Debt be Damned

I have a love-hate relationship with debt.  On the one hand, responsibly using debt as leverage to make investments can be really smart.  Most everyone takes a mortgage when they buy a house.  What a great use of debt since you get to live in a house you otherwise wouldn't be able to afford.

It's been nearly three years since I last posted about my total debt.  I've come a long way since then:

My Frugal Miser's Trail of Debts

• 2009:  $507,000
• 2010:  $469,000
• 2011:  $446,000
• 2012:  $397,000
• 2013:  $351,000
• 2014:  $299,000

I'm getting closer to what I think is a healthy level of debt.  There comes a point when it makes more sense to invest available cash rather than use it to pay down debt.  I'm not there yet, as both of my rental property mortgages have interest rates higher than 5%.  I'd rather pocket a guaranteed 5% return (somewhat less with tax benefits) than hope for something better in the stock market.  For now, I'll continue to grind away at this (now smaller!) mountain of debt.

Ways I am Reducing Expenses (my Personal Burn Rate) in 2015

One of my 2015 goals is to reduce monthly spending, net of vacation and home repairs, to $1,250.  In order to do this, I need to look at costs I can control (such as eating out) as well as those that are relatively fixed (like insurance).  Some thoughts:

• I've already reduced my health insurance costs by shopping for a new plan.  Last year I did not take advantage of the new plans being offered under the Affordable Care Act.  I spent Monday afternoon evaluating my eligibility and my options.  While I will have to change doctors, I found an HMO plan that has a lower deductible and lower out of pocket fees for things like doctor visits and prescriptions.  I qualify for a voucher that gets me this better plan for $105/month less than I paid in 2014.
• In 2014 I reduced auto expenses by replacing the S-10 with an Aveo.  Another, unanticipated, savings came from moving to a new house a few miles away.  I'm in a more central location, so I drive less.  In 2015 I will save money by reducing the amount I drive.  Between the bicycle and my 2012 Piaggio Fly 50 scooter, my driving will mostly be limited to income-generating activities including mystery shopping, hospitality work, and tending to my rental properties.
• While it isn't included in monthly spending, and I don't regularly post the expenses associated with my rental properties, I plan to shop my property insurance needs for the first time.  I spent over $7,000 on insurance in 2014, and that's with $5,000 deductibles on every property and no claims history.  It's time to find savings and I am confident that investing some effort here will be worthwhile. 
• Finally, there's food.  While eating out is a simple pleasure, it costs so much more than cooking at home, which is also usually healthier.  I think one of the reasons we eat out is because we don't have food available at the house that appeals to me.  By spending a bit more on groceries to add variety, I hope to reduce the amount we spend in restaurants.  Overall, this should reduce the amount we spend on food.

Keeping my Personal Burn Rate low

Last week while visiting Birmingham I sat down with the former CFO of the software company where I used to work.  One of the topics he brought up was the concept of a Personal Burn Rate, which is basically an individual's recurring monthly expenses.  We talked about how lifestyle inflation limits the options people have to pursue opportunities.  He recently left the company and spent several months traveling Europe and sailing with his wife.  I asked what his next move was, and he was elated to have options because he has kept his Personal Burn Rate low.

If your fixed expenses are too high, you won't have the flexibility to choose when you want to work or how you want to invest your time.  I see this all the time in the mystery shopping industry:  desperate shoppers with a mountain of bills accept piddling jobs just because they are trying to stay above water.  But instead of this being an "every little bit counts" situation, the shopper is just digging a hole that's harder to get out of.  That $7 job might cost $10 in vehicle expenses alone when you take into account depreciation and maintenance.  Sure, it's $7 today, but now the shopper has to come up with $10 in a couple of months because they took the $7 job.  It's insane.

I've been spending these last days of 2014 looking at my own Personal Burn Rate.  I ask myself, "Where can I reduce expenses with the least amount of pain?"  As I do this exercise I am keeping a list of how I am reducing my Personal Burn Rate.  I'll share some examples later this week.

Brickell, Miami

We're back in the good ol' US of A now.  After arriving in port early this morning, we had a nice final breakfast in the ship's dining room and leisurely got ready.  Customs is so easy when arriving by cruise ship.  There was no inspection at all.  A customs officer looked at my passport and declarations sheet and thanked me.

From there, we walked across the bridge into downtown Miami and took the free Metromover tram to Brickell, which has a pretty cool village-feel to it.  I had to make a sizable deposit at Wells Fargo (I made several fee-free withdrawals at the ship's casino to garner rewards points on my credit card).  Now we are hanging out at Starbucks until the Megabus leaves at 4:40 PM.

I'll post more about the cruise later.  We had a fabulous time and I can't believe how quickly it came to an end.  Besides some gambling, two drinks and a little miscellaneous spending, I didn't bust the budget.

On Monday I head to Birmingham for the holidays.  I haven't visited my Mom this year nor my father's side of the family, so some catching up is in order.