Category Archives: Saving Money

I am Frugal, not Cheap

While my wife likes to tell people that I am cheap, I am just frugal.  I don’t like to spend money.  When I must spend it, it is like saying good-bye to a close friend.  Well, that might be a bit dramatic, but it honestly does sting some when we part ways.

When I do spend money, I seek out value.  I want the best quality product at the lowest price.  In the past, there have been times when I bought the lowest priced product, but the quality was not there.  Most of the products that I bought based on being the lowest price did not last long and had to be replaced.  I follow the German phrase: Weniger aber besser.  In English, that translates to: Less but better.

The internet has made finding value easier.  I am a big fan of reading product reviews.  I find that Amazon is a good starting point for most products because they seem to sell almost everything.  Amazon also tends to have the best price on many items.  When I am looking to buy a product,  I like to read 10 or 15 reviews and try to verify that the review was made by someone who bought the product.

I am a brand loyalist.  After I find a brand or product that I like, I stick with it unless they make changes that reduce the quality.  Two areas of where I display frugality by shopping for high quality at the best price are cars and clothing.

Since I live in Pennsylvania and use my car for work, I need a high-quality vehicle that is good in all weather.  A few years ago, I was in the market for a new car.  My Honda Civic had 212K miles on it and the clutch was shot.  I decided that I wanted to buy a Subaru Legacy.

When I started looking, I knew I wanted a certified used car, so I would not get hit with the depreciation costs.  I searched a 25 miles radius from my zip code on Cars.com.  One-year-old Premium models were selling for $24K with over 25K miles on them.

I decided to expand my search, I changed the search radius to 150 miles.  I found a one-year-old certified Legacy at a dealer in Philadelphia for $19,500 and it had only 9K miles on it.  We drove 2 hours to Philadelphia and traded in the Honda for the Subaru.  That car now has 130K miles on it and I will keep it for 3 more years.

I am not a clothes horse or a fancy guy.  My job requires that I dress business casual.  My position involves interaction with the public at career events, universities, and health care centers.  I don’t have to wear a suit, but I do have to look presentable.

For shoes, I have found that Johnson and Murphy are my favorite.  If you are not familiar with this brand, you might get sticker shock when you see the price.  However, I only buy them when they are on sale or at the discount outlets.  I will pay up to $100 for shoes that retail for over $150.  The reason that I am willing to pay $100 for these shoes is that they last.  I get 5-6 years out of them and they are comfortable.

For pants, I like Eddie Bauer.  I will not pay full price at the retail store.  Their website frequently has good sales on the athletic cut that I wear.  Just like with Johnson and Murphy shoes, these pants last a long time.  I don’t mind spending $50 on a pair of pants that will last 7-8 years of frequent wear.

For shirts, the Jos. A. Bank wrinkle-free travelers are my favorite.  Again, I will not pay full retail.  I wait until they have 3 for $99 and buy them then.  $33 for a wrinkle-free dress shirt is a good price.  These shirts are also long lasting and do not have to be ironed.

There are many other examples of how I am frugal and not cheap that I could write about.  For big-ticket electronics, I try to wait until Cyber Monday.  For sporting goods, I buy out of season.  For groceries, my wife used to cut coupons, but now we shop at Aldi.  For investing, we only use low-cost index funds.

While I have always been frugal, I am always looking for ways to get more for less.  By nature, I like to optimize.  Since I have officially joined the financial independence community, I have become even more motivated to reach financial independence by stretching our money even further.  The next frontier that I am planning on studying and implementing is travel hacking.

Please check out the “Frugal, not Cheap Challenge” chain gang:

The Aldi Experience

The first time I ever visited an Aldi grocery store was when I was 16 years old.  I just passed the exam for my driver’s license.  One Saturday, I wanted to borrow my grandmother’s car to go cruising with my friends.  She agreed to let me borrow the car for a few hours, but I had to work for the privilege to use it.

My job was to go to the market for her.  My assignment was not to go to any random supermarket, but to go to Aldi.  I have never been to Aldi before.  I knew where the store was located, but did not even know that it was a grocery store.

Aldi is not like any regular supermarket.  You need to bring some supplies with you.  My grandmother armed me with a single quarter ($0.25) as well as 6 or 7 cloth bags.

At Aldi, customers must put a quarter in the shopping cart to rent it.  By renting the cart, shoppers have an incentive to return the cart back to the rack after they are finished shopping to get their quarter back.  This reduces labor cost because the employees do not have to go around the parking lot to round up the shopping carts.  Plus, Aldi only has a few employees staffed per shift.

Aldi does not have grocery bags.  Customers must bring their own.  They were green and environmentally friendly before it was a trend.  This too is a cost saving measure because they do not have the expense of providing plastic or paper bags for customers to use.

I was only a kid at the time and did not exactly know how much groceries cost.  Even though it was a new experience, I was impressed with the amount of food that I could purchase for $35.  I had those 6 or 7 bags filled with groceries.

When I delivered the groceries to my grandmother, I asked her if there is a big difference in price between Aldi and the other local stores.  She said yes.  A shopper saves about 30% by buying their groceries at Aldi.

Fast forward a couple of decades 

I have recently read a few articles about Aldi.  Their business is booming.  They are currently working on building over 450 new stores.

There is also a ton of buzz around shopping for groceries at Aldi in the financial independence community.   I read that PoF from Physician on FIRE  shops at Aldi and there was a review of Aldi on The Wall Street Physician.  All the buzz motivated me to give it a try.

My wife and I normally go to the grocery store once per week.  We do an inventory and create a list of what we need to purchase for the next week. Our orders are generally the same every week.  At our local Shop Rite, we spend about $110 per week on average.  We are price conscious shoppers and try to only buy what is on sale.  We are also health conscious and mostly buy healthy foods such as fruit, vegetables, lean meats, whole wheat bread or pasta, and fat-free dairy products.

When we went to our local Aldi, it was under construction, but still open.  They are doubling the size of the store.  Other than building new stores, Aldi is also expanding the size of many of their current locations.

The layout of the store was just as I remembered.  Like every grocery store, the aisles are broken down by category.  Being new to the store, it took us about 5 minutes to find out where everything we needed to buy was located.  It was easy to find what we were looking for.

We were in the store for about 10 seconds before I started noticing the prices.  It did not take long for me to pick-up on the major difference between our local Shop Rite and Aldi.  When we checked-out the amount owed was $75.  That was for our full weekly order that normally costs $110.

Conclusion

After reviewing the Aldi experiment, we will be shopping there from now on.  On our first visit, we saved $35 compared to virtually the same order at our local Shop Rite the previous week.  That was a difference of more than 30%.

Most of the products at Aldi are their own brand.  When we shop at Shop Rite, we also buy store brands when available.  Aldi also sells some name brands.  The price for name brand products at Aldi still cost less for the same product at our local grocery store.

If we can save $35 per week by shopping at Aldi, that would be over $1,800 in savings per year in our grocery bill.  That $1,800 in savings is just for a household of 2 adults.  Shopping at Aldi would provide even greater savings for a larger household with more members.

If you are interested in finding the store closest to you, go to their website www.aldi.com.

What is nice about their website is that they provide the weekly sales flyer online.

Have you ever shopped at Aldi?

If you have, please share your experience.

Saving $100,000 by age 30

Saving my first one hundred thousand dollars was the hardest.  When I started on the road to financial independence (FI), I was only 20 years old.  I wanted financial independence and reaching my first $100K was the first goal that I set.  I was aware that it was a lofty financial goal, but I embraced the challenge.  I wanted to reach this milestone by age 30.  On my way to reaching this goal, here is what I did:

Work

I had to land a job and start earning money.  When I looked for a job, my options were limited.  I did not have a college degree yet.  The economy where I lived was not great.  My options were a factory job, construction, or working in the food industry.  I selected working on an assembly line in a mattress factory.  There was nothing glamorous about the job.  It paid a decent hourly wage for unskilled labor.  It was a means to an end, so I was grateful to have it.

Learning to Save

To reach my goal of building a net worth of $100K by the age of 30, I had to save.  Saving came easily to me.  I was working hard for the paycheck and did not want to waste the money.  Every month, I would put at least $500 away towards my long-term goal.  I also put additional money away for vacations, car expenses, and costs associated with college.

Investing

I had to learn how to invest the money that I was saving.  It was the year 1997.  It seemed as if growth and technology stocks were soaring to new market highs daily.  There were often commercials on television advertising new day-trading platforms.  I was fortunate to have read a few books that taught me to stay away from such speculative approaches.  I learned to invest in mutual funds that tracked indexes such as the S&P 500.

I needed to earn 8% on my investments based on my savings and time horizon.  Historically, the stock market earned 10%.  I was confident in the information that I read.  I dollar cost averaged money into my investment account every month.  I ignored the market volatility and just kept moving forward.

Education

Getting a good college education was important to me.  I knew going to college would help me to learn skills that would put me in a better position to earn a larger salary.  College was, however, a financial challenge to manage on my path to reaching $100K by age 30.  I did not want to incur a large student loan balance.  To avoid that, I took 60 credits at the local community college.  I paid cash for those credits.  That allowed me to incur only $18K in student loans for the additional 60 credits I needed to complete my BS degree.

Conclusion

Yes, I did reach the first goal on my journey to financial independence.  By age 30, I saved almost $120K.  The only debt I had was my student loan of $18K, so that left me with a net worth of over $100K.

Looking back, I did put a great deal of pressure on myself to reach this goal because my salary never exceeded $30K per year during this period.  It was, however, worth it.  It set me up with a solid foundation to build upon towards my next goal of a $1M net worth.

Yes, my 20s were productive, but I also had a great time.  I went on nice vacations, went out with my friends, and dated the girl who later became my wife.  I would not go back and change it if I could.

Please remember to check with a financial professional before you ever buy an investment and to read my Disclaimer page.

The Power of a Dual Income Couple

Albert Einstein said that compound interest is the 8th wonder of the world.  He who understands it will earn it, and he who doesn’t will pay it.  If compound interest is the 8th wonder of the world, then I feel that the power of a dual income couple is the 9th.  Being in a dual income couple can be a powerful wealth building partnership if managed correctly.

At my first full-time job, I worked with a guy named John.  John trained me when I first started at the company.  He and I became friends and we would often have conversations during lunch hour.

John was more than 20 years older than me.  He and I would talk and he would give me advice about life.  He told me that his wife was a stenographer and they lived off her salary.  They used her salary to pay their mortgage, car payments, buy groceries, and all their other expenses.  He said that they saved all the money he earned from his position.  They invested all his earnings and were planning on retiring in 20 years when they were both age 60.

I was a young man at the time and never heard of living off one salary.  This was just around the time that I was getting interested in personal finance.  It truly did sound like an ingenious plan.

When my wife and I got married, this was the basic strategy that we planned on using.  In my own experience, I have found that being in a two-income household has many financial advantages.  Here are some tips on structuring a plan to get the most out of a dual income household:

Salaries

Start by analyzing both salaries and identify the higher of the two.  Use the higher of the two salaries for paying all the reoccurring monthly expenses including housing, food, insurance, recreation, miscellaneous expenses, and child care if you have children.  Set a goal of one day being able to use the lower of the two salaries to pay these expenses.  This can be done by focusing on reducing expenses, career growth, and even side jobs.

You might be thinking that living on one salary would be impossible.  It might not be easy, but it is defiantly doable.  Check out the Story about Liz who was featured on budgetsaresexy.com.  Liz provides for a family of five people while also saving to reach early retirement (FIRE).  Liz is also the author of the blog Chiefmomofficer.org.

Debt

Before you start saving and investing, you want to analyze your debt.  If you are part of a dual income couple that has a debt, first work on paying that down.  If need be, take a few years of using the lesser of the two salaries to pay down your debt.  Start by paying off all credit cards, auto loans, and any personal loans that you might have.

Next, pay down your student loans and mortgage.  Once you are left with only student loans and a mortgage, pay them down to a debt-to-income ratio (DTI) of under 15%.  After your debt-to-income level (DTI) is at a manageable level of under 15%, the higher of the two earners can work towards reducing the (DTI) even further.

To calculate your Debt-to-Income Ratio, see the formula below:

Debt-to-Income Ratio = Monthly Debt Payments/Monthly Income x 100

Example: $1000 in Monthly Debt Payments/$4000 in Monthly Income x 100 = DTI of 25%

Savings

When you are in the paying down debt stage, you should also contribute to a 401K if there is an employer match.  You want to contribute to get the max amount of what your employer is matching.  To do otherwise would be to refuse compensation.

Now it is time to start saving and investing.  First, establish an emergency fund of 3-6 months of expenses in an FDIC insured savings account.  Second, max out both 401K accounts to take advantage of tax-deferred savings.  Third, max out both Roth IRA accounts to grow that portion of your savings in a tax-free account.  Forth, use any additional savings to invest in broad market ETFs in a taxable account.

Conclusion

No matter if you are newly married or have been in a dual income couple for many years, you too can take advantage of the powerful wealth building capabilities that you have been blessed with.  My wife and I have been following this approach to reach financial independence for almost ten years.  Our savings rate is over 50% because we have learned to live on one salary.

One last note, I ran into my old co-worker John last summer after not seeing him in many years.  I was having breakfast at a local diner one Saturday morning and John was there with his wife.  We had a brief conversation.  He told me that he is retiring next year and moving from Pennsylvania to Texas where his wife has a family.  It appears that he truly did follow the simple yet profound approach to reach financial independence that he introduced to me a long time ago.

Please remember to check with a financial professional before you ever buy an investment and to read my Disclaimer Page.