This is a post from Pauline of InvestmentZen.com
One thing that makes me want to bang my head against the wall is when I see people call themselves frugal, yet be the poster child for “penny wise, pound foolish”. Ok, you save and save every single day, a little here, a little there. Globally, you’re pretty miserable because you have removed all the good things out of your life. You have no more gym membership, cable TV, magazine subscriptions, you eat rice and beans day in, day out… I even met a guy who had no central heating!
He was in his 70s and he really broke my heart. When it was very cold in winter, his bedroom on the upper floor of his house became too icy to sleep in. So he would come down to the ground floor, where he had an electric heater. He would carry his mattress on his broken back, and sleep on the floor of his living room! He claimed the electric socket upstairs were too old to bear a heater. That discomfort could have been fixed with less than a thousand dollars. How far he was willing to go for the sake of saving money made me scratch my head.
That won’t make a big difference on his net worth. What will is taking action to reduce and optimize the big expenses in your life. Your mortgage for example. Rates are at historic low levels right now, and finding a mortgage refinance at just 0.5% less than what you are paying at the moment can save you thousands. Yes, thousands.
The average US home is worth around $250,000. At 4.5%, you are paying $1,266 a month over the next 30 years. These days, you can find a 30 year refinance for 3.5% on average. That means lowering your mortgage payments to $1,123 per month. Saving yourself over $50,000 in interest in the process. I did my last refinance online. I decided to pay a little for the convenience of staying with the same bank, and not having to provide a new one with the mountain of paperwork they usually require. It took about 15 minutes to drop my rate by 0.5%. No fee, no valuation, the bank had all the details already.
15 minutes of my time for thousands in saving? Any day.
This summer, I was looking for a house to buy in Southern France. I saw one that fit my needs. It was listed via a real estate agency at $700,000. I thought if I could find where it was, I would save myself the fee. The town was small, but it took me a few hours to locate the house, based on the online ad pictures. When I arrived, the owners were surprised, and said I was the first one showing up without an agent. I had spent hours on Google Maps trying to determine the neighborhoods where the house could be. Once I got there, it only took me an hour to find it. The owners said they wanted $650,000. I didn’t end up buying it, but that would have been a fine payday otherwise.
Another thing that makes me cringe is when people do not value their time. If you make $25 per hour at your day job, but walk back home instead of taking the $1 bus, you are losing on an opportunity to stay an hour more at work, and make $25. Sure, that can be your way to unwind, get some exercise,… but for people who see it from a saving standpoint, I don’t get it. Your time is better invested in yourself (trying to get a promotion, working extra hours, starting a side hustle) than trying to save a few bucks or couponing.
More and more, I am trying to focus on big lifestyle changes that will have a huge impact on my net worth, rather than pinching pennies. I chose to relocate abroad, and that cut my monthly expenses by 60%. I did not buy a car when mine got stolen last December. It has been a little inconvenience, but I have been home maybe 4 months since that happened, and in the meanwhile, the $10,000 I didn’t put on the car (plus insurance, gas, maintenance and repairs) grew on the markets. And whenever I really needed one, to bring back groceries and heavy things, I would rent one for the day, for $30.
The S&P500 had a good run since last December, returning 9.8%. My $10,000 would have yielded $980, way more than what I spent on the occasional taxi or rental. But I understand that this lifestyle switch is not for everyone.
Still, the next time you are tempted to find ways to save more, try to start with the big stuff.