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November is ending quickly with December almost upon us and soon 2013 will be here. Have the two of you sat down and talk about your plans for next year?
We have been spending the last couple of weeks chatting about what has went well and what we'd like to improve on financially.
One common goal I've noticed that couples have is to retire early.
Retiring early means different things to different people. For some it means quitting the job they're working now and being able to live off the savings and investments that they have.
For others it more about being financially free – having options such leaving their current employment to start their own business. They feel like they want to work, but they want to do it on their terms.
For us we enjoy what we're doing for work, but we'd like to have more flexibility when it comes to work options and projects.
Right now I'm self-employed while watching our baby girl and my husband is happily employed as a software developer.
While every couple has their own circumstances, if they are looking at retiring early there is one money ‘rule' that has to be followed.
The Nugget of Personal Finance
It all comes down to the most basic of financial principles that I'm sure you've heard and seen many times-
“Spend less than you earn.”
There are plenty of personal finance blogs that cater to one or the other. Either the blogs focus on cutting expenses to the bone or on how to earn more money.
Spending Less and Earning More
In my opinion, neither approach is wrong, but truthfully, most couples need to do both if they want to retire early.
Frugality and entrepreneurship are powerful tools when used together can build your family's finances dramatically. Interestingly, the terms frugality and entrepreneurship are a bit misunderstood.
Frugality by definition is about optimizing what you already have.
Some have the misconception that it’s about being cheap and extremely price sensitive. That is not really frugality as buying things simply because they are the cheapest (and not well made) can backfire and cost you more in the end as you have to get replacements more frequently.
Frugality is about developing a practical wisdom regarding your spending and avoiding unnecessary waste.
Entrepreneurship is about developing, organizing, and managing a venture. Many people think of formally starting a business, but it can also apply to working on a side project and earning a bit of extra income.
It can also mean taking the lead on a project at your job and using that as a springboard to get a raise that is a better reflection of the value you bring to your company.
The hard part for many couples is simply knowing how to do it and getting started.
Last year I ran a month long 50/50 Challenge to help address that problem.
Learning from the 50/50 Challenge
For the month of November I shared tips on saving on monthly expenses and finding ways to bring in some extra income.
As part of the challenge, I asked readers to choose an amount that they wanted to save/earn.
To help encourage others, I also had a contest portion where weekly updates were submitted.
Earning More Income
- Great at Something? Become a Tutor and Earn Money-> When I was in high school and college, I tutored occasionally as one way to earn a bit of income and do something that I enjoy – helping others. For me I had some freedom on taking on work as I allotted my time to a student or two a semester. It gave me a chance to work with someone to assist them with a specific class. While the hours were spotty, the pay rate for my time was much better than my internship.
- Sell Your Stuff and Make Some Cash -> Yard sales, Craigslist, eBay – whatever venue you choose, selling some of your gently used items can not only free up space in your house, but earn you cash. I think too many people get attached to the amount they originally paid that they're unwilling to sell at a more practical price. You can make some good money. While we have sold some of our stuff through the years, I wouldn’t call ourselves experts. Two people I recommend grabbing tips from are Adam and Courtney Baker. In one week Courtney was able to sell about $7000 of stuff on Craigslist and a friend of theirs make $15,000 off of eBay.
Some Couple Money readers helped make the Challenge better by taking time to review their progress each week and share some of their successes with earning a bit of money.
Max from Maximizing Money decided to earn some cash by selling two of his guitars:
I ended up selling 2 other Gibson Les Pauls that I have via word of mouth. My friend actually does band and performance photography/video, so she was able to put the word out about my guitars for sale, and it resulted in some interest from local musicians.
So it's definitely a good idea if you're selling stuff to just get the word out there to anybody who might have connections. I've actually seen this work with some of my other friends as well, as I know a guy who sells mobile phones, and pretty much any time any of our friends or acquaintances needs a phone, we all know who to call or let people know about him, so the power of connections is huge in sales….
I won't go into the details about these guitars as I have in the past, but I bought both of these Gibsons over the last year and was able to net a profit of about $450 for the both of them, considering I had them setup professionally with new strings, etc.
Getting an extra $450 is great shot in the arm! Even thought it's a one time deal, that can be used for many things, including investing for retirement.
Spending Less, Save Money
- Get More Money in Your Paycheck: Calculate Your W-4 Withholding -> I think this is an oft neglected activity as we don't usually go back and adjust our W-4s with Human Resources when we have life changes such as having kids. There are two ways to go about it – you can get a bigger paycheck throughout the year to use for your financial goals or you can opt to get a bigger refund after you've filed your taxes. Some couples prefer the former, some prefer the latter. Just have a plan for your money – either way, you can use that money to reach your financial goals.
- Tired of Your Big Bank? Make the Jump -> Having a bank that helps you reach your financial goals is important. I like checking our accounts and seeing that our savings are growing (not great as it did in years past, but much better than when we had kept our money at a big bank). With about 20 minutes of work the two of you can test the waters and open a high yield savings account. That's what we did and we've enjoyed hassle-free banking since.
Again, those who took the challenge had some great tips that they shared. Darris did a fantastic job during the challenge, looking for ways to cut back on expenses:
EATING OUT: SAVINGS $90
My husband encouraged me to add this to the savings pot. If he ate lunches out when out on jobs he would have spent an average of $15 per meal!
This is the savings I calculated that we’ve saved so far this month because I’ve made his lunches when he’s been out on jobs.
CSA FOOD SAVINGS: $83.00
This is the average monthly savings for canceling my pre-payment to our Community Supported Agriculture store. In addition to my weekly box I was buying extra produce from their ‘store’ by pre-paying and holding a credit on their books.
I stopped doing this and am now purchasing produce, etc. from my weekly food ‘envelope’ budget account. I am now holding myself to buying only essentials.
CAR WASH SAVINGS: $46
I live at the beach and drive an older model Volvo wagon and like to keep it in good condition.
I typically have it washed and cleaned inside and out every two weeks. I cut this back to once a month for a savings of $46 per month.
CRAIGSLIST SALE : $35
Wool trench coat
LYNDA.COM, CANCELLED: $37.50
Cancelled my monthly membership to Lynda.com as I haven’t had the time to use it much.
What's important to note is that Darris found sustainable ways to reduce their monthly expenses. What can you change with your spending?
Finding The Retirement Option That Works Best For You
What works for us isn't necessarily going to work for you.
While the financial principles are the same (spending less than we earn), how much of a gap we build between the two is unique to our circumstances and personalities.
There are some readers who will choose to maximize the gap as quickly as possible and invest that money for retirement.
Other families may make incremental adjustments to their lifestyles and snow ball that money into sub-goals on their way towards retirement – paying down debts, starting a business fund, etc.
With this blog and others, take what works for you and adjust it as you see fit.
Thoughts on Retiring Sooner as a Couple
I'd love to hear from you about growing the gap between your income and expenses. Please share your family's successes with earning more and spending less and how you're using your money now to plan for the future.
What is easier for you two – spending less or earning more? When we first got married our priority was spending less. I think we've done a solid job reducing expenses so now our focus will be increasing income.
If you're working towards early retirement/financial freedom, what is your goal and timetable? If you're already retired, how long did it take for you to reach your goal? What are you doing with your retirement?