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Today, we have a guest post written by Laurie from The Three Year Experiment. Enjoy the read!
My family is so fortunate in so many ways. My husband has a great job and is a high income earner. I have the luxury of being a part-time ESL teacher. We live in an extremely safe small town in New England, full of wonderful people and good schools. Our two kids get to enjoy time in nature, hiking and swimming in the summer and skiing in the winter.
But honestly, over the past eight years that we’ve lived in New Hampshire, we’ve started to realize that we’re stuck. As beautiful and safe as our home is, there are some real downsides for us: winters are eight months long, cold and isolating. People, like the animals here, tend to hibernate in the winter. There’s very little socializing. You don’t tend to see many neighbors during the cold, dark winter months. We live in an isolated, remote town. There’s very little diversity, especially of thought. There are no grocery stores, very few restaurants, and no real urban areas within thirty miles of us. In the winter, we have to drive twenty minutes away just to get to the nearest super market.
And, most importantly, we’re 900 miles away from our closest relatives.
In a word, we’re trapped. We have the “golden handcuffs” problem–we’re stuck in a state to which we have no other ties because of my husband’s job.
It was almost a year and a half ago that my husband and I sat down and hatched a plan to change things. I’d just turned 37, and I knew we had to cut those golden handcuffs before I turned 40.
We figured out that if we were able to double our net worths, that would give us enough of a financial cushion that we could move. We wouldn’t be financially independent, but we’d be able to move abroad, change locations in the US, and/or take lower-paying jobs. We’d have flexibility; we’d have the freedom of choice. We could become independent of any one location–location independent.
The Three Year Experiment was born. In three years, I would be forty. Would it be possible to become location independent by then? We’d need to double our net worth to give ourselves a financial cushion to be feasible, and figure out where we were going and what we’d be doing while there. Three years isn’t a long time when you set big goals like that. I started the blog to document our progress and see if we could meet our goals.
One thing we’ve realized over the years is that travel changes us in the best of ways. We can get stuck–in the ways we think, in our daily routines, in our ideas–and when we travel, we come back with new ideas, new solutions for our problems, a bigger view of the world, more compassion, empathy, and patience.
This past December, we visited Chile for three weeks. Mr. ThreeYear is Chilean and his entire family is there. While we were there, we visited the driest desert in the world. We swam in salt lagoons and climbed 9,000 feet to visit natural springs tucked away in the Altiplano. We talked to lots of friends we hadn’t seen in years, and learned about how they’re living their lives, heard their ideas about investments and jobs, travel and family.
We came back with a renewed sense of purpose and a desire to kick our plan into high gear. In Year One of our plan, thanks to a stock market on steroids, it was pretty easy to increase our net worth by 32%, almost exactly the one-third increase necessary to keep us on track.
This year, though, doubling our net worth will not be as easy, as our investment accounts are down. That means we’ll need to be more creative than ever about saving more and spending less. Here’s our (sometimes unorthodox) plan:
Sell Our House
After spending several weeks this past December living in a 600-square-foot space while in Chile, we realized our family likes living in smaller quarters. When we ran the numbers, we saw that selling our house and renting a smaller place will save us around $8,000 a year or more. Currently, we pay high property taxes that offset the gains we make in paying down our home’s principal with our fifteen-year mortgage. Our house is great–it’s 3,500 square feet and three finished floors on a fully-landscaped corner lot–but it’s expensive to maintain. Last year, for example, we spent $14,000 putting on a new roof. It costs hundreds of dollars a month to heat, and our family of four tends to hang out in the same three rooms anyway.
There will be transaction fees to sell the house, and those will eat into our net worth. However, we plan to invest the six figures of equity we’ll get back into the stock market, and expect our investment gains and lower cost of living to offset those fees in a few years’ time. Plus, we’ll be one step closer to location independence!
Pay Off Our Debt
Last year, we made a plan to pay off our remaining debt payments. They included two car payments and the rest of a mortgage for a property we own in Santiago, Chile. When we started our financial independence journey, we paid off over $38,000 of debt, and vowed to never take on any non-mortgage debt again, but life happened. We sold our house at a loss to come to New Hampshire and were in the process of saving up as much as we could for a down payment on a new house. Our cars were old and expensive to maintain (we’d bought used luxury models–big mistake). We totaled up the maintenance costs we’d paid in one year, realized it was an insane number, and decided to finance two used cars with very low interest payments (total cost to finance, just over $1,000 each). That way, we wouldn’t cut into our house downpayment fund.
Last year, we paid both of the cars and the apartment off. We added up the total of the three monthly payments we no longer need to pay and now direct deposit that amount into our savings fund. We will eventually start a taxable account with that money, but for now, we are creating a larger cash cushion given our moving plans.
Spend Less on the Big Three
Honestly, our family isn’t great about being super frugal with every single expense. So we’ve focused on housing, cars, and food–also known as the “big three” since they tend to be a family’s biggest expense–and work to get those expenses down.
When we bought our current house, we bought a lot less house than we qualified for, put 20% down, and took out a 15 year mortgage. When we sell this house and move into a place with fixed rent, we’ll save even more. We buy gas-sipping used cars and drive them a long time. We’re working on food costs.
Housing alone can eat up astronomical amounts of your budget–some people spend up to 50% on living costs! We’ve worked on getting housing costs to a lower and lower percentage of total spending. It makes it a lot easier to save 50% of your income when you’re not spending 50% on just housing. Last year, even with expensive repairs thrown in, we spent less than 20% of our net income on housing. When we move, we expect to decrease that percentage to less than 15%.
It’s easy to get sucked in to buying a beautiful, big home in a nice neighborhood (been there!). But it’s important to divorce yourself from the emotion of a purchase in the moment you’re buying. That’s why I find renting such a great idea. When we moved to New Hampshire, we rented for two years, then took a long time finding the right house. We ended up buying a short sale, and got a large, comfortable house for a lot less money than others were paying. We made a logical, rather than emotional, buying decision. Renting helped us to relax and take our time to find the right house. When we bid on the short sale, we weren’t desperate for the sale to go through, so we allowed ourselves to imagine and plan for the possibility of not having the bank accept our offer (and they didn’t, for three months).
With cars, we’ve also learned that basic, reliable cars are affordable in more ways than one. We used to drive around a used BMW X5. It was fun to drive, but expensive to repair. We spent over $9,000 on car repairs in one year alone! That was the year we moved, and had we been paying more attention, we would have sold that money sucker way faster than we did. Now, we drive a used Prius and a used Honda Accord. We spend half as much on gas as we did when we drove larger cars, and our repair costs are a fraction of what we used to pay (in 2017, for example, we spent $914 on repairs and tire changes for the whole year).
Our grocery costs slowly increased, year after year, when we moved to New Hampshire. It’s much more expensive to buy groceries in this part of the country. Remember, we’re twenty minutes away from the nearest supermarket, so if we forget something at the store, we have to either drive back, or buy something at our very overpriced market in town (average mark-up: 100%). Our boys are also growing up, and so they eat more.
This year, though, I decided to try to decrease our grocery spending. To cut a modest amount–just 20%–off the cost of our groceries, each and every month of 2018. Why would I succeed now, when I’d tried and failed for so many years? Maybe it’s the focus. It’s our biggest savings goal of the year. Maybe it’s accountability. I have to share our spending with readers of the blog, so I’m extra careful not to spend more than I’ve budgeted.
Whatever the reason, we have, so far, stayed under budget each month of 2018 (fingers crossed). If we can successfully implement this new habit, that means that we’ll be able to cut one of our top five expenses by 20%. The roughly $200 per month we’re saving has gone into a travel fund, to buy an extra plane ticket to Chile (those things are pricey!). Each and every year that we stick to our new budget, we’ll have an extra $2400 a year to save, invest, or use for travel.
We’ve begun to eat more simply. We have one picky eater, anyway, so rotating the same few meals means he’s more likely to eat his entire supper. We tend to buy the same basic foods at the supermarket and cook most meals at home. We’ve experimented with eating more vegetarian meals, and we have worked hard this year to eat everything in our fridge. At least once a week, I’ll open up the fridge and see what’s on the brink of going bad. Then, we’ll make a meal from those items. That includes leftovers!
I’ve made it a priority to eat up all the food in house (especially since we’ll be moving soon) and given myself a little extra time each day to cook. I’ve also started buying groceries with cash. It is true that you spend less when you have to hand over cash than when you’re charging on a credit card.
After we paid off our last debt payments (except for our mortgage) last year, we’ve taken the money we were using to make payments each month, and transferred it to our savings and taxable investing accounts.
I’ve opened an “investment” account in our budgeting software (we use YNAB). Any time we get a refund check, unexpected cash, or other money, we deposit it in the investment account and then when the amount gets over $100, I transfer it to our taxable account.
We also transfer the money we’re saving on groceries into a travel account. Yes, money in fungible, but personal finance is also behavioral, so if we earmark the money for a certain account, we won’t be tempted to spend it. We create artificial scarcity for ourselves in this way and keep our daily spending more in check.
Every time we get a raise, we immediately start transferring that amount of money into our savings. Even if the raise increases our incomes by a small amount, we get in the habit of keeping the amount we have to spend each month the same, and increasing the amount we save.
We have a big net worth goal in the next year and a half, so that helps us remain committed to our savings plan. Watching our net worth increase, slowly but surely, is strong motivation for us to keep saving a little bit more and a little bit more.
We have just about a year and a half under our belts with our location independence experiment, and exciting things happening to help us meet our goals. I’d be honored if you’d visit us from time to time and see how we’re making out.