretionary budget of that person at the beginning of each month. The point is to make current loan payments a direct hit to each person's discretionary budget. It also means that if one person pays off their loans faster, they will have more money to spend without gifting that money to the other person. Do not play nice here and take over her student, car, or other loans as joint spending. Think carefully who should own each loan.
  • Big expenses paid with a smaller frequency, such as car insurance should be subtracted at the beginning of each month. E.g. if you pay your car insurance once every 6 months: Figure out the proportion - if your car is the cheaper one, and your insurance is lower, go through the policy and calculate how much your car costs and how much hers costs. Then divide each individual amount by 6 and subtract that from each person's discretionary spending monthly.

Inform your wife that you made the budget to align with your saving goals. Tell her how much she has in her discretionary category. She might not care in which case you leave it at that. If she doesn't care, it probably means she does not intend to follow it which is fine for now. If she does care and asks about more details, show her the budget. If she disputes that something is in her category that she doesn't agree with, just broken record that this is how you intend to track the spending.

Grocery Store

Figure out the cheapest grocery store option available that is acceptable in quality. If Aldi/Lidl are available in your area, those are amazing for quality and price. Do this immediately, while you're still doing your initial tracking period. If you have no idea what you should be shopping for, you will be educating yourself on this over the next few weeks. Make an initial shopping trip by yourself and buy one weeks's worth of supplies. Focus on items that you will eat/prepare yourself, relatively cheap and aligned with your diet or the diet your feel your family should follow. Don't bother buying stuff that are solely for your wife/kids, expensive, or unhealhty. If you get asked why, just say you're exploring cheaper food options and broken record/STFU the rest. Over the next few weeks make your goal is to figure out how to buy 90% of the groceries needed by your whole family in one week increments.

Grocery System

You are eventually moving towards a system with the following features:

  • You buy groceries once a week only on a specific day.
  • You buy the bulk of your groceries at the cheapest store only.
  • There is always enough to eat without wasting. See more on wasting below.
  • Everybody needs to get their items on the shopping list before the shopping day or it doesn't get bought until next week.
  • The items you buy are skewed towards cost effective items and aligned with your diet.
  • Items bought at more expensive stores are only bought because they are not available at the cheap option. No last minute emergency shopping trips for expensive items.
  • When stuff is on sale, stock up. But only stock up on stuff you actually use, no impulse buying.

It should only take you a few weeks to transition to this as you get more comfortable what should or should not be bought. The benefit to everyone is that it's simple and works like magic. You will initially spend some energy implementing this but eventually it becomes second nature to you and your spouse and you can stop grocery shopping if she can handle it. Should you encounter challenges to this, this is when you start using your frame to communicate your vision of saving and investing for the future. The smoother the transition, the less challenges you get and the more obvious it is that you are leading the way in something good.

Household items

Some household items like detergent, soap, shampoo, toothpaste etc. very vastly in quality and price. Spend some time figuring out the most cost effective item of sufficient quality and figure out where you buy them. It might be at the cheap grocery store but it might be online. Only buy those items at those locations so make sure you have enough on hand so you avoid emergency (expensive) trips. E.g. make sure you always have at least one more extra detergent bottle in store. Once you figure that out, the time and energy spent on it is zero as you always buy from the same place.

Grocery deliveries

If you have grocery deliveries from the cheap grocery store available, use it. It cuts down on impulse buying, saves time and gas, and makes it trivial to maintain your grocery list throughout the week. Any time you remember you need something, add it to the online list, then order everything once a week and have it delivered.

Food Prep

Figure out how to prepare food in bulk in minimum time. Bake a bunch of chicken while you are frying up some other protein option. Prepare several simple protein options on the weekend and make sure they get eaten during the week. You or your wife can spend a small amount of time during the week to make a side item to go along with the protein. You will lead the way here but your wife can take over in a few weeks if she's willing/capable. Avoid lengthy daily cooking rituals that cause frustration and waste time. Figure out what you eat (all of it - breakfast, lunch, dinner) and make that yourself if needed, or delegate to your wife if possible.

This is another area where you are likely to encounter challenges. Communicate that you want to save time and money on food prep and that you like having food available at all times during the week without having to think about it. Ask her to help you with the food prep and/or with the side dish preparation during the week.

Waste

You can waste a ton of food if you just buy it but don't track that it is consumed. Use the following system to avoid waste:

  • When new groceries arrive, move the old unused groceries to the front of the fridge, put the new groceries in the back.
  • Check the fridge regularly and move stuff out of the back to the front that needs to be eaten. Stop buying it if it consistently does not get eaten.
  • Limit the amount of fresh vegetables/fruit to what you will eat. The rest will be frozen (and cheaper). Do keep a decent amount of frozen vegetables on hand. Monitor fresh vegetables/fruit and make sure you consume them quickly or reduce how much you buy.
  • If your kids/spouse put something on the list that you won't eat personally and you think it might get wasted, buy it once and monitor. Remind them to eat it. If they don't actually eat it, stop buying it.
  • Clean out the pantry regularly. Stuff that has been sitting there for months is thrown away and put on the Don't Buy list.
  • Do buy more canned foods such as beans, vegetables, fish etc. as they are cost effective and don't waste as readily. Follow up and consume them without piling up.
  • Dig through the bottom of the freezer occasionally and consume the stuff that dropped to the bottom. Make a mental note of what does not get eaten and consider moving to the Don't Buy list.

Diet

Figure out a good healthy diet that is not expensive, e.g. Paleo or Keto. It should result in you and your family eating less and more healthy. If your diet is expensive, it might be crap.

Cars

You are likely spending more than you can afford on your cars. How do you know you are spending more than you can afford? You are not saving and investing 30% of your income. Cars are a huge money pit. You can get a 2 year old used car that will be just fine for 7-10k. If you already have something more expensive, consider selling it and getting something cheaper. Either way, subtract the car payment from each person's individual discretionary budget to force the decision. If you simply ask your spouse to downgrade her fancy car, she will fight you tooth and nail. If you make her choose between an expensive car and hair cuts, she will be more likely to downgrade. Same goes for you. Take some time to consider this - it is easy to lose even more money by constantly changing cars. Car loans can carry a low interest rate so once you get to the point where you are investing with a 10% return, it's not necessarily bad to carry a car loan. However, if you are a compulsive spender, you should avoid car loans and save up first. PF has good guidance here.

Carefully consider what you want to do here so start thinking about it early but make sure whatever decision you make is something you will enforce. If you're not sure yet, wait a bit more. But if you're bleeding money over a luxury car that you don't want, start making plans to fix this soon.

Trinkets

As a budget category - decorations, throw pillows, rugs, scented candles and other such nonsense goes to zero. Anything in this category goes against your wife's discretionary budget. Go for the minimalist look, and do in fact clean out the clutter. Sell your old trinkets at garage sales and stop buying them.

Appliances/devices

This mostly goes against the household repair budget and for the most part - stop buying devices. You don't need a new TV every 2 years, nor do you need juicers, exercise machines, stereos, espresso machines etc. This should approach zero. When you save up in the household budget, you can buy something new but preferably you just repair what's needed. Individual devices, such as smart phones, go against individual discretionary budgets. Again, save up first, then buy. Switch to older models for savings.

Clothing/beauty

This goes against individual discretionary budgets. Track this carefully. Do put make up and other beauty products in your wife's discretionary budget. Let your wife make the decisions about how she uses her budget and she will make the appropriate adjustments once you start enforcing her monthly spending budget. Likely she will reduce the frequency of her hair, nail, pedicure appointments to what she actually needs whereas before it looked like impossible to eliminate. If you shop together for clothes (don't), do separate the spending to your and her budget. For kids, if they are older, and they want to decide what they buy, give them a monthly allowance to spend how they choose to start teaching them about budgeting.

If you buy these items at a store where you already buy household items, request receipts from your wife on every purchase there and separate it into her discretionary budget or household. If she does not provide a receipt, put the whole purchase into her budget. Make it her responsibility and less work for you.

TV/Cable

This can likely be eliminated altogether. Watching TV is useless and there is a ton of content on streaming services for much less anyway. If you have Amazon Prime for deliveries, there is a ton of content available with that service. If you need additional streaming services, rotate them to only keep one active at a time. Watch the shows you want, then switch to something else. Use over the air HDTV for local channels. You can occasionally get premium streaming channels like HBO for $5 a month for a limited time - sign up, watch what you want, then cancel.

Utilities

Not much you can do there. Close off unused rooms and close the HVAC vents in those rooms. Adjust temperature to save on HVAC. Get LED bulbs. If you are spending a ton on irrigation, start replacing your lawn with trees/bushes/mulch - they are much more water efficient, less work, and more environmentally friendly.

Entertainment

As a joint category this goes to zero. Mentally replace entertainment with hobbies. All stuff like movies that you do jointly, split into individual items that go against discretionary budgets of you, your wife, your kids as appropriate. Communicate this to your wife - she needs to start being aware that spending on these types of outings cost her discretionary budget money.

Eating out

Same as entertainment - track individually. But plan to cut this out altogether and only do it for special occasions. Lead in this area - do not eat out if you don't have money in the budget to do it.

Enforcement light

After a month of making your initial budget (two months from start) review the budget by yourself. You are likely over in many categories - this is normal. But possibly you were successful in reducing a lot with the suggestions above - in which great, you are starting to make a difference.

The biggest category over budget will likely be your wife's discretionary spending. Assess how well you are doing with making progress and leading, relative to her failure. Do inform her that she is over budget and that she needs to start prioritizing to get the spending under control. If she's making efforts, do help her with suggestions - e.g. spreading out her beauty appointments over more time, buying cheaper stuff. If she refuses to follow you have to decide if you have the tools available to enforce it. If you don't - read some past posts about taking over the treasury. You will need to get these ready before you fight over it. Do not fight if you don't have the enforcement tools ready. If you decide to postpone the fight, continue tracking the same way but stop talking about it and don't make any threats.

House

So many people live in a much bigger house than they need. Most families don't need more than a 3 bedroom house. Anything above that is a luxury. Seriously consider downsizing until you can afford it. If renting, this is not that hard but selling your current house is not trivial. There are some creative options you can utilize if you have a bigger house than you need and there are serious obstacles to downsizing:

  • Convert some space as a separate living unit and rent it out. Get started with real estate!
  • Convert some space to use as a side business - save on external lease, potentially save on taxes.
  • Rent out your whole house and move to a smaller house to test it out or temporarily until you get a handle on your finances and you can afford it. I'm a fan of real estate so this could be your first step.

The effects of downsizing are huge. Not only does your rent/mortgage go down, but your utilities also decrease. This is definitely not a Rambo area - be aware of the situation and make a good long term plan.

Mobile plan and Internet

Find out what your cheapest option is for both. There are plans out there that work well together - for example, you don't need unlimited bandwidth on both mobile and home internet. If you get a cheaper plan for data, use home wifi to avoid cell data. Alternatively, if you have unlimited cell data, get a cheaper home internet plan and use the cell data. Get the minimum you actually need for both and shop around. These plans are easy to switch so don't be lazy.

Gas

Not much you can do here except: Don't drive that much. This saves time more than the gas money so I call it out anyway because time is important. See Grocery System. Do carpool your kids activities with other parents. Do not drive your kids to school, put them on the bus. Plan your trips efficiently. Drive jointly if possible instead of taking two cars to the same location just because of some side trip someone has to make. Find out where the cheapest gas station is that is close to something you attend regularly and make a point to fill up there if you happen to be there. Don't waste time making special trips to that gas station unless it's really close.

Household help

If you are using various services to help around the house, make the determination whether this is something you want to keep doing. If your wife is a SAHM, do not spend on cleaning service. If she insists, put it in her discretionary budget and tell her. Enlist your kids in household chores - teenage kids can handle most of it. Pay them for it and let them take over individual jobs. My son does 100% of the dishes now. I pay him which goes against his budget (he doesn't need to know) and it's money I would have likely spent on him anyway.

Alarm monitoring, pest control

I cancelled all of these. YMMV. Maybe get a gun and some insect spray.

Kids items

Stop buying your kids a bunch of stuff they don't need. Encourage them to work around the house and if they are old enough, get a job outside the house. If they are old enough for a phone, get a cheaper option - older models have significant discounts. They can earn their own money if they want something better.

Kids clothes

For smaller kids, find parents with older kids and see if you can score some hand me downs. For older kids, reduce the spend and if they are old enough, give them a budget to decide what they buy.

Kids jobs

If they are old enough, make them get a job outside the house - babysitting, pet sitting, mowing, yard work, regular jobs. This takes some time so help them. Teach them some marketable skills and help them with advertising it. Encourage them to walk around the neighborhood (if safe) to offer their services because it is much more likely they will actually get a job. Go with them if needed but let them walk up to the door by themselves to make their pitch.

Gifts

We stopped buying numerous gifts because everybody is now on board with the long term plan. Gifts for kids go against their budget. Gifts for your wife go against yours, your wife buying you gifts goes against hers. Since the budget is tight, this will force some decisions. Each gift now matters. Flex that Benevolent Beta Bux (BBB) and if she's cooperating, and you are doing better than her, occasionally buy her stuff she sacrificed. This shows that you appreciate her contributions and that you know what she likes.

Enforcement

After a few months, hopefully you've become a better leader overall, and you have demonstrated value by saving money, and leading your family towards a more prosperous future. This is the time to seriously enforce the budget so you can make additional cuts towards saving.

If your wife is trying and cooperating, you just need to be more attentive to her spending and vocal when she's approaching her limit. Do enforce it verbally and be calm about it. Offer suggestions and reward her with more responsibility if warranted. Start sharing your vision with her more so that she sees the benefits.

If she is not cooperating, you will need to take drastic steps. Consider taking one more benevolent appeal if you have been improving in other areas so that she's starting to follow your leadership in other areas. But it's possible you will have to force the issue - see MRP posts about taking over the treasury. Time this right and have all your tools ready before you do this because you don't need to argue if you can't enforce.