A Few Simple Changes

I cannot resist the siren call of the New Year's resolution. Sure, this system of goal setting has literally never worked for me. And yeah, I am now in my thirty seventh year, so why should things change this late in the game?

But motivation is a rare thing, and I should at least try to capture it the one time a year it predictably shows its head like Punxsutawney Phil.

My goal is to bring our annual spending back to $40,000 again. That translates to a very attractive looking $3,333 a month. We used to come in under that figure, no problem... back after we'd paid off our mortgage. So, yeah, apples and elephants now that we have a big honking mortgage again, I know.

Still, when I look at a single month, it sure does seem possible. Plus, I have a secret weapon, as shown in the picture.

No, not the adorable, obedient puppy who gets an appropriate amount of love and attention, and definitely is not spoiled. I mean the high tech system of pizza sauce jars with cash money inside.

Yes, we are getting back to basics in the Done by Forty household, and using a cash system. At least for a month. (Or at least that's what Mrs. Done by Forty has agreed to. Little does she know that I plan to institute a cash year in 2018, and this first month is just the tip of the iceberg. But seeing how she is this blog's editor, she is probably becoming aware of my ruse right... now.)


The Plan:

• Each of us will keep $100 in our wallets, as that's almost always enough to cover any single purchase.
• We'll keep receipts for whatever we buy, and then "true up" when we get back home or whenever we think about it (i.e. - I buy $47 dollars worth of groceries from the money in my wallet, I put the receipt in the grocery jar, and pull money/make change from the grocery jar to get my wallet back to $100.)
• We'll still pay for a lot of things electronically: if it's necessary (e.g. - Amazon or other online shopping/utility bill pay), or just convenient (gas for the car), or if we just don't have enough cash on hand. The system's meant to help us, not be a pain in the ass.
• Rather than using our credit card statements to track individual purchases, we will just tally up the receipts in the jar at the end of the month or, in the event that we don't think it makes sense to track every purchase, just see how much cash is in each jar at the end of the month and do a little subtraction. This could actually reduce the amount of effort we put into budgeting.
• We can pull cash from jars if we run out (e.g. - we can yank $50 from date night if the grocery jar is low, or vice versa). 
• No tracking coins: everything gets rounded to a dollar. Change from purchases goes into the console of the car, or a pocket in the backpack when biking, and will be used for future purchases when we think of it. But life's too short to count change.

Who's Winning the Rewards Game?

So why are we reverting to a cash system in 2018, the year in which we can pay not only with plastic, but with our phones and with our faces?

For one, I've been beating the drum for a long time that the people who are good with finances, who pay their bills on time and go after credit card rewards, are exactly the sort of people who are likely to spend more when using a credit card. I suspect that the impact of the credit card might well exceed the 2% cash back we're currently getting. So even though there's a $500 opportunity cost with the cash-only plan (what we would earn at 2% cash back on the $25k in spend we typically put on a card each year) there's a good chance we're still coming out way behind with plastic. 

Even beyond our 'everyday' spending, our purchasing behavior might be particularly skewed when we're trying to churn a new credit card for a sign up bonus. Trying to get a big bonus turns our frugality on its head: instead of being frugal and questioning purchases, we end up looking for ways to hit a spending target so we can get a mess of miles.

Some in the personal finance community don't like hearing this sort of stuff, because it's awesome to get rewards and fly for free and, ahem, earn side income from people signing up from credit cards on our blogs. People who might get in to some serious credit card debt in the process, for all we know.

And sure, I like to think that I'm just spending money "that I would have spent anyway" when using a credit card. And my behavior might not be influenced in any way by the specter of getting 50,000 airline miles if I spend three thousand bucks in the next three months, right? 

But the entire field of behavioral economics is founded on the idea that we humans are not particularly rational actors when it comes to money. We might not be in a position to objectively evaluate our purchases, and whether rewards are enticing us to spend more. We should consider the possibility that the rewards game is gaming us. Anyway, give this post a look if you weren't reading the blog back in 2013.

Regardless, after traveling internationally every six months for the past four years or so, we're taking a break in 2018. I figure this is a great time to see if we might spend less using a cash system. If it doesn't work, we can always switch back to plastic and start earning miles again.

And I should note that this is nowhere near a perfect experiment. Each year is unique and has a ton of variables that we cannot control for. Even if we do end up spending a lot less in 2018, I'm in no position to say it's because we used cash.

Still, if we end up cutting our spending by $10k or more, while we're in a bigger new house with a much bigger mortgage, I won't really care why it happened. I'll care that it happened.

Recurring Expenses

In addition to trying for a cash year, we want to reevaluate all our recurring expenses because those are the things that have long term impacts. A big one is our insurance. We'll be contacting some local insurance agents to compete our home, auto, scooter & other policies, just to make sure we're still price competitive. And I'll be calling in to our internet service provider to negotiate our rates. 

(If you're not already negotiating some of your regular bills, please do give it a shot. This is some of the easiest money you can make on a fifteen minute call, and the reduction you negotiate recurs every month going forward.)

Still, even better than reducing a recurring expense is finding a way to eliminate it entirely. As we're approaching financial independence, we're finding less and less justification for things like our term life insurance. At a certain point, the life insurance provided by my employer is enough to get us to "enough" in the event that Mrs. Done by Forty gives in to the temptation and nudges the ladder when I'm working on the roof.


A Little Budget Porn

Draw the shades and make sure you've got the house to yourself, you pervs. Here's the final clip of budget porn for 2017.

Total December Spend: $3,242
Non-Mortgage Spend: $3,242
 2017 Annual Spend: $48,379 

And here is how we're trending towards financial independence, courtesy of the Mad Fientist's laboratory:

We ended up refinancing our new mortgage to a better rate (about half a percent lower to 3.75%, with the new company bringing $2k in credits to close). We did have to pay about $800 in title fees but we'll break even in less than a year, so it seemed like a decent move. And we skipped December's mortgage payment in the process: a hollow victory as our final payment is now a month later, too. But we'll take it.

The outlier expenses this month were Christmas gifts and charitable donations, as I'm sure they were for a lot of us. If you're still looking for a worthy cause to donate to before the new standard deduction makes itemizing charitable donations near impossible for many middle class households, we have a good one to recommend.

We'll have a longer post breaking down the total spend in 2017, but cracking $48,000 is a new record for us, and a dubious one at that. But even with 2018 having one particular new, daunting-yet-exciting opportunity to spend more money, I'm strangely optimistic that we can pull our spending back down towards $40,000, and more in line with our original plan to be 'done by forty'.

Hope abounds this time of year, and that is a good thing. I wish that you, my kind readers, have all the support, motivation, and luck in making next year your best one yet.

But tonight, enjoy the last bits of 2017 with some adult beverages, hug your loved ones, light some firecrackers, and please be safe out there.

As always, thanks for reading.