The 10 Money Saving Commandments

10 Commandments, FI, Financial Independence, Saving Money
10 Commandments, FI, Financial Independence, Saving Money

The following 10 “Commandments” are 10 important lessons and strategies that have helped us achieve some success over the last 2 years. In that time, we have seen our net worth grow over $100,000 in just 19 months (check out our most recent net worth update here). I believe that following these 10 rules (in no particular order) can help anyone achieve their financial goals; enjoy!

1. Thou Shalt Pay Thyself First

Figure out what you need to save and let that be the first thing you do with your money before you pay your bills or buy other things.  For us, that means we automatically send ~38% of my weekly pay to my 401k, Health Savings Account, Ally savings account, and toward the extra payments in our Home Equity Loan.  All of that money never even hits our checking account, to us, it doesn’t exist.  Of the money that goes into our regular checking account, 28% of that will go towards our Roth IRAs, Monster Vacation Fund, and charities.  We are essentially left with 44% of our take home pay, and that’s what we use to budget and fund the rest of our lives. Because we pay ourselves first, we don’t have much guilt when we go out for a nice dinner or spend $40 on our monthly wine subscription.

2. Thou Shalt Make a Budget and Keep It

After you pay yourself first, you take whatever money is left over and create your budget.  The next most important thing after creating a budget is actually sticking to it!  A Gallup Poll found that only a third of households stick to a formal budget.  Creating a budget can help you understand areas that you may be overspending.  It could also shed some light on spending that you don’t need to make.

One example from our lives is a little over 2 years ago.  Because I dug into our spending to create a better budget (using Mint at the time), I found that we had a recurring subscription for $9.99/month to Xbox Live.  I had not played my Xbox in years and never cared to notice the recurring charge.  Because of the deeper dive and syncing our accounts to Mint, I could find the charge and get rid of it.  I also thought about how silly it was to even keep my Xbox at all, so I sold it and all of my games for some quick cash!

3. Thou Shalt Not Try to Keep Up with the Jones’

One great way to avoid lifestyle inflation is to stop comparing what you have (or don’t have) to the people around you.  I remember when I changed positions in our company to our corporate office.  I was driving a 10 year old Subaru Forrester at the time.  Our company held an annual meeting and I drove my old car to the venue and parked in a sea of much newer BMWs, Mercedes, Lincolns, etc.  I felt out of place.  Many of the people that were attending were at my level, even more were even several grades below me.  It took a lot of mental gymnastics to get passed the feeling that somehow, I was less worthy because I didn’t have a nicer car.

To get passed it, I would regularly tell myself how much I loved my car and made it a focus of pride.  It took a lot of effort to change my thinking, and it was all done consciously.  Later, it helped us avoid buying a new, fully loaded Chevy Traverse and we instead bought a more sensible, used GMC Terrain.

4. Thou Shalt Increase Thy Savings with Thine Pay Raises

10 Commandments, FI, Financial Independence, Saving Money

If you are fortunate enough to earn an increase in your pay, either by a raise or by changing jobs, do not spend that money in perpetuity.  I think it’s important to celebrate, but make sure the celebrations is a one-time thing (like a nice dinner or bottle of wine).  Don’t celebrate by purchasing a new car, upgrading to a new home, or something else that causes that money to leave your hands before you can really enjoy having it.

The company I work for provides annual raises based on performance.  It’s typically 2-4% depending on the year and usually amounts to $30/week.  Instead of spending that raise on something that will not move us closer to financial independence, we spend a portion on paying down our debt faster, and increasing the amount we donate to charity.  Eventually we will no longer have debt to pay off, and we will be able to put all of that money towards other savings goals to speed up our FI journey.

5. Thou Shalt Not Carry Credit Card Debt

Nothing can crush savings potential than carrying credit card debt from month to month.  The interest rates make them very hard to pay off, especially if you add to them each month.  The best way to avoid credit card debt is to simply not use credit cards.  That’s a path that many decide to choose and is a legitimate solution to a debt problem.  The next best way to avoid carrying a monthly credit card balance is to pay off the balance every month.  To avoid overspending, stick to your budget, and only designate the credit card for use on specific purchases.  If you can achieve that, you can also unlock even more savings potential through various card rewards.

Our own credit card is paid off each month and provides a cash-back benefit.  Last year our benefit was ~$800.  As I mentioned in our March Net Worth Update, we took $500 of that money and put it into our Monster Vacation Fund.  The remaining $300 went towards our home gym.  This year, when I get my annual raise, we will increase the amount that goes into our savings account while we re-fill our 3 Emergency Savings Buckets back up.

10 Commandments, FI, Financial Independence, Saving Money

6. Thou Shalt Save up 3 Months expenses for Emergencies

Did someone say 3 Bucket Emergency Savings?  Yeah, I did.  Whether you decide to stuff your emergency savings in a mattress, or use our system, the important thing is that you grow your emergency savings.  The standard is 3 months expenses, some prefer more, others are happy with less.  What matters most is that it is a level and amount that you are comfortable with.  The money you pay yourself with before you pay your bills should go towards filling up your emergency savings.

For us, our emergency savings was critical when we discovered our air conditioner was busted and needed to be repaired.  The initial estimate of $6,500 was shocking, but we were able to cover it with our savings.  The relief we had and peace from knowing we were going to survive the bill was an incredible feeling.  Fortunately, we shaved ~$3,500 off the total cost thanks to warranties, but even if we had to pay to full $6,500, we would have been alright thanks to our Emergency Savings.

7. Thou Shalt Not Live Above Thy Means

Simply put, if you can only afford to spend $500, don’t spend $600.  Instead, spend $300.  Or, better yet, do you really need to spend any money at all?  Living within your means is a great way to achieve your financial goals.  By living below your means, you can save excess capital and lower your risk of succumbing to credit card debt.

To help curb my own spending, I give myself several days to a couple of weeks before making most purchases.  Sometimes I find that I don’t really need the item in question after all.  Other times, I decide the item is really needed and will purchase it.  Often, in that time I find an even better deal or better product.  Most recently, I was looking for a power rack so we can lift heavier weights safely in our basement gym. 

I waited several weeks before deciding we needed the piece of equipment to be safe, and I found an even better item that would fit in the low ceiling of the basement.  Not only was it better quality, but I was able to find it for a better price than if I bought the power cage when I first decided it was something we needed.  I would love to put an affiliate link of the power rack, but it is currently unavailable on Amazon… probably because it was such a killer deal.

8. Thou Shalt Mitigate Investment Risk

Mitigate risk doesn’t mean no risk should be taken ever, it just means that you don’t put all of your eggs in one basket.  A strong, diversified and balanced portfolio will be able to withstand the lowest of lows of market downturns.  Mitigating risk and balancing rewards is one of the main points of the 3 Bucket Emergency Fund.  There is some risk in putting a portion of emergency savings into an S&P 500 fund, but that risk is mitigated by having a smaller portion of the savings in the fund.  It is further mitigated by being in the 3rd bucket with the 1st and 2nd buckets being lower risk funds.

10 Commandments, FI, Financial Independence, Saving Money

9. Thou Shalt Not Purchase a Brand-New Car

As soon as you drive a new car off the lot, the value drops by as much as 10%.  Over the 1st year, 20% of the car value is lost.  Essentially, you are paying thousands of dollars to be the first person to own that particular VIN.  By waiting a few months and buying the exact same vehicle used will save thousands of dollars.  If you decide to buy a car that is several years old, you can end up spending less than 50% of the new value of the car.  It’s money in your pocket that can go towards other savings goals and help you reach financial independence sooner.

We bought a new car a few months after we were married in 2010.  While we do like the car we bought (and still own), we had an annoying $371 monthly payment and a litany of recall problems due to the new model.  We learned our lesson a few years later after my old Subaru died and we bought a 5 year old fully loaded GMC Terrain and spent 45% less than the original owner paid when it was new.

10. Thou Shalt Find Other Avenues for Income

Learning to save and budget is one (important) piece of the FI experience.  Another important piece can be finding income outside of your regular job.  Finding a side hustle is one way to bring in some extra cash (check out my article with 7 ways to cut $50 in monthly expenses).  Other members in the FI community buy rental properties.  An occupied rental property with reliable tenants can cover the cost of the mortgage!  Once paid off, the incoming rental money can be used to buy another rental property, with both monthly rents going towards the new rental mortgage.  The rentals can create a snowball effect leading to more properties and more income.  Eventually you decide to stop buying properties and live off the monthly rent from all of your rental properties.

Rental property is one area I wish we had dabbled in early on.  Instead of renting our townhouse for 2 years, I wish we had purchased it. And when we moved, I wish we had started renting it out.  That town home would probably be paid off by now and would be generating $1,000+ in income for us each month.  We would need to change our strategy around if we really wanted to explore rental properties as an option.  Maybe if I earn a promotion or 2 in the next several years we will have enough extra income to strongly consider rental properties.

Put Them All Together

Keeping these rules is one way to ensure you will be able to retire one day (if you want to) with enough saved. How many of these commandments have you kept? Overall, I give us a 7; I have some half points for new car (bought 1 once), emergency savings (currently rebuilding), credit card (we have carried balances in the past), and mitigate risk (we have individual stocks in my Roth IRA). I didn’t give us any points for alternative income sources.

10 Commandments, FI, Financial Independence, Saving Money

We have 4,130 days until we hit our retirement goal. In writing this post, it has already started some great conversations between me and my spouse about rental properties. Maybe over the next 99 weeks, we’ll find ourselves with a little real estate portfolio bringing in additional income.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.