How I Saved $116,000 Last Year With Two Small Decisions

charlie_imageLast year was a year of monumental change in my fixed expenses! Yep that is right! I made two small changes to my fixed expenses budget that will net me $116,000 in savings over the next 45 years of my life! Let's break it down.

With each fixed expense I'm constantly evaluating how much each item is costing me whether it be debt, utilities, memberships, or services. Each items has an intrinsic value that it is costing me. One that is compounding each year at an ever increasing cost: aka INFLATION.

For me I take the most focus on my fixed expenses and where I can cut corners, because those are commitments that I have to make just to keep a roof over my head, from being foreclosed on, or just to keep the water and lights running. With that in mind, I want to find any way that I can to reduce them (like with the Ooma Telo or Nest Thermostat).

saved a lot of money last year

So how did I do it?

  1. Stopped going to the barber – as a guy that has an ever receding hair line (thanks Dad!) my incentive to have a good hair cut diminishes each year. Not because I don't want to look good, but because I don't need to have long hair. My wife calls my long hair a reverse mo-hawk. :) Seriously though, I've started shaving my own hair with a bunch of different Wahl clipper extensions. After a few visits to my barber (who I loved) I realized that he was just using two or three extensions to create a tapered look, and knew that I could be doing this on my own. It took me about a year to take the clippers to my head, because I didn't trust myself in doing a good job. However, after the first time, I realized that this was a lot easier than it looks. Right now my typical barber trips cost me $13 and I roughly go every three weeks (or 17 times a year).
  2. Canceled our gym membership – thanks to a friend at church we were able to cancel our $66/month gym membership that was getting less and less usage as all our kids are now in school. We used it primarily for the kids care, because it would give us a nice break for 45 minutes to an hour. In addition, besides the practical physical benefits they also offered a “parents night out night”, which provided us free childcare for four hours so we could go on a date. Regardless of all of it's benefits, we were able to score a treadmill from one of our fellow church members that allowed us to knock out this $66/month bill. Cha-ching!

How does all that add up to $116,000 in savings?

When most people subscribe to Netflix, buy a new couch on credit, or purchase a home with a 30 year mortgage they are only considering the payment. Why is that? It is because that is matter of what we can “afford”.

Instead, consider the cost. What does that mean? Well, take your Netflix subscription for example. If the cost right now is $9.99/month * 12 months, then your costs are actually $120/year. Now take $120/year * 1.04 (4% inflation), which will show you how much the costs of inflation and continuing with this fixed expense will cost you. In 45 years that same Netflix subscription will cost you $647/year (assuming 4% inflation). Now over those same 45 years your little $9.99 monthly payment will have costed you over $13,000. $9.99 doesn't seem like that bad of a monthly expense until you break it down to what the actual cost is over a life time.

Barber Savings – so if I'm able to save $13 x 17 times per year that will net me $221 in savings in just year one. Take $221 x 1.04 (again 4% inflation) = $229.84 estimated savings at the end of year two. Keep extrapolating that out every year with a 4% inflation adjustment and by year 45 my little cost savings measure will be saving me $1193. So, in order to determine the lifetime costs, add up every year of savings. Amazingly this $13 savings tip is saving me $25,506. That $25k is the total costs that my tip is saving me. It isn't just the measly $13, but the total cost.

Gym Membership Savings – a $66 gym membership on the other hand is where I'm able to show a lot more savings! Or savings on steroids! :) After year one I'm able to save $66 * 12 months = $792! Not chump change if you ask me. By the end of year two that $792 will increase to $823 (with 4% inflation), and by year 45 that same yearly membership will cost about $4277. That intrinsic $66/month gym membership cost is saving me $91,407 over 45 years! It sure gives you a different perspective on how a monthly payment is versus a lifetime cost.

When you enter into a monthly expense do you consider the lifetime costs or are you only considering “if you can afford the monthly payment“? Next time, consider if you can afford the lifetime cost of the item you are purchasing or debt you are taking on.

I'd love to hear what savings you created for your family. How did you consider the costs versus the payment? 

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  1. Haha,

    You really caught my attention with that headline. I guess you really did save this much when you run the numbers. You didn’t even calculate the value if you invested the money at a 3% return above the rate of inflation, so it will actually be much higher!

    My wife used to cut my hair frequently with the clippers and tried to blend it. She made a couple mistakes with it, and ever since I’ve just shelled out the money to head to the barber. I might try and go the route of using one setting across the board, but this does not really look as good. I’ve also considered shaving my head completely, but I’m nervous to take the leap! All in the name of saving money :-)

    • Derek – great point! I totally forgot the reinvesting of those saved dollars every year! Doh!! My number/title could have been even bigger! :)

      I wouldn’t just shave your head just to save money. You got to consider how you look too, which for a lot of people plays into their employment.

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