2019 – Paid Off $96,000 Debt & Increased Net worth by +$140,000

Woohoo! Looking back at 2019, what a year it was! The year my wife and I got on the same page about money, got on the same page about our health, took our heads out of the sand, and executed a plan with amazing results.

We didn’t start 2019 with the expectation of paying off all our consumer debt or changing our health around. There were no “new year resolutions” of “losing 10 pounds” or “paying off the car”. No, those “resolutions” never worked for us, the drive and determination would always quickly fade by the end of January.

We were already “aggressively” paying off our debt, but the timeline of being “debt free” was still 5 years out, we were looking at the year 2023! The debt burden was taking a negative toll on our health, almost suffocating us if you will. We thought we were doing it right too, save a little money here, invest a little money there, pay off more than the minimum on the monthly debt payments. The slowwww grind, because that’s just the way it had to be. At the time, we had over $60,000 in student loans, and around $30,000 in auto loans remaining.

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My wife and I were not yet on the same page about money either, there was no budget to refer to, no automated financial systems in place. No hard number of our total debt. One was a spender and the other a saver. So what happened?

A random Dave Ramsey YouTube video changed it all in late January 2019. This single video was the spark that made us have a serious discussion about our finances. This video literally changed our lives and our financial futures forever. You would think if that video had such an impact on us, I would remember it. I don’t! Ha! (We’ve watched hundreds since then). I think the message we took from it was that we weren’t alone, there were hundreds, thousands, even millions of people just like us trying to dig their ways out of debt. The “baby steps” that Dave recommends gave us a blue print to follow. Did we follow it to a “t”? No, but it was a jumping off point.

The discussion we had that night was hard for both of us. I grew up in a single parent household were money was a not always plentiful, so as an adult I viewed having money in the bank as a “comfort blanket” against struggle, against job loss, against being vulnerable. So when it came to executing Dave Ramsey’s baby step of having only “$1000” in an emergency fund and throwing everything we had at the debt it terrified me. $1000? Ha! A car repair or an issue with the house or god forbid a health issue could easily wipe out a $1000 in a blink of an eye. It felt like standing on a diving board above a pool and being afraid of heights.

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We took the plunge. We took our savings, liquidated our taxable investment account, tax refund, bonuses, and as much of our paychecks as we could while still being able to “keep the lights on” and “being able to eat” and threw it at our debt with vigor.

Throughout 2019, we posted entries that highlighted bits and pieces of our plan, and the thoughts behind it…

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Getting on the same page with your significant other is the bedrock of our success. If one is a saver and the other is a spender, neither having limits, you won’t succeed. Most folks see talking about money as a taboo but you need, need, NEED to have that tough conversation in order to succeed.

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We developed the 35/45/20 rule that gave a framework that was different than the average run of the mill 50/20/30 rule that you hear so much of. After ridding ourselves of our consumer debt, we quickly went at increasing our emergency fund. Which came in handy when an unexpected medical event and auto repair took place in late 2019.

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Paying off debt instead of investing outside of our retirement accounts was a massive moment for us. We didn’t follow Dave Ramsey’s advise here by stopping contributions to our retirement accounts, we thought the negative implications such as increasing our income tax liabilities and the mental effort of re-starting contributions again was too much of a risk. We actually went in the complete opposite direction, MAXING out our retirement accounts! This allowed us to also enjoy the stock market rise of 2019.

We developed a fancy excel sheet that tracked our net-worth and monthly expenses which became an exciting moment every month were we came together to see our progress. We made some free printables this year for others to start on their journey as well.

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One of the many positive side effects of ridding our debt was the ability to focus on our health. Instead of going out to eat a few times a week, we decided to consistently cook at home, making large and healthy batches of chicken, vegetables, with rice or pasta. We were able to find a local instructor lead fitness center that we were more readily able to afford, and over the course of the year we were able to lose 70 lbs combined! Improving our blood pressure, increased our tolerance to stress, and shrunk our waistlines!

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We are excited for 2020, we plan to continue to follow the 35/45/20 rule, and focusing on our health. Here’s to the new year!

Remember, we are not financial advisers and are merely sharing our experiences. 

So what are your thoughts? We would love to hear from you! Leave a comment below or send us an email via our Contact Page.

If you liked what you’ve read please be sure hit the “like” button and share! If you want to receive the latest articles please be sure to subscribe.

 

 

2019 Stock Picks In Review

Wow, 2019 started with a whimper and appears to be ending with a bang! There was doom and gloom in the air, with the threat of recession looming in December 2018. Federal Rate inversions were happening, high yield savings accounts were approaching 2.5%. The sky was falling. Fast forward to December 2019 and the champagne is flowing. “One of the best yearly returns of the S&P 500 since the Great Depression!”

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Now if you are a prefect market timer and were able to get out of the market in late Sept 2018 and THEN jumped back in the beginning of 2019, you are looking pretty with a “28% gain” in the S&P 500.

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Now, if you are like most folks… there is a good chance you were invested in an index fund tracking one of the major indices like… the S&P 500 and it was more likely you road the wave, achieving an 11% gain since the September 2018 peak. Yes your retirement account statement is showing a great year to date return but sometimes you need to step back and look at the big picture when you hear Bob from accounting exclaim his 401k is up 25% this year!

2019 was full of opportunities to buy great companies at crazy low valuations compared to their historic norms.

Be fearful when others are greedy, and greedy when others are fearful. – Warren Buffett

We focused primarily on what we know and understand the best, cyclical “tech” type companies. Namely companies focused in…

  • Mobile devices
    • Smart phones, laptops, tablets
  • Computer components
    • Processors
    • Memory chips
    • Graphics cards
  • Internet focused companies that have a large probability of scale
    • Cloud storage/solutions
    • Online merchant storefronts
    • Online advertising
    • Cyber security solutions

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Lets see how we did looking back on our portfolio performance for 2019.

Company Ticker Percentage Gain/Loss Purchase Month
Advanced Micro Devices AMD 62% August
Apple APPL 80% January
CVS CVS 19% February
CyberArk CYBR 20% September
Google GOOG 25% January
Micron MU 60% June
Nvidia NVDA 40% July
Shopify SHOP 35% October
Splunk SPLK 25% June
The Trade Desk TTD 50% June
Zillow ZG 40% September
Average return 41%

Will the good times flow into 2020? Who knows! How was your 2019?

Remember, we are not financial advisers and are merely sharing our experiences and make no recommendations to invest in any of  the above mentioned securities. 

So what are your thoughts? We would love to hear from you! Leave a comment below or send us an email via our Contact Page.

If you liked what you’ve read please be sure hit the “like” button and share! If you want to receive the latest articles please be sure to subscribe.

Be Above Average – Steps to Increase your Net Worth

What is the best way to check your financial health?

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Your credit score? Blah! No, that’s just the banks way of grading on how well you handle your debt addiction.

You can have a credit score of 850, paying your bill every month on time, collecting those HUGE cash back allowances… and be broke with zip, nada, in your checking and saving accounts. No matter how much you see it advertised every day by the likes of Credit Karma and the like. Remember, when something is advertised, its because there is money to be made on YOU, not to help you. So, no, not your credit score.

Something the financial industry is not shoving in your face everyday is your net worth.

Your net worth is the best way to evaluate your financial health.

So what is your net worth then? In layman terms… your net worth is the difference between your assets and liabilities.

An asset is anything of value that can be converted to cash. Think, a home with positive equity, rental properties, businesses, stocks, bonds, savings, checking accounts, etc.

A liability is typically something that you owe to somebody else. Think, credit card debt, student loans, auto loan, home mortgage, personal loans, etc.

Net Worth = Assets – Liability

So what is yours? You can figure it out easily by trying out our free net worth health check printable in our new Free Downloads section.

Where do you stand?

So are you worth something? Or are you sitting in the red?

In accordance to a study performed by NerdWallet and reprinted by MarketWatch earlier this year the median and average net worth by age is below:

  • Under 35: Median net worth: $11,000 (average net worth: $76,000)
  • 35-44: $59,800 ($288,700)
  • 45-54: $124,200 ($727,500)
  • 65-74: $224,100 ($1,066,000)
  • 75+: $264,800 ($1,067,000)

I personally would not compare myself against the “average” numbers as they can be skewed heavily by your millionaire/billionaire buddies, think the Mark Zuckerbergs of the world.

Don’t worry, no matter where you are in your financial journey there are always ways and time to improve your standing.

Live Below Your Means

You hear this one all the time, but are you actually doing it? Are you living paycheck to paycheck? Are you keeping up with the Jones down the street, you know, the ones who are maxing out their 5, 6, or 7th credit card buying that new iPhone?

Do you know where your money is going? If you don’t, give our Free Monthly Budget printable a try to see where your hard earned dollars are going.

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After writing everything down, give it a a real hard look. What are your biggest culprits? Are you spending too much on going out to eat every night? Is that cable bill outrageous? How much are you paying every month for that new car?

If you want to see where you can cut back on your current expenses head on over to our Ultimate Budget Guide to learn some tips and tricks.

Attack your debts!

If you want to turbo charge increasing your net worth PAY OFF THAT DEBT. Any debt you have is acting like a vampire on your finances, constantly sucking money out of your pockets in  the form of interest payments. Every time you pay off a debt your basically paying your future self in saved interest payments, with a guaranteed return.

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For example, we paid off over $160,000 in student loans in a 4 year span, about $60,000 this year alone. If we did the normal payment schedule we would be handing Sallie Mae almost $10,000 in interest a year! Now that money is going back into our investments and savings, turbo charging our net worth.

““Whatever interest rate you have — it might be a student loan with a 7 percent interest rate — if you pay off that loan, you’re making 7 percent. That’s your immediate return, which is a lot safer than trying to pick a stock or trying to pick real estate, or whatever it may be,”

Mark Cuban (Billionaire)

Automate Your Savings

One of the easiest ways to remove the temptation of spending your paycheck the second its pay day is by automating where you money goes. Take out the worry of trying to save X dollars every pay check. Have your paycheck automatically send money to your savings or investing accounts.

Give your paycheck a purpose! Take a look at our 35/45/20 rule to maximize your growth potential.

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Maximize Retirement Accounts

If your primary income comes from a W-2 (your 9 to 5 job) a good chuck of your gross income is going to either Uncle Sam or your primary state of residence in the form of taxes.

You can put more of that money in your pocket by maximizing your retirement contributions, either through your 401k retirement plan or a traditional IRA.

You reduce your current tax liabilities by reducing taxable gross income by increasing your pre-tax contributions. By even increasing your contributions by even 1 to 2 % you could end up putting thousands of dollars back into your retirement “pocket”.

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Give Yourself an Allowance

One of the greatest concepts that helped us turbo charge our net worth this year was giving ourselves money to spend on whatever we wanted.

Yes, we gave ourselves an allowance. A fixed amount of money that we could spend on anything!

That $4 Starbucks coffee? Yup, went for it. New video game? Fancy pair of pants. No sweat. As long as it fitted within the allowance.

By not depraving ourselves, we didn’t feel like we were punishing ourselves on our financial journey.

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Remember its a marathon, not a sprint. Think of it kind of like how folks typically fail a dieting, because they deprave themselves of simple pleasures instead of doing what is right by developing a long term, sustainable, life style change to achieve their goal.

By creating a balanced sustainable system you are sure to succeed.

What you set as your allowance is up to your given scenario. Could be $20 a week or $500, you may have to play around it until you hit that sweet spot. I recommend cranking it down until it hurts and then adjust upward.

Invest in Appreciating Assets

Make your money work for you by creating multiple streams of income.

Rental properties, stocks, bonds, high yield savings accounts, starting your own business.

All of the above investment instruments have their own barriers of entry and each come with their own levels of risk.

The lowest barrier to entry and lowest risk is definitely a high yield online savings account. In a Federal Reserve interest rate cutting world, what we define as “high yield” is around 1.90%. Look into online high yield savings providers to get the best rates. I recommend Synchrony Bank, but there are plenty of alternatives, just be sure that they offer FDIC insurance!

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The second lowest barrier to entry to grow your money would be in the world of stocks and bonds.

It’s actually even cheaper and easier than ever, as of October of 2019, many of the major trading houses have reduced their commission fees to $0. The risk increases though, stocks and bonds can go to zero, so due diligence is required here, but the growth potential is huge. If you are unfamiliar with the stock market start with Investopedia.com and SeekingAlpha.com to get investing savey!

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Investment properties are another method of increasing your wealth. You’ve probably seen the infomercials or YouTube videos of 20 year old millionaires flipping or renting out houses, sounds almost too good to be true!

When you step up to looking at investment properties the up front cost and risks amplify. Do you have $200,000 laying around? No? Okay looks like your taking out a loan. Oh shoot, the kitchen needs to be gutted? $20,000. Plumbing problems? $10,000. New roof? $15,000. But wait! You can rent it out for $1200 a month! Wow a 30 year pay back period!

Obviously I am being a little harsh here and plenty of folks are successful with investment properties, but there are plenty of horror stories, so due diligence is required here as well. You may end up being a millionaire on paper but when you only have a net worth of $100,000 and have $900,000 in mortgage liabilities, do you really want that hanging over your head?

Avoid Expensive Liabilities

Do you really need that $50,000 Silverado? You a business owner? No? Office job? Then why are you driving a $50,000 truck? Oh I am sorry your driving a $45,000 BMW sedan, my mistake.

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New cars are money pits that add very little value to building your net worth. Since most folks are financing the crap out of these new cars its a double whammy. Getting whacked on terrible depreciation, long 7-8 year loan terms leading to being upside down on a depreciating asset. These are anchors on your net worth growth.

When it comes to most consumer goods if you can’t by it in cash, you shouldn’t be buying it at all.

If an automobile is a necessity in your next of the woods, look into to a reliable low mileage used one. If you can pay for it in cash, even better!

Delayed Gratification

Did you see the new Iphone 11 Pro? Wow what a looker! Three cameras you say? No Way! How much?

$1100.

Well… that’s a sure fire way of going in the wrong direction in increasing your net worth.

Do you really need it? Like REALLY really? How about just holding on to that old iPhone 8 just a little while longer.

One of your best tools to increasing your net worth doesn’t have to be how many dollars and cents are coming in to your home every week. Its your mindset in the form of delayed gratification. Resisting the temptation of an “immediate reward” for your long term growth goals is key to your success.

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Bring it all together!

By living to the above topics we were able to supercharge our net worth growth by over 50% this year alone!

Remember, it’s never too late to change your mindset! Take charge today and stick to it. In 3 – 6 – 12 months from now you’ll be amazed by your progress.

Let us know your ideas, tricks, success stories below!

So what are your thoughts? We would love to hear from you! Leave a comment below or send us an email via our Contact Page.

If you liked what you’ve read please be sure hit the “like” button and share! If you want to receive the latest articles please be sure to subscribe.

 

Free Financial Printables To Get You On Track!

We are kicking off a new page here at The Debt Rebellion aimed at helping you become more money savey!

If you found this site you are no stranger to hearing and seeing financial gurus spout on about how to manage, how to track, or how to give your “money a purpose”, with not a whole lot of substance or action to get you off your phone or off the couch and get you actually doing something about it!

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I don’t know about you, but I learn by doing. Example problems to use… followed by a whole lot of practice worked for me and it may work for you too!

So to help our readers learn by DOING we’ve added a couple of FREE worksheets to get you going in the right direction. From tracking your net worth (your financial score card) to putting your monthly budget all in one place our goal is to help you develop the skills you need to elevate your financial prowess.

Let us know what you think! If they help you or you have a suggestion on how we can improve them please let us know below!

We plan to add more worksheets in the not too distant future as well so stay tuned!

 

Get on the same page about money! Become Unstoppable

One of the biggest hurdles on our road to becoming debt free and turbo charging our net-worth growth wasn’t the size of our monthly payments on our cars or the interest rate on the credit cards.

It was us.

My wife and I were just on totally different wave lengths all together when it came to money.

One of us was a penny pinching saver playing the “invest instead of paying off debt” game, and the other was a spender who paid the monthly payments but pretended the debt mountain wasn’t really there.

We saved money.

It was mostly by accident.

We used credit cards.. to earn “cash back” thinking we were smart and sticking it to the man.

Little did we know we were sticking it to ourselves.

SO much waste, on student loan and car loan interest, and spending WAY too much every month on the credit cards chasing that “cash back”.

Spender vs Saver

If you are the spender and they are the saver or vise-versa no matter how hard you each may try individually you’ll end just spinning your wheels making absolutely no progress.

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Not being on the same page lead to arguments and unneeded stress in our relationship. Per a 2018 study performed by Dave Ramsey we weren’t the only ones, money problems are one of the leading issues leading to failing marriages. Luckily, we had an “aha!” moment earlier this year and it happened on accident.

I stumbled upon a YouTube channel run by this guy named Dave Ramsey and a random episode was playing on our family room television when my wife came home from work. Our interests both peaked when the episode talked about a caller who had $200,000 in student and auto loan debt. We both sat there and intently listened to Dave’s recommendations.

After the episode ended it just “clicked” in both of us that we needed to get serious. It was a difficult discussion, a complete change in mindset. No more thoughts about investing and playing the game of beating out the interest rates on our loans, and both of us coming to realization of our total debt.

What We Did

We developed a Net-worth tracker spreadsheet that outlined all of our assets, liabilities, and monthly expenses. This spreadsheet gave us the “big picture” on our financial health and helped us track our progress.

We developed the 35/45/20 rule to follow. Which gave us a structure that we could both follow by giving us each an allowance that we could spend how ever we wanted while also automating our savings and investing.

We also put the credit cards away. Took them out of our wallets and switched completely to debt cards. Cash Back, Points, and/or airline mile rewards is a suckers game.

To jump start this new effort we also decided to use our emergency fund and started throwing all other income at the debt, any money left over from bills went to debt, including our tax returns.

Become an Unstoppable Team

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When both partners get on the same page and understand how both effect the big picture you become unstoppable. No financial hurdle is too big.

For us, not only did we pay off both cars, and all of our student loans, we increased our net-worth growth rate by 50% year over year. For example, hypothetically if we increased our net-worth by $20k last year, we are growing at a rate of $30k this year! Getting on the same page shook up 50% more money that previously was just being wasted!

So what are your thoughts? We would love to hear from you! Leave a comment below or send us an email via our Contact Page.

If you liked what you’ve read please be sure hit the “like” button and share! If you want to receive the latest articles please be sure to subscribe.

Does it still make sense to “cut the cord” in 2019?

You may be asking yourself… “Wait…2019? Why didn’t you cut the cord like every other millennial 10 years ago?”

Short answer – We did.

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Long answer, we cut the cord way back in 2011 in our first apartment, living off of just the digital equivalent of Ramen noodles – 25 mbps Internet, Netflix, and some over-the-air local channels. The internet package at the time was $60 per month plus a $5 per month rental fee on the modem and a Netflix subscription, which at the time was $7.99 a month. Life was good.

Grand total… we were looking at a little under $75 per month.

Fast forward to 2017 and there we were… signing up for a cable & internet bundle!

You..what?! What changed?

We moved to our first home! Yay! Home ownership!

The not so good news was we found out that our previous internet provider was just out of reach, we are talking a less than a mile outside of their coverage map. When asked if they would come our way we were told it would cost a “over a million dollars” to run lines to our area…

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So, we begrudgingly had to start shopping around comparing the whole 1 cable provider, 1 DSL provider, and 1 Satellite provider that had service in our area. Like comparing Apples to Apples right? Not quite. The DSL provider had a terrible reputation for quality and the Satellite provider required an ugly dish and a monthly data cap of 100 Gb! That may sound like a lot, but not so… as our average monthly data usage currently is over 400 Gb. So Satellite was out. Who was left?

Good ol’number 15 on America’s most disliked company list – who we will call the “cable company”.

The Hook…

They were offering a sweet deal on an internet/cable combo for $55 per month “for the first 12 months.” Too good to pass up.

…and before you know it we are waiting for the installation. It took about a week and when the first technician showed up it was what you’d expect, he said he didn’t have the right tools he “needed” and said he would “be right back.”

He never came back.

So my wife and I had a cynical laugh, called “the cable company” and had to arrange another on-site visit another 5 days later.

Line…

Fortunately the next install guy was awesome! Extremely friendly and helpful in the whole process of setting up our own modem and router, where to locate it in the house, and how to use a cable box we haven’t had to operate it 5 plus years.

Having super fast internet, to us, a whole 150 Mps was sweet and having one of those remotes that you can speak into was pretty neat. I have a soft spot for techy things.

Sinker!

After the technician left we soon realized that the $55 per month was not really $55 per month.

“High Definition” service was not included, there was an extra $10 monthly fee for that… in the year… 2017. As well as another $12 per month in taxes and other fees. Thankfully we supplied our own modem and router which saved us another $10 per month in fees.

The actual grand total came to a little under $80 per month, a 45% higher price tag that we originally planned.

Time Flies…

Overall we were happy with the service and the first 12 months flew by. Soon 2018 came around and the cable bill did it’s first jump to $99.50, up almost 30%. Alright, we were under contract… it is what it is, we were still happy with the service.

Fast forward to 2019, 2 year contract is over and the bill jumps again to $126 per month, another 25% plus increase.

At this point we just laughed and said okay this is over. We started looking back into cutting the cord.

Clever Gir..Cable Company

Cable companies have gotten smarter regarding the whole “cut the cord” movement in the last few years and are doing all in their power to limit that reduction in revenue by pricing their “internet only” packages to be only a “few” dollars less than a “bundled service”.

As an existing customer we had to jump through hoops to see what the “internet only” prices even were. Information is no longer available for existing customers on pricing online from the big cable company directly, only promo deals for new customers. We had to go to our local cable store to find out what the prices were for existing customers.

Just as I said earlier… we were told, “Oh, where do you live? Oh hmm… well if you just want internet its only going to be a few bucks cheaper than what your currently paying….”

How is that even possible?

Alright, so we had to look into lower tier internet packages to bring the cost down. The lowest tier service was pitiful for 2019, $35 for 15 mps download and 1 mps upload, not very useful for a household full of streaming internet connect devices.

The next tier up was for 60 mps download and 5 mps up for $75, doable and no additional fees. We turned in the cable box, remote, and we were on our way to internet only living again.

So many choices…

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So the internet streaming landscape has changed quite a bit since we first cut the cord in 2011.

There seems to be dozens of streaming choices to choose from! Not only are there more choices than ever, the costs to stream has changed as well.

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Wow… we are looking at big bucks to have access to many (not all) options currently available.

Wait it gets better… each service has their own “anchor” show(s) that no other platform can carry, creating an incentive to subscribe to their service.

Remember HBO and a little show called “Game of Thrones”?

Just look at what Disney and Netflix are doing. In the past, Netflix had access to the Marvel franchise including the movies and Marvel branded TV series, creating an incentive for consumers to subscribe and gain unlimited access to an incredible brand that appeals to all ages.

Well, not too long ago Disney decided they wanted a bigger portion of the streaming pie and plan to come out with their own streaming service while not renewing Netflix’s rights to Disney products. Ouch. Good for Disney, bad for consumers.

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So when you start adding up all the great shows you watch and all the different services you need to do it… things are starting to look a little pricey again.

But, unlike cable you ultimately have a more of a voice and choice on what you really want to pay for.

What we did…

For our household we wanted to improve the cable experience we previously had.

We had a few channels that are our favorites, such as the History, Discovery, Comedy Central,and HGTV channels.

The service that ultimately gave us that and a few other channels of interest was streaming app – Philo, for $20 per month we got 50 live channels and on-demand shows with unlimited recording in High Definition (No $10 HD Fee!). Some of these channels were “extras” that we would have to pay extra for in our old cable package.

To replace the role of our old cable box we picked up a 4K capable Roku Premiere Plus for a one time cost of $35 (Walmart deal at the time) for our living room and another Roku Express for $24 for our bedroom TV which did not have cable originally (to avoid another cable box fee).

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To bring our entertainment center all together we topped it off with a new Universal Remote for $10.

Savings – BIG and small

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When we added up the monthly cost of our new streaming setup we were looking at a new cost of around $95 per month, or a 30% reduction in our monthly expenses. The Roku boxes and remote would be paid off in savings by the first 2 months of service. Over the next 12 months we are looking at freeing up $360, or $720 over the next two years.

Not huge numbers, but we are proud that we were able to improve our services while paying less to the cable company. While ideally stabilize the shock and awe rate increases the cable company was throwing our way every year.

We’ve shared this with our family and friends who are in a similar bind and have convinced them to follow a similar path, some of them will have savings larger than our own, going from $280 per month to around $100 per month. A savings of over $2000 per year, a substantial sum to anyone.

Conclusion

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So does it make sense to cut the cord in 2019?

The answer… it depends. It depends on you and what you want.

You can reduce your costs substantially if you focus on what you really want to watch like we did. Imagine what you could do with another $300 – $2000 per year, or another way to put it – $9000 to $60,000 in savings over 30 years! You could pay off debt, invest… maybe save for something special!

Or, if you want to check all the boxes on the major streaming services your bill may be as high or higher than your old cable bill.

It is ultimately up to you…

Just know that if you want to make the change and cut the cord the upfront effort and initial roadblocks are totally worth it in the end.

So what are your thoughts? We would love to hear from you! Leave a comment below or send us an email via our Contact Page.

If you liked what you’ve read please be sure hit the “like” button and share! If you want to receive the latest articles please be sure to subscribe.

Give Your Income a Plan – The 35/45/20 Rule

So you want to start making real progress on getting out of debt or building wealth, right? But where do you start? I’ll tell you…it’s not buying stocks or consolidating your student loans and it’s especially not by buying another lottery ticket.

No. You need to start on the ground floor by looking at yourself and streamlining how your most important tool, your income, is working for you.

If you are like most people… you’re itching for payday. As soon as the check clears your feeling pretty good, maybe even a little too good. A big lump sum, $500, $1000, $2000 or more, in your bank account that immediately starts burning a hole in your pocket… just wanting to be spent on new cloths, gadgets, or experiences. Hey, you earned it right?

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But what happens when the weekend is over or it’s the end of the month and your bills are due? How big is that pile of cash now?

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The problem is physiological. That single shot of cash is giving you an artificial high of “wealth” by feeling that you have more money than you really do.

So how do you avoid this trap?

You have to give your paycheck a purpose by developing a plan.

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I am going to give you the thought process that my wife and I currently use that helped crush our debt and accelerated our net-worth growth rate by almost 100% year over year.

You may have heard of the 50/20/30 rule – 50% of your post-tax income goes to needs, 20% goes to savings/debt, 30% goes to wants – i.e. fun stuff.

Why would you want to be normal? If you really want to change your life you have be different. We flipped the ratios around and currently live by the 35/45/20 rule. (A mouthful, I know!)

The 35-45-20 Plan

35% is your needs, or living expenses – rent, utilities, food, etc.

45% goes to debt payments or savings and investing. This portion swings wildly from debt payments to savings & investing depending on where you are in your financial journey.

20% is your wants – night out with friends, new shoes, movie tickets, etc.

If you think it’s nuts to only live off of 35% of your income check out our Ultimate Guide on understanding your budget and trimming the fat. 

Build a system of Accountability

How we held ourselves accountable to the above ratio was by developing an automated system for our income.

Instead of having our paychecks dropping into one checking account we started thinking of multiple accounts. This was taking “making a budget” to the next level, instead of putting the onus on us to constantly juggle and really blurring the lines of where the money was going from a single account we instead set our paychecks to direct deposit into 5 separate accounts…

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Checking Account #1 Fixed Expenses
Checking Account #2 Debt Payments/Investing (eventually)
Checking Account #3 Allowance
Savings Account #1 1 Month Emergency Fund
Savings Account #2 5-12 Months Emergency Fund

Checking Account #1 – Fixed Expenses – 35%

What are your “fixed expenses”? Think of the items that have a recurring bill, such as your rent or mortgage, utilities (water & electric), cable/internet, cell phone, groceries, etc. Think of expenses that typically don’t fluctuate significantly month to month. Write these expenses down… and add them up. Now, since some of these expenses fluctuate slightly due to external factors, such as hot summers and cold winters (i.e. A/C, Heating) electricity usage, and food prices, add another 10% to the total to cover that flux.

For example, if your fixed expenses add up to $1000 per month add another 10% on there, so you’ll have $1100 per month going into this account. If you get paid bi-weekly you will need $550 per paycheck going into Checking Account #1.

Checking Account #2 – Debt Payments – 45% to 0%

Depending on your income level, the status of your current emergency fund, or debt level this account will change in meaning as you progress on your financial journey. Like what was stated before…if you are getting paid bi-weekly whatever your total debt payments are every month you’ll need at least half of it going into this account per paycheck.

Checking Account #3 – Allowance – 20% 

So now take that lump sum of money and send 20% of that to what we will call your “allowance” fund. The money that you can use to spend how you want, going out to dinner, buying that fancy coffee every once in a while, or that new gadget. This is where living within or below your means comes into play.

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When my wife and I started living within 20% for the “fun” expenses our mindset started to change, we started adding more weight and value to the items or experiences we were buying. We don’t feel as if we are restricting ourselves here, we just ended up focusing on things that actually held value to us. Ultimately, we came to the conclusion that we were wasting so much money with our old habits, adding up thousands of dollars per year!

Savings Account #1 – Easy Access – 1 Month Expenses Emergency Fund

As we talked about earlier, having an emergency fund helps you handle life’s unexpected moments by giving you the money you need when you need it to avoid taking on additional debt. This account should equate to about 1 months worth of living expenses and should be easy to access, within less than 24 hrs. This account will be available when an appliance breaks down, or unexpected doctors visit. This account should not be touched unless an “emergency” happens.

Savings Account #2 – (5 – 12 Month) Emergency Fund – Online High Yield Savings Account

So this account should equate anywhere from 5 to 12 months worth of living expenses and should be accessible within 3 days or less. So we should be thinking of online savings accounts here. Your money is in a safe spot that is just out of immediate reach to prevent you from making impulse decisions.

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Steps to using the 35/45/20 Rule – From Debt to Wealth

Alright, so lets go through an example of using the 35/45/20 Rule…

Step 1 – Build 1 Month Emergency Fund

If you are starting out without an emergency fund of at least a one month’s worth of expenses your first goal should be to create one. This may mean paying the minimums on your debt payments at first, with the remainder of the 45% going to building up that small emergency fund. Remember, you can’t focus on aggressively paying off your debt if your constantly reaching for your credit card to cover small expenses that popup outside the norm.Step 1

Step 2 – Eliminate Debt

When you’ve completed your small emergency fund can you now attack your debt with the full salvo of 45% of your income. Step 2How you go about this is up to you. What worked for us was “The Debt Snowball” method outlined by Dave Ramsey. Take all your debts ordered smallest to largest and contribute more than the minimum to the smallest debt until it is paid off. Then roll that money over and put it toward the next smallest debt, and so forth and so on until your debt is eliminated.

Step 3 – Build Up a 5 – 12 Month Emergency Fund

After successfully eliminating your non-mortgage debt your next goal is to strengthen the rest of your emergency fund. Start throwing that 45% into Savings Account #2 until you hit that 5 to 12 month equivalent number. It is up to you what that amount is… be it 5 months, 12 months, or any number in between. This account is your fall back for extreme emergencies, job loss, significant health issues, etc.

Step 3

Step 4 – Wealth Building & Investment

So now this is where the fun starts to happen… Your non-mortgage debt is gone, you have a strong emergency fund set aside… now what?

Don’t fall into the trap of seeing all this freed up income as giving you the right to start a shopping’s spree. Stay focused!

It’s time to start building real wealth.

Checking Account #2 changes it’s meaning now to “Investing”.

Step 4

How you define “Investing” is up to you.

You may start saving up for your first home or your first investment property.

You may start to dabble in index and mutual funds in a taxable investment account.

Or maybe a little bit of everything… that is ultimately up to you.

What matters is that when you start to leverage 45% of your post-tax income to “investing” and wealth generation you are now way outside of the normal. Stay there.

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Plan, Automate, Execute!

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If you made it this far.. congratulations! Hopefully you followed all that…

So in conclusion, by giving our income a plan and a purpose while also automating our paycheck we changed our mindset, and ultimately our path to financial success. The 35/45/20 rule may sound like a challenge but you have to break outside the norm if you want to achieve above average results. This process has amplified our net-worth growth by 100% year or year by eliminating our debt and supercharging our investing potential.

Let us know your thoughts on the 35/45/20 Rule or whats plans you’ve had success with! We would love to hear from you.

So what are your thoughts? We would love to hear from you! Leave a comment below or send us an email via our Contact Page.

If you liked what you’ve read please be sure hit the “like” button and share! If you want to receive the latest articles please be sure to subscribe.

 

Millionaire Status? Better get that Emergency Fund First

Alright, so you want to be a millionaire as soon as possible right? So your looking at all different ways of leveraging your income, be it real estate with income properties, maybe investing in the stock market, or even starting your own business.

It all sounds good on paper. Someone else paying the mortgage on your rental, or the stock market averaging X% percent a year. Hey…you can’t lose right?

What happens when Murphy’s Law slaps you right in the face? You get a call from your rental that the furnace went out, or your tenant just left and now your paying the mortgage, or the stock market just took a dump? Or heaven forbid you just lost your job. Ah! Are you going to run to the credit card at 20% APR or take out a personal loan at 15% APR?

Nothing is ever perfect so you need save yourself from…. yourself by establishing a safety net in the form of an emergency fund.

So What is an emergency fund?

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So what is an emergency fund? Well it is money set aside to cover those life surprises that will come up. Not may or might, but will. It’s purpose is to improve your financial security by giving you access to cash to handle those unexpected events while allowing you to avoid the need to take on high-interest debt options like credit cards or personal loans.

An emergency fund should not be considered a fund that is accessible for investing. You DO NOT touch it unless you need to cover an emergency. Sounds boring earning 1-2%, but you’ll be happy it’s there when you need it.

So How Much?

Your emergency fund should ideally be equivalent to a minimum of 3 to 6 months of expenses. Depending on what your threshold for risk is….strive for 6 to 12 months of expenses. Having an empty rental or job loss will have big dollar signs, so more is always better.

The average mortgage payment is around $1500 per month! If a tenant left and your struggling to find a replacement do you have $1500, $3000, $4500, lying around to pay the mortgage? Yeah, $4500 is only 3 months.

What about if you lost your job? Not only are you covering the mortgage but you have all your other liabilities, such as your car, student loans, food expenses, utilities, etc.

Start putting dollar signs and amounts on those monthly expenses and it starts to be eye opening how much you need to tuck away. Three months of expenses may be $10,000 or more! Do you want $10,000 sitting on a credit card just dragging you down into a debt spiral?

Automate – Out of Site – Out of Mind

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So where do you keep your emergency fund?

Keep your stash somewhere that your impulses can be kept in check. Look into online high yield savings accounts, as they typically require a 3 day transfer period to allow you access to large sums of funds, this gives you a chance to control that impulse of buying that shiny new thing you saw on Amazon today.

Also, make it painless by automating your savings plan to cushion your fund. Have a percentage of your income direct deposit into your emergency account. If you don’t see the money initially in your checking account your more likely to keep yourself accountable.

Conclusion

If you want to stay on the path of tremendous wealth building and financial success an emergency fund is an essential cornerstone to your overall financial health as it prevents you from making costly mistakes such as liquidating your investments, taking on credit card debt, or loans.

If you don’t believe me on the importance on having an emergency fund listen to an inspiration for my wife and I, Dave Ramsey, below.

So what are your thoughts? We would love to hear from you! Leave a comment below or send us an email via our Contact Page.

If you liked what you’ve read please be sure hit the “like” button and share! If you want to receive the latest articles please be sure to subscribe.

5 Steps to understand your budget & 15 Ways to Cut the Fat! Ultimate Guide

You know that excitement you get when its payday? Woohoo! All that hard work punching the time-clock almost feels worth it for a split second! Now fast forward, it’s the end of the month, the bills are due and that excitement has now turned to a feeling of dread or despair as you pay that last bill. You’re left scratching your head as you realize you may have nothing to show for all that hard work or even worse… still owe someone. Where did all the money go?!

STEP 1 – Write it down!

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Get out a pen and paper or open up a spreadsheet and start putting all your monthly bills in front of you.

If you have no idea where your money is going you won’t know where to focus your efforts.

For this post let’s doing some Googling and find what the average American has for monthly expenses.

Monthly Bills 1

My goodness, I am sweating already! Over $4000 per month just to live. If you are one of the fortunate enough souls to live in some of the east/west coast states your numbers are probably significantly higher!

STEP 2 – In vs Out

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Alright so the next step is to subtract your monthly bills and debts from your monthly income. For this example, we will use the average salary in the United States, around $62,000 per year. If we don’t include retirement and medical contributions, and just assume Federal and State taxes as well as Entitlement Programs such as Social Security and Medicare the average bi-weekly pay comes out to around $1800 or about $3600 per month.

STEP 3 – What’s left?

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Oh boy, this isn’t good. We are in the hole by $450 in this example. How do we make up the difference?

If you are like the average American there is a good chance you may leave a balance on your credit card to squeak by. But, if the next month is the same as this one, you’ll continue to add to the balance…with interest! It’s easy to see how the average credit card balance in the US is over $6000! So, what do we do about it?

STEP 4 – Cut the fluff!

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So, what can we do to get us back in the green? Any low hanging fruit? Let’s take a deeper look at our expenses…

1. Mortgage, Property Taxes, PMI

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There isn’t a lot of quick and easy ways on this one as a home owner, outside of drastic moves such as down sizing or relocating to a cheaper area, which do come with their own costs (such as realtor fees).

Private Mortgage Insurance (PMI) removal might be a possibility but you’ll have to add MORE money to your monthly mortgage payments in order to increase you total equity to over 20%. Note, your mileage may vary depending on the type of loan you have, such as an FHA loan will not allow you to cancel your PMI when you reach 20% and may require refinancing to a conventional loan.

If you plan on staying in the same place for more than 5 years and you’re unhappy with your current interest rate, look into your refinancing options which may lower your monthly payment. Understand there may be additional fees when it comes to refinancing so make sure the amount of interest you save over X amount of years is greater by a significant amount greater than those fees.

If you want to reduce your overall loan cost and total interest paid toward your mortgage while also turbocharging the amount of equity in your home, you could look into paying “extra” toward your principle every month. You may save 10’s to 100’s of thousands of dollars over a normal mortgage period. Check out this Mortgage Payoff Calculator and see how much you could save.

If you think your property taxes are a little high or you just don’t quite understand why your taxes went up 10% this year see this guide for tips and tricks!

If you are renting, you could ask your landlord for a rate reduction if you have a great rent history (stable income for the landlord may be more enticing than an empty unit), or negotiate a new rate at the time of your lease renewal. If none of those options work and you have a chance to down size to a more manageable rental go for it!

2. Home Owners Insurance – (Save 20%)

When is the last time you reviewed your home owner’s insurance policy? Shop around and see if your current insurance company is still competitive. Make sure you are not over paying for coverage, or over insured. Always make sure you have the right amount of insurance to protect you and your family from loss. There are dozens of home owner insurance providers to look into! You could save substantially!

We discovered we were grossly over paying for insurance on our first home when we started shopping around. We were fortunate it enough to lower our premium by almost 40% and increase our coverage. It pays to do research here!

If you are renter, renter’s insurance is a must. It is only a faction of the cost of home owner’s insurance, but still shop around for the best price

3. Car Payment 

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This is a big one. The average car payment is now over $500 per month with a typical loan term approaching 70 months! Cars are costly and do the opposite of appreciating in value, your typical new car loses 50% of its value in the first 3 to 5 years! Other than putting the “For Sale” sign on the window see our example of paying an auto loan off fast.

4. Car Insurance – (Save +15%)

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You’ve seen the never-ending commercials with the goofy antics. Car insurance is a highly competitive market and that is good for you! Shop around annually to see if you can save on your auto insurance. Loyalty to one brand only goes so far. Always make sure you are properly insured and never go without it. The consequences of no insurance far out way the few bucks you’d save by not being covered.

If you have multiple cars or recently married see if you can combine your policies for a significant discount! We cut our combined premiums by 30% by doing research and shopping around here.

5. Student Loans

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The sooner you pay these off the better, as they are a drain on your ability to build wealth. With the average APR on undergraduate student loans at over 5.4% or higher you need to attack these with a vengeance, see how much you could save on interest by paying more toward your loans.

Be wary of refinancing or consolidating your federal student loans, you may lose a number of benefits such as “income based repayment plans” or “interest only payments” when you roll your loans over to a private loan.

6. Credit Cards – (Save $600)

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Now here is where you can slice and dice substantially. A credit card gives you a painless method of paying for things you need as well as… the things you want. Just slide or insert your card! After you pay, just put the card back in your wallet! Painless. It’s not quite the same has handing over cold hard cash. How do you feel when you give the clerk a $100 bill? A little more impactful than a swipe? You bet it is.

Get your last credit card statement out and see what you really spend your money on. Fancy $4 coffee every day? How about that $12 lunch at work? Who has time to cook dinner? $30 of take-out Chinese food is where it’s at!

Start adding up all the extra food purchases outside of your normal grocery budget. There is a good chance you will be shockingly surprised.

In this example we assume on our way to work every morning we stop and get that fancy coffee, and for lunch we get that sub combo meal. Then, after a long week we are too tired to cook so we splurge on some dinners out. Add it all up and it gets pricy fast. We are looking at $620!

Now imagine if we can just cut this out of the budget entirely by making coffee at home and a little bit of meal prepping! We would be on our way to saving $7500 a year!

7. Grocery Bill – (Save 20%+) – Food Waste

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Take a hard look at your grocery bill… do you end up throwing out more food every week than you should? Almost 30 to 40% of the groceries we buy end up in the trash!

Do you buy more than you need? Make a shopping list! Ideally when you are not hungry. And stick to it! Try to plan in advance the meals you will make that week. Once a week meal prep! Start prepping on Sunday nights by making large batches of the foods you like, get some Tupperware, and divvy up your week for lunches and dinners! Make it easy everyday to just grab and go.

8. Electric – (Save 10%)

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Who turned off the lights?! You should… when you’re not in the room. Also, look for opportunities to switch any old incandescent bulbs to energy efficient LED bulbs. If you want to take it a step further, and if you are the primary home owner, look into other electricity suppliers in your area see what competitive rates are available.

9. Heating – (Save 15 to 20%)

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Turn down the heat! If you have a programmable thermostat you can have it adjust the temperature in your home when you are away. Potentially saving 15 to 20% in your heating bills per year! Also, regular maintenance is very important to keep your heating and HVAC systems as efficient as possible.

10. Water – (Save 20%)

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This one is self-explanatory, the less you use the less you pay. Don’t let the water run while brushing your teeth, take showers vs. baths, and even better – shorter showers. Only run your dish washing machine and cloth washing machines when they are full. Install low flow faucets and shower heads. If you are on city water and sewer you pay double, what comes in goes back out and they charge you for it. For those out in the country and have a well, that water pump can be one of the largest energy hogs in your home depending on its age. Less IS Less here.

11. Cable – All the channels!… (Save 20% to 100%)

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How many channels do you watch per day? There is a good chance you’re not even watching 75% of the channels that are included in your cable package. So why are you paying for it all? Look into downsizing your cable packages to only what you watch. If you only need the local news and public broadcast channels like NBC, CBS, FOX to keep up on the weather, some shows, and maybe some major sporting events you can get a heck of a bargain here.

If you want to cut cable out all together and just stream. Go big, but be aware that major internet provides are making Internet only packages less enticing than bundling with cable. We recently switched to Philo as our “cable” replacement for the channels we actually watch, and at the time of this post it costs only $20 per month for 50+ channels!

12. Internet – More is Better?

Yes, if you are like me and lived through the dial-up era then yes more is totally worth it but in today’s day and age more is only more up to a certain point. Do you really need 300 mbps download speeds? How about 1 gbps? (1000 mbps) Do you know how fast your internet needs to be to stream 4k HD movies and TV shows? 25 mbps. So, you are paying for 12 times more bandwidth than you need. What about 1080p HD? You only need 5 mbps. So, now you’re paying for 60 times more bandwidth than you need for your favorite shows. Obviously, everyone’s household is different. Some household have multiple internet connected devices so take a hard look at what you really need. If you are big into downloading games that are dozens of gigabytes every other day maybe you need those huge bandwidth needs. If you are only watching Netflix while scrolling Facebook you could probably get by with a whole lot less.

Our family got by at 60 mbps for a number of years, including online console video gaming, Netflix streaming, and all of the Facebook scrolling on multiple devices at the same time with no issue, for a grand total of $50 per month.

13. Cell Phone – Unlimited Unlimited!… (Save 70%)

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Ah the cell phone, there is a lot to be saved here. If you are okay with not having the latest and greatest bleeding edge hardware in the newest iPhone or Galaxy phone that come with a *gulp* $1000 price tag there are a boat load of lower cost alternatives that can do about 80-90% of what the top-of-the-line phones do. Take a hard look into what you use your cellphone for. Instead of spending $1000, lower your budget to $300 or less, and don’t put it on a payment plan. Buy it out right. If you are okay with refurbished units you can get last year’s top-of-the-line models for a fraction of the price! Be sure to get an “un-locked” model so you can switch carriers with no issue. When you purchase your unlocked phone outright you get to decide who gets your business.

We purchased a refurbished Galaxy S8+ a few months back for around $300, now comparing that to the $850+ that a new one will bring and you can’t tell the difference between the two it’s a no brainer to keep that other $550 in our pocket.

Now on to cell phone plans and carriers…

With the number of red, blue, yellow, and pink commercials that are blasted out every day you know the business model is competitive. The more competitive it is the better it is for you!

We recommend looking into prepaid options which give you the greatest flexibility to move to carriers that offer the best service and cost for your dollars. Check your coverage areas and understand how much mobile data you use monthly. There is a good chance you don’t need that unlimited data plan. A quick google search reveals the average person only uses 1.5 to 2Gbs per month! You can save a fortune by only paying for the data you need!

14. Netflix Subscription (Online Video Subscriptions) – (Savings 100%)

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If you are really hurting to balance the budgets than you may need to cut the luxuries, your online video subscriptions may need to fall on the chopping block. If you have favorite series that get released once a year look into the release schedule and maybe sign up for that month only to binge!

15. Gym Membership – (Savings 100%)

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Your health is your most important asset! Without good health everything else seems a little less enjoyable. But that doesn’t mean you should overpay for that gym membership, or even worse feel guilted to continue paying for a membership you aren’t even using! It is said that over 50% of gym memberships go unused every year so unless you are making the effort to use them, then drop them!

STEP 5 – Reevaluate

Alright, so we took a hard look at our expenses in this example and really tightened our financial belts. So how did we make out?

Monthly Bills Revised

Now that’s more like it! Reduced our monthly expenses by almost $950! We are back in the green with enough money left over to start working on that student loan debt, and/or building an emergency fund.

Try this exercise for yourself and let us know how you made out!

What are your tips for cutting the fat? Let us know!

So what are your thoughts? We would love to hear from you! Leave a comment below or send us an email via our Contact Page.

If you liked what you’ve read please be sure hit the “like” button and share! If you want to receive the latest articles please be sure to subscribe.