Digging deeper for the junk food failure

For years I've been tracking my spending. It started in my first year of university over a decade ago when I wondered how I could make so much money and still have none left at the end of the week. Back in the day it was a simple notebook where I wrote down everything I spent, and totalled it up at the end of the week. Over the years it has grown bigger, more complex, and thanks to Google Sheets, easier to use. and yet somehow I still can't keep control of the 'miscellaneous' spending category.

Pen and Paper

In early university I wanted to buy an investment property, so I knew I needed to properly track my money in and out. At the beginning, all I did was write down what I spent in a notebook, and tally it up at the end of the week. Then I started recording my income at end of the week, directly next to my expenses. Then I started writing down $50 a week for 'bills' and $50 a week for 'savings'. Each time I had a bill I would deduct it from the saved amount. Then I found that making big luxury purchases was hard to fit into the budget, so I started making a list at the end of each week of things I wanted, and putting $5-$10 aside for them each week.

It was a good starter system, but I couldn't really see what I was spending on over the long term. Was I a booze hound? Did I blow all my money on video games? Should I stop buying books? (never stop buying books...)

Technology revolution

A couple of years ago I graduated to Google Sheets. Now I had 12 months of my expenses in my pocket at all times. Recording my spending was easy with my phone. I never had to worry about my pen running out of ink, my book running out of pages, or explaining to everyone what I was doing.

My spreadsheet has morphed and changed over the years, to a point where I now have 1 tab for each month, with columns for each spending category. Another tab collates all that spending into one easy to see snapshot. Other tabs track money being diverted into spending, and my income - which allows me to pull out spending and saving percentages at the drop of a hat.

This visibility of my money habits has dropped my spending from $46,000 in the 2015/16 financial year, to $42,000 in the 2017/18 financial year. While not a dramatic amount, watching my spending going down, and my lifestyle staying steady (or going up?) despite inflation has been a warm fuzzy feeling of success.

Yet somehow, in all of this I've been completely unable to get a hold on my 'miscellaneous' spending category.

Digging deep for expenses

For about a year I've been ending every month by kicking myself and saying 'stop spending so much on miscellaneous crap! It's your early retirement you're wasting!'. Turns out this isn't the most effective method. A lot of things sneak into this miscellaneous category. Some I can control, some I can't. Things like care packages for my derby team mates when they break limbs, and (very occasional) lunch meetings with my co-workers are things that I agreed to when I signed up for these communities. Some things I know are wasteful (hello Red Wine!) but I love and so I choose to continue spending mindfully. And some things are just plain stupid habits, like $7 coffees every time I'm at the airport...

After utterly failing to control this spending, I did a one year review, and here's what I found:

Books - $99.91, $7.93 a month

I am absolutely okay with this! I re-read books all the time, and since I was a small child I've had my nose glued to the pages. I could get more out of this time / money by reading investing books, personal development and all that other nonsense, but I love the escapism of reading about dragons and magic. (Right now I strongly recommend The Waking Fire: Book One of Draconis Memoria )

Video Games - $46.54, $3.70 a month

This is great. Once upon a time I had a bad habit of buying Steam games that I never played because they were on special. It's nice to see I've properly kicked this habit. All the games I've bought recently have twice as much playtime as dollars spent, which is a great Dollar To Fun ratio.

Alcohol - $382.56, $30.38 a month

This is one where I know I could spend less but I don't want to. The majority of my spending is on Red Wine, and I am super sneaky about it. I buy bulk, mixed packs from places like Virgin Wines, and Qantas. I always wait for a sale, and always get things at significantly reduced prices, generally with bonus frequent flyer points.

I do have long term plans to brew my own beers and ciders, but I'm not sure what the savings will be. It's something I plan to do for fun, rather than financial gain.

Clothes - $52.00, $4.13 a month

I have a confession to make - I hate buying clothes. Nothing fits properly and nothing suits my style. Why are bras so expensive? Why does underwear come in 7 different cuts and what is the different between 'boy leg' and 'full brief''? Why is it so hard to find a comfortable pair of jeans that aren't blue or $100?

The end result of my clothes shopping hatred is a super low bill, clothes that come pre-worn from the thrift shop, and underwear that is a decade old....

Medical - $226.60, $18.00 a month

This is excluding my health insurance, which is $91.61 a month for hospital and extras. $18 a month this year has covered contact lenses, 2 trips to the GP, multiple trips to the physio, and a trip to the dentist. I actually think I should spend more here and take better care of myself.

Comfort food - $785.15, $62.35 per month

What, what, What!!! What madness is this!! I've written before about the Latte Equation and the stupidity of paying $5 for takeaway coffee when you can make your own for barely 50cents (using the expensive milk). I've gone on and on about the virtues of baking your own treats and making your own snacks. And here I am spending almost $60 a month on comfort food, how is this happening!

First of all, December happens. In December all your friends want to go out for dinner. All your coworkers want to go out for lunch. And I want to buy Christmas treats. All of this is expensive. In December alone last year I spent $215 on comfort food.

I'm not too mad about December. I love my family and friends, and we're all pretty quiet throughout the year, so having a month of events is okay by me. What is not okay by me is keeping up this crazy spend throughout the year. I found $50 worth of coffees, $100 worth of pizzas, and over $100 worth of entries just labelled 'Junk Food'.

Alone, each of these entries isn't too offensive. But when over $60 a month is disappearing into this chasm of cheap, lazy snacks, something has to change.

Everything else - $2,059.08, $174.95 a month

Inevitably, when sorting out the miscellaneous column, there will be things that don't deserve their own category. Items left in this everything else category include crafting supplies, that time I paid for parking at the hospital, concert tickets, and odds and ends like replacement charging cables, some rammekins and a pair of scissors. While there is a lot of uncategorised spending here, this is a number I'm happy to live with for now.

Where to from here?

In case my rant and the title of this post didn't give it away, I'm less than thrilled with spending $60 a month on comfort foods - especially when I'm more than capable of baking better tasting things myself. 

I'm a very firm believer that what gets measured gets done, as long as the measuring is accurate. To bring the comfort food spending back to a happy level, I've created a new column in my budget, and allotted $50 a month to snacks, junk food, takeaway and other deliciousness. I'm 'funding' that column with $10 out of my groceries budget, and $40 out of my miscellaneous budget.

I'm under no illusions that this will be properly managed in December. While I believe in controlling my spending, I don't believe in cutting out my friends to do so. When I get invited to Christmas outings, I'm absolutely going to go. Then when January rolls around and everyone is burned out from celebrating and feasting, I'll tackle this in earnest.

3 ways to shorten your mortgage right now

Buying a house is exciting. Moving in is exhausting and exciting. Decorating is frustrating and exciting. Renovating is terrifying and exciting. Realising you can walk naked around your house is liberating and exci-.. let's leave that one.

You know what's not exciting, staring down that 30 year ball and chain of your mortgage and the insane amount of interest your are going to pay. Here's three ways to knock years and tens of thousands off your mortgage.

But before we start...

Firstly, let's look at the word mortgage, from a couple of latin words it's roughly translates to Death Pledge. Okay it might not be as dramatic as that, but when you took out a mortgage, you took out a 'til death do us part' pledge with your bank. On a 30 year $300,000 loan with a 4% interest rate, you have just promised to not only pay back that $300,000, but another $215,000 in interest.

For the sake of this article I'm going to assume you are already paying your mortgage weekly, rather than monthly. If not, let me break it down really quickly.

12 monthly payments of $1,400 equals $16,800 a year.

If you make fortnightly payments you need to put in half that each fortnight. Except that are 26 fortnights in a year, which means you end up making an extra months worth of repayments. 26 fortnightly payments of $700 equals $18,200 putting you ahead $1,400.

If you make weekly payments you need to put in a quarter of your monthly payment each week. There are 52 weeks in a year, which works out the same as fortnightly payments, but because you sneak the money in earlier you save a little bit more interest over 30 years it really adds up!

The average earning for an Australian in 2016 $78,000. Your mortgage is an agreement to pay six and a half years of your wages to the bank. Egads! Sure $300,000 is for the house, and only $215,000 is the banks profit but still, just imagine working six and a half years and not seeing a cent of it. Every extra dollar you throw towards your mortgage reduces the length of the mortgage, and the amount you pay to the banks so start now!

Sacrifice something small

No need to start sketching up a pentagram, you can knock years off your mortgage with small lifestyle sacrifices and no blood rites. Ditch your $25 a week gym membership and head outside into the sunshine. Not only will you soak up some extra vitamin D, putting that $25 into a mortgage will knock almost 4 years and more than $30,000 off your mortgage.

Call your bank

Yes, I know, it's uncomfortable and awkward, just do it. Check out the current interest rate market and call your bank every three to six months. Let them know that you've been looking online and can see that xyz bank is offering significantly lower rates and you're considering switching. Most banks empower their staff to drop your interest rate on the spot. A drop of 0.05% can knock $2 a week off your repayments. Keep paying at the higher rate and you can knock 4 months and close to $3,000 of your death pledge. All for an uncomfortable five minute phone call. If I told you calling your senile racist auntie once every few months would net you $3,000 would you do it?

Hustle with your house

See, the thing about houses is that people like to live in them. I assume that's why you bought yours anyway. If it happens to be a bit bigger than you and yours need perhaps you have a junk room, or a big back yard that you could put to use?

Renting out your junk room to a lodger could net you $100 a week, $85,000 off your mortgage, and almost 11 years back.

Don't want a stranger underfoot all the time? Rent the room on Airbnb for weekends, even with a few vacant weekends you should be able to pull in an average $30 a week, $35,000 and 4 and a half years.

Don't like people? Are you pro-dog? Pet sitters have been known to charge up to $35 a night. You'll mostly have visitors over weekends, but on average you could be looking at $50+ a week, $53,000 and six years. 

Don't like animals? Consider renting out your junk room as storage space for strangers with too much money. Spacer.com works like Airbnb, but instead of people, you rent out your space to stuff. According to their website you could pull down $4,000 a year! That's $75 a week and knocks $71,000 and 9 years off your mortgage. For putting peoples stuff in a corner.

Conclusion

Look at it this way, increasing your payments by a measly $4 (1%) knocks 8 months off your mortgage and saves over $5,000. Any of the strategies above is far better than that and putting all of them together could knock $100,000 and twelve years off your mortgage. Okay they're a little uncomfortable and take a little leg work, but can you really pass up $100,000?

Not paying a mortgage and want to save that money? Check out my calculator to see what your new savings / income stream could be work after ten years.

Another way of looking at 'cost' (and a Chilli Con Carne recipe)

 It's not a secret that I like money. I like having it, I like investing it. I'd like to have enough of it invested that the invested money makes enough money to cover my living costs. Then I can stop trading time for money. Time is pretty finite, I can't earn more of that.

Most Early Retirement blogs will tell you the process is simple, earn more, spend less, invest the difference. Then the negative comments on those blogs will try and tell you that spending $5 less per day isn't going to make you a millionaire, or significantly delay your retirement. It took me a while to really cut into the heart of this, but there are a few ways of looking at your expenses, and what they really cost you.

Number 1: The actual cost per week/month/year

 This is pretty obvious, and it's the first on that people think of. $5 per day is $35 per week, $150 per month, or $1,825 per year. Put that way it doesn't really seem like much.

Number 2: The ten year value of that money if you invested it

 This is the number that Mr Money Mustache always tells people to consider. Assuming 7% interest (which is a viable number, stop being so negative!):

• to calculate a weekly expense compounded over ten years, multiply the price by 752
• for a monthly expense, multiply by 173

That $5 a day could be $26,320 in ten years if you invested it, rather than spending it.

Number 3: The amount of money you would have to invest to cover that $5 per day.

This is my favourite way of looking at the long-term cost. It's also the best because I didn't directly steal it from someone else. I'm sure other people look at on-going costs this way, but I've never seen it formally written, so here I go.

If you want to retire on the income from your investments, that income needs to cover your ongoing costs, plus covering inflation. Most financial gurus will accept that you can (reasonably) safely withdraw 4% of the value of your portfolio each year and stay ahead of the game. This assumes that your portfolio is continuing to grow through reinvested dividends.

Now - what we have is a $5p/day ($1,825) expense that needs to be covered by your portfolio. You can only withdraw 4% of your portfolio, so therefore your portfolio needs to be 25x that expense to cover it (that 25x comes from 100/4). So to cover a $5 per day expense, which is costing you $1,825 actual dollars per year, you need $45,625 invested to cover that $5 a day. The Australian Bureau of Statistics says that in November 2014 the average full time salary was 76k per year. That means you would need to invest 60% of a years income just to cover a $5 a day habit (probably take-away coffee).

Is a daily coffee really worth $45k to you? Cause it definitely isn't to me. But another perspective is the food budget. Currently my food budget is $6.50 per day (plus whatever Mr. FIRE spends), which means investing $60k to cover my food expenses. $6.50 per day averages $2.15 per meal. I can make Chilli Con Carne for $1.15 per serve.

Of course, I don't eat that cheap every night. Some nights we have steak and chips, for about $6-$7 (good steak is pricey!). For one meal it's barely $5 difference, but if we were to eat that way every meal we could easily need another $100,000 just to maintain our lifestyle. A few nights of delicious budget chilli con carne brings our early retirement much closer.

Chilli Con Carne

This recipe made me 20 serves.

Ingredients

• 1 tbsp oil
• 1 large onion
• 1 red pepper
• 2 garlic cloves, peeled
• 1 heaped tsp hot chilli powder (or 1/2 level tbsp if you only have mild)
• 1 tsp paprika
• 1 tsp ground cumin
• 500g lean minced beef
• 1 beef stock cube
• 400g can chopped tomatoes
• 1/2 tsp dried marjoram
• 1 tsp sugar
• 2 tbsp tomato purée
• 200g dried red kidney beans
• 5 cups (uncooked) rice

Method

1. Cook your kidney beans the day before. Boil for 10minutes, then toss in a slow cooker for about 5 hours.
2. Put your pot on over a medium heat. Add the oil and leave it for 1-2 minutes until hot. Add the diced onions and cook, stirring, for about 5 minutes, or until the onions are soft, squidgy and slightly translucent. While the onion is cooking slice open red peppers, discard the seeds and dice.
3. Add the garlic, red pepper, chilli powder, paprika and ground cumin to the pot. Give it a good stir, then leave it to cook for another 5 minutes, stirring occasionally.
4. Brown the beef. Turn the heat up a bit, add the meat to the pot and break it up with your spoon or spatula. The mix should sizzle a bit when you add the mince. Keep stirring and prodding for at least 5 minutes, until all the mince is in uniform, mince-sized lumps and there are no more pink bits. Make sure you keep the heat hot enough for the meat to fry and become brown, rather than just stew.
5. Crumble beef stock into 600ml hot water. Pour this into the pan with the mince mixture. Open the can of chopped tomatoes and add these as well. Tip in marjoram and sugar, if using, and add a good shake of salt and pepper. Squirt in tomato purée and stir the sauce well.
6. Simmer it gently. Bring the whole thing to the boil, give it a good stir and put a lid on the pan. Turn down the heat until it is gently bubbling and leave it for 20 minutes. You should check on the pan occasionally to stir it and make sure the sauce doesn’t catch on the bottom of the pan or isn’t drying out. If it is, add a couple of tablespoons of water and make sure that the heat really is low enough. After simmering gently, the saucy mince mixture should look thick, moist and juicy.
7. Bring on the beans. Rinse red kidney beans in a sieve if you haven't already and stir them into the chilli pot. Bring to the boil again, and gently bubble without the lid for another 10 minutes, adding a little more water if it looks too dry. Now replace the lid, turn off the heat and leave your chilli to stand for 10 minutes before serving, and relax. Leaving your chilli to stand is really important as it allows the flavours to mingle.
8. Serve with rice. To get the $1.15 per serve value I served 2 scoops of rice with 1 scoop of Chilli Con Carne.

The Latte Equation

A favourite of frugality and finance bloggers is the Latte Equation. You can't throw a stone without hitting it, whether it's people saying to ignore the Latte Equation and focus on the big savings, or people talking about whether that $4 a day savings is the basis of a good financial habit, everyone has an opinion. Here's some of my favourite ways to calculate the Latte Equation.

The basic theory

A latte is roughly $4 a day, depending on where you shop. This is a short term happiness boost that is a massive financial drain and represents frivolous spending that could be wisely redirected. That's the absolute basic theory.

Paying down debt

Imagine you spent that $4 a day on your mortgage instead of on a latte. Assuming you only buy coffee on work days, $4 a day, 5 days a week then you are spending $20 a week on the Latte Equation. If you instead throw that $20 at a $300k, 30 year mortgage with a 4.5% interest rate, you can knock 3 years off the repayments. Even more impressive, you save $30,000 on repayments.

Even better (or worse), imagine you have $2,500 in credit card debt. Making minimum repayments this would take twenty-two years to pay off, and cost you $7,600!!! But throw the $20 a week from the Latte Equation at this debt and it will only take you 3 years and $3,243. 

Coffee? Or massive debt reduction?

Investing for the future

In a similar vein, perhaps you have no debt. Or perhaps you're comfortable carrying that debt and you'd rather invest and watch your money grow. Mathematically you're better off investing in the share market for a 7% return (historical average) than paying down a 4% mortgage.

If you choose to invest, your $4 latte could instead be $21,000 in ten years.

Staying sane!

It wouldn't be fair to talk about coffee without talking about the special place it holds in our hearts, and lives, and taste buds, and our ability to deal with people before 9am. Coffee is delicious, warm and my favourite piece of first-world decadence. It is the sweet nectar of life, and without it some of us wouldn't be employed at all, if you catch my drift.

Scientifically, you are actually addicted to coffee! Congratulations! Coffee increases the speed of signals travelling through your brain, giving you that increased pep. Unfortunately our bodies don't like being pushed out of alignment like that and they compensate by creating more neural blockers to slow those messages. At first it works nicely, you drink coffee, get some pep, then the coffee wears off. But your body builds a resistance by creating those neural blocker so you need more and more coffee for the same pep. Then if you try and cut back, you find that those neural blockers are still in place and you feel slow and sluggish. Your body will remove them to bring back its equilibrium, but you'll feel pretty meh during the process.

When asked to give up their daily coffee most people recoil in horror because coffee is life. As a coffee drinker myself I can't argue with that, but I can offer alternatives...

Reduce, replace, remove?

The easiest calculation in the Latte Equation is always simply removing the offending item (coffee) and doing something with the money saved. Of course this ignores the human element, which is why I offer you the alternatives of Reducing and Replacing.

Reduction is simple enough in theory, if not in practice. If you're buying two coffees a day ($40 a week, $53,000 and 5.6 years off your mortgage!) start with dropping down to one a day. Maybe trick yourself by drinking a cup of decaf if you're desperate enough. You could also swap a cup of coffee for a cup of tea, which costs significantly less but only contains 1/4 the amount of caffeine. Bonus points if your office supplies free tea supplies.

Replacing your delicious barista brewed coffee with instant coffee, tea or *shudder* decaf will save you about $15 a week, but it doesn't hit the pleasure centers of the brain the same way. Let's be honest there is a massive difference between instant 'coffee' and a proper espresso. But it turns out making a decent coffee at home is really not that hard.You can buy a decent coffee machine for around $200, and then you can make a latte at home for less than a dollar. Within three months you'll be ahead and can keep enjoying delicious cheap lattes for years. The only downside is you'll probably drink more coffee!

Protip - buy a thermos so you can take coffee in to work, out to the park, on a picnic. Anywhere!

Small wins are just distractions from the big things in life

At the end of all this though, remember we're talking $4 a day, $20 a week. There are plenty of people who will argue that focusing all your mental energies on these small wins is a waste. If I spend an hour a day lamenting my lack of coffee, that's an hour a day you're not spending working for a pay rise, building up a side hustle, learning about investments and money management, calling your bank for a rate reduction, shopping around for better utility pricing etc. etc.

A 50 cent an hour pay rise will more than cover the costs of coffee. Calling the bank and getting .1% knocked off a $300,000 mortgage reduces your payments by $6 a week. Pet-sitting pays upwards of $15 a day to snuggle fluffy puppies. Purchasing another rental should be able to create a 5% return with less than an hour a week ongoing efforts. If all your energies are focused on reducing a $4 a day expense, you might be missing the big ticket items.

And of course, the Latte Equation can be applied to other things in life. Gym memberships can be swapped for going outside saving you $18 a week. You can stop visiting the vending machine and prep your own snacks, putting $15 a week back in your pocket. Friday night beers can be reduced to two instead of three for a $5-10 saving. Getting off the bus and riding a bike can save you almost $40 a week. The world is your (expensive) oyster and the Latte Equation can be applied everywhere!

The Latte Equation

A favourite of frugality and finance bloggers is the Latte Equation. You can't throw a stone without hitting it, whether it's people saying to ignore the Latte Equation and focus on the big savings, or people talking about whether that $4 a day savings is the basis of a good financial habit, everyone has an opinion. Here's some of my favourite ways to calculate the Latte Equation.