If you can substantially decrease your three largest monthly expenses, you can exponentially propel your way to Financial Independence. Cutting out an item you splurge on here and there helps, but try focusing on the ways you can save hundreds, if not thousands, each month on the BIG stuff instead of pennies or dollars on the small stuff.

Nom Nom Nom

Ah food. We all need it, yet there are so many views on food. Some of us are foodies and love experiencing high quality cuisine. Some eat food solely to fuel our bodies. Others struggle with food and are constantly on a diet. Some of us don’t have enough time to think about food and end up eating more junk food then we wish to admit. Others have food allergies. Some of us enjoy cooking food at home and trying out new recipes. Some are picky eaters. Others will try anything once. Some of us are gluten intolerant. Some are vegetarians or vegans. Then there are some who are all about that meat and potatoes life.

Whichever category (or categories) above that you fall into, you need to purchase and consume food to stay alive. How much food you spend each month varies greatly. 

Time to Math Shit Up

Let’s look at an example of someone buying EVERY meal out each month. Each day you’re spending on average let’s say $5 for breakfast, $10 for lunch, and $15 for dinner. That comes out to $900 a month assuming a 30 day month time frame. Ouch! I’m not even going to throw any nicer meals out that are more expensive than $15. Or the daily run to Starbucks for that $6 frappe, or additional weekend costs of avocado toast, green juice, and cronut brunch with your besties.

At the other end of the spectrum, if you purchased all meals at a grocery store, shopped for sales, and prepared these items at home you would likely spend about $2.00/meal/day. Here you’d be looking at $180/month. 

That’s a difference of $720/month! If you invested that money in the stock market each month over the course of 30 years and assumed an average 7% return, you’d have $878,379 in your account! That’s nearly 1 million dollars just by shaving ONE category in your monthly expense budget.

Saving on Food Doesn’t Need to Compromise Health

Now I’m not telling you to only live off rice and beans and ramen. That $2/meal example above will actually get you a lot more variety than cheap staples. It’s pretty crazy to compare how much more expensive eating out is compared to cooking food yourself. And what to you get from eating out all the time? Typically it’s less healthy, larger portions that you don’t need, extra salt, extra sugar, extra calories, and tipping someone just to bring you your food. To each their own, but that does not bring us joy.

For those that think $180/person/month is too extreme, let’s look at a happy medium. Let’s say you spent $250/month on groceries and $100/month on eating out, so $350/month. Compare that to our first example ($900) and that’s a difference of $550/month. If you invested that $550 each month and assume a 7% growth your future self will have $670,984 in your bank account in 30 years time. Not too shabby eh??

The Latte Factor

Let’s add on to these massive savings of $670,000-$878,000 that you will earn by cooking meals yourself by talking about the Latte Factor. While we aren’t a fan of saying you will reach FI by cutting out only your latte each morning (it’s the BIG stuff that really matters), making slight adjustments like switching to making your coffee at home instead definitely helps propel you to your FI number faster. If your morning latte really is bringing you joy with each sip, by all means, order away. But let’s look at what that latte is costing you.

Say you normally drive through Starbucks each morning on your way to work because you just have no time in the morning to make your own cup of joe and spend $4 on your grande caramel macchiato – we’re out of touch, is this a realistic price?? If instead, you bought a canister of coffee at the store and made your own brew each morning, it would likely cost you closer to $0.10 for that dirty water.

So a difference of $3.90/day x 5 workdays a week x 52 weeks per year = $1,014. Doesn’t sound too crazy. Over 30 years, you’re looking at $30,420. But if you invested that money and it grew at 7% annually, were talking another $105,967 for your future self 30 years down the road. Thank you compound interest!  And shaving $1,014 per year off your annual expenses mean you need $25,350 less in your portfolio to reach your FI number.

And let’s be honest, it likely would take you LESS time to prep your coffee maker the night before and turn it on in the morning than waiting in line at the Starbucks drive thru (while wasting gas too of course).

Save the $4 coffees out for the special occasions to catch up with friends at your favorite local mom & pop coffee shop, have an actual face to face conversation, and strengthen your relationships. If you value these as treats, you will learn to enjoy the experience more.

Our Real Life Scenario

Ok ok, here’s a look of what we spend each month on food:

We don’t keep a budget but we aim to keep our monthly food spending around $465 for the two of us. It’s now closer to about $535 per month for the three of us as our I swear our little monster eats more than me.

Every month I log into our credit card accounts and add a line item in our grocery tab whenever there is a food purchase so I do keep track of our monthly totals. Sometimes we are under and sometimes we are over, but on average, we come out to right around $465/month these days for us adults or $233/person/month.

This comes out to $2.58/person/meal and includes purchases at BOTH grocery stores and eating out. Typically we will eat a $20-25 meal combined once or twice a month and the remainder is coming from a budget grocery store. Maybe once or twice a year we will eat a meal that’s more than $50.

Here are some examples of typical meals we eat at home:

Breakfast:

• Nic makes ~2 cups of coffee in our french press each morning and Court makes a “latte” which is really lots of milk with a splash of espresso
• Homemade banana chocolate chip muffin
• Sesame seed toast with natural peanut butter, banana and creamed honey or butter and homemade jelly
• Scrambled eggs with veggies and cheese & hash browns
• Bagel sandwich with cream cheese, fried egg, veggie patty, banana peppers
• Overnight oats with berries
• Waffles with local Saskatoon syrup
• Yogurt with granola and berries
• Kodiak protein pancakes with natural peanut butter
• IKEA veggie cakes

Lunch:

• Grilled cheese with avocado, onions, and Franks hot sauce (a staple in our house)
• Open faced sammy’s
• Homemade soup such as: clam chowder, hamburger soup, wonton soup, potato leek & Italian sausage soup, cauliflower & cheese soup, broccoli & cheese soup, mushroom soup, vegetable soup, kimchi ramen soup, creamy miso ramen, lentil soup, spilt pea and ham soup, borsht, matzo ball soup, tom yum soup, tom kha gai soup. Can you tell we LOVE soup!
• Vegetable gyoza & edamame & ponzu sauce
• Frozen margherita pizza
• Leftovers from the night before

Dinner:

• Typically a meat and veggie combo 4 nights a week and a vegetarian supper 3 nights a week. Maybe every other month we will have steak (unless Nic’s parents are visiting – pretty sure her dad grills steak every time we see him). We try to use our grill as much as possible. Examples include:
• Grilled chicken thighs, potatoes, and veggies (note: I never used to eat chicken thighs, it was always chicken breasts, but now I am 100% on team chicken thighs. Tastier, juicer, and cheaper!)
• Kielbasa with onions, potatoes, sauerkraut, and mustard
• Salmon, rice, and veggies
• Pork Piccata, mashed potatoes, and veggies
• Lemon butter chicken and veggies
• Homemade spaghetti and meat sauce (yes Nic enjoys making homemade pasta let alone homemade meat sauce, I’m spoiled)
• Veggie pancakes (potatoes, zucchini, carrots, onion, broccoli, egg, breadcrumbs)
• Stir frys with whatever leftovers are in the frig
• Texas Caviar (veggie and bean salad) over greens
• Tofu tacos
• Fish & Chips
• Shepards pie

Snacks:

• Fruit
• Veggies with dip
• Cheese
• Olives
• Pickles
• Hummus and pita chips
• Nuts
• Granola
• Chips
• Gummies 
• Kefir
• Veggie Springrolls

As you can see, we are not living on rice and beans (although I do love me some rice and beans and homemade chimichurri every so often). Nic loves to cook so eating at home is never seen as a chore. She is constantly trying out new recipes, coming up with new marinades to grill with, digging into her Grandma’s recipe book, and trying out new things to make like homemade pasta, Challah, bialys, muffins, Lara bars, beef jerky, goldfish crackers, and key lime pie. I really enjoy cleaning (I know, I’m weird) so I have no issues doing the dishes by hand each night.

The Little Human Who HOUSES Food

Our little lady just lovesssss blueberries which are so damn expensive but she is definitely getting in her antioxidant fix daily. We spend about $50-70/month on her food. 

In a day, she typically eats:

• bun with natural peanut butter for breakfast,
• a Lara bar, seaweed, & fruit for stroller ride pre-lunch,
• cheese, 1/2 a veggie patty, mustard, & pickles for lunch,
• olives, puffs, artichoke hearts & homemade fruit leather for pre-supper,
• whatever we are having for supper,
• frozen yogurt tube for post-supper “treat”,
• prunes for bath snack

I wasn’t joking when I said I think she eats more than me!

How do we stick to less than $300/adult/month?

I’ll be the first to admit, we are terrible at meal planning. Pretty much every day at 3:00 pm one of us asks, ‘what are we going to have for supper tonight?’ So don’t follow us and do a better job at meal prepping ha!

Deep Freeze for the Win

Our hack to being terrible at meal prepping is that we have a deep freeze that we keep full of items we pick up when they are on sale and we defrost something for the next meal. We have no issues buying large quantities of an item if it’s on sale and we use it often.

This definitely helps keep the food costs low overall at the grocery store. We will gladly buy 40 chicken thighs when they are on sale and freeze them in bags of 6. Or buy 8 blocks of cheese when they are on sale and don’t expire for another 6 months (yes, we LOVE cheese). We don’t hesitate to buy 5 packages of bacon when they are half off and freeze all but one.

Stock Up When It Makes Sense

We are strategic, in that we can identify when something on sale is a good sale and we go for it. If it’s saving us $0.10 off the normal price, we aren’t going to stock up. But if we are saving $4/lb or if it’s half off, you better believe we’re stocking up. For the most part, buying in bulk provides the biggest savings and we just split it up when we get home into bags that will serve us for a few meals then throw it in the deep freeze.

Don’t Shop While Hangry

We also try not to go to the grocery store hungry or without a list in our hand. It’s very easy to be tempted to buy junk food if you don’t prepare beforehand. We bring our own reusable bags too as most stores in Canada charge $0.05/bag for (which I am A-OK with supporting – bring your own bags people! Mother Earth would be ashamed if you don’t!).

Go With Generic Brands When You Can

We also are big fans of buying the generic brand for most items. I’ll admit, nothing beats Heinz ketchup, but for most items the generic no-name brand is just as good, if not better in some cases. Most of the time the generic brand is 20-50% cheaper than the name brand item. Marketing at it’s finest!

Our Last “Secret” Tip

Lastly, make sure to look at the unit price for an item, not just the list price. Just because something is listed as cheaper doesn’t mean it’s a better deal.

For example, if you are buying a bag of rice and see one that’s normally $7 but on sale for $5 and another for $6 don’t just immediately grab the $5 bag. If the $5 bag has 2 lbs (32 ounces) of rice, that comes out to $0.156/ounce. But if the $6 bag has 2.75 lbs (44 ounces) of rice, that comes out to $0.136/ounce. So just because an item is on sale doesn’t necessarily mean its a good deal!

Often times, the larger packaged items (aka bulk items or club size) have a better unit price. And on top of this, the best unit priced items are typically not at eye level so make sure to look around.

*Hint: If you don’t feel like doing long division at the grocery store, the unit price is listed on the posted price sticker on the shelf, just REALLY small. Tricky tricky…

Where do we shop?

For my fellow Canadians, we typically shop at No Frills and we are all about those yellow no-name items. If there was a Superstore near us that’d be our go to as well (they’re both owned by Loblaws).

We do go to Safeway/Save On Foods for certain items like bread, buns, deli meat, Morningstar veggie patties, and Happy Planet smoothies but we never do a full on shopping trip there as staple items there tend to cost quite a bit more. We also learned that we can’t spend less than $150 each time we went to Costco so we canceled that membership years ago and just have our neighbor or sister-in-law pick up a few key items for us when they go.

In the States, we were loyal to Publix (Florida company slowly spreading to other states in the South where shopping really is a pleasure – love their BOGOs) and Trader Joes. Aldi is a low budget grocery store if you’re in the States. 

We often peruse the weekly flyers and make our lists of what to buy from each store depending on who has deals on staple items in our kitchen.

What is your typical monthly food budget? How do you stay on budget? Any other recommendations out there to keep your food budget on track? 

Support This Blog

If you liked this article and want more content like this, please support this blog by sharing it.  Not only does it help spread the FIRE, but it lets me know what content you find beneficial.  Writing is NOT my strong suit and it honestly takes me hours to write each post so the more encouragement the better!  Engaging in the comments below keeps me motivated.  You can also support this blog by subscribing to receive emails anytime a new post is published.  Thank you FImily!

We believe in stacking up life hacks to keep your enjoyment levels to the max without depleting your bank account.  Here are some ways to further educate yourself and save thousands of dollars over your lifetime by making some simple adjustments:

• Investing Newbies: Check out our free Investing 101 Series.
• How much are you paying for your phone plan?  Canadians, learn more about Public Mobile, and see how we are paying $3/mo for our cell phone plan.
• How much are you paying for internet?  Canadians, learn more about the various Independent Service Providers out there to see who services your area so you can lower your monthly bills.
• How much are you paying for home insurance?  We were able to reduce our rates by 25% by switching over to Square One Insurance.  If you live in BC, AB, SK, MB, and ON, check out Square One for your home insurance, landlord insurance, and/or tenant insurance.  Use this link to receive an extra $15 off your quote.  (Note that you must use this link to start the process to get the $15 off even if you prefer to pay over the phone.)
• How much are you paying for your monthly utility bills?  See how you can likely save on this monthly expense.

The post Master the BIG Stuff – Food appeared first on Modern FImily.

You’ve Just Won a BRAND NEW CAR

How many of you have seen a commercial during the holidays or Super Bowl with a brand new car out on the driveway with a big ole ribbon on top and the spouse comes running outside with their little puppy so surprised and happy? Everyone. Everyone who watches tv knows what I’m talking about. 

This is marketing at its finest. I’m sure we all think we would love that but is that the most practical way of spending your money? Will that REALLY bring us happiness? Lexus sure thinks it will, but chances are someone from a developing country would think we are NUTS if you told them you just dropped $30,000-75,000+ on a vehicle (we don’t even know what high end vehicles cost these days).

Let’s be honest here – a car is a mode of transportation. That’s really it. It’s a way of getting from point A to point B. But in our developed society we see it at a status symbol.

There is an unspoken judgement aimed towards those who don’t have a car and instead take public transit or families who only have one car. Judgement based on the type of car someone drives sounds ludicrous. We form opinions on people by the way their car looks.

Most people don’t bat an eye to bring their cars into the repair shop to spend a few hundred dollars to fix minor exterior scuffs that do not harm the interior mechanics as we want our cars looking goooood. We have car washes to keep our shiny metal clean and pristine and to show the world that we care about our appearances and status.

Personally, I don’t really care what other people think of me or my vehicle. Our cars gets washed two ways: by Mother Nature when it rains and a few times a year in my driveway by hand with a bucket of soapy water and an old rag in the Spring to get off salt that has accumulated over the winter and again towards the end of Summer to get off all the bugs. 

New Vs. Used Vehicles

1. Sammy the Spender

Sammy feels the need to keep up with the Joneses and not only did he see his neighbors new car but he also overheard his coworker talking about her new car and he felt the need to treat himself to a new car as well. He works hard, he deserves it, the treat yourself mentality kicked in. Though his current car was only 6 years old, he went to the dealership and bought a brand new car off the lot for $35,000. They were offering a promo of 0% interest for the first 5 years, AND it has the latest technology, it was too good to pass up!  Plus the dealer was willing to give him $6,000 for the trade in of his old car so he only needed to take out a loan for $29,000 to finance this new car! Sammy is feeling on top of the world, what a great deal…!

1. Sally the Saver

Sally buys used reliable low mileage cars with cash, and drives them for 10+ years until the timing makes sense to sell it and she buys a newer used reliable car instead. She sold her old car for $2,000 and over the course of those 10 years while she was drove it, she had saved up another $5,000 as she didn’t have monthly car payments to deal with. She was able to buy the same reliable used car but a newer version that only had 60,000 miles on it for $7,000. 

So let’s crunch some numbers. 

Say Sammy really wanted to pay off that $29,000 car loan in 5 years while the interest rate was still 0%. That comes out to a monthly payment of $483/month for 5 years. At the end of the 5 years he now has a paid off car that he can to sell to another Sally of the world for $10,000 (because your brand new car depreciates the moment you drive it out of the lot) before he goes out and buys another overpriced new car again. Because new cars are best, right? 

During that same 5 year period, Sally bought her used car for $7,000 with cash upfront that she had previously saved and then invested that same $483/month that Sammy was spending on car payments into the stock market over those 5 years which earned 7% interest on average. At the end of the 5 years she has an older car that she could sell for $2,000 AND $34,579 IN HER INVESTMENT ACCOUNTS! This can more than cover the additional $5,000 she would need to buy her next used reliable car for $7,000 that she can use for the next 10 years.

To compare the two, after 5 years Sammy put in $29,000 and has a paid off car worth $10,000. Sally put in $7,000 and has a paid off car worth $2,000 AND $34,579 in her investment account. Sammy would have to take out a loan again if he wanted to get another new car at that point, as I don’t know of any new cars that cost $10,000. Sally could use the $2,000 from her car sale and take out $5,000 from her investment earnings and purchase another used reliable car for $7,000 and still have $29,579 in her accounts. If Sally kept that remaining $29,579 in her investment accounts which continued to grow at 7% on average annually, after 30 more years, that account would have $240,077 in it without having Sally contribute another penny from her end. Thank you compound interest! And that’s only a 5 year comparison, imagine if you did this car comparison for the average adult drivings life!

“Leasing” Should Be An FI Swear Word

And this example doesn’t even factor in the costs of leasing a car! At least Sammy had a $10,000 trade in value at the end of those 5 years. If you’re leasing a car for say $300/month for two years what do you have at the end of those 2 years? Nothing. And $7,200 out of your bank account. You could have bought a clunker for $1,000 to use for 2 years while you saved $300/month to then buy a $7,200 used car like Sally that would last over 10 years. Seriously, that’s all it would take to get you in Sally’s starting situation (save $1,000 and then save $300/month * 24 months = $7,200 for a used reliable low mileage car). Yes of course there will be some maintenance costs to owning an older car vs leasing but nothing to the tune of consistently spending $300/month like you were when you were leasing. 

Our Real Life Senario

Court’s Story:

Growing up, my parents always bought new cars. In fact they bought me my first car for my 16th birthday and you guessed it, it was brand new. #spoiled. I know. Report me to the FIRE police. To this day my parents will only buy new. So I did not learn the value of buying used cars from them, I learned it from Nic. In fact when I tell my family that I’m buying a used car I hear ALL the reasons why I should be buying a NEW car instead. 

My parents bought me a brand new Toyota RAV4 back in 2001. At the time of course I was pumped, but now that I’m in my 30s I realize how foolish this purchase was. I really wish I could have told them to send it back, get their money back, and to make me buy a used car with my own dollars from working part time after school and over the summer (to their credit, I did work throughout high school and college). That is our plan for our children. 

Of course I realize how thankful I am that my parents did this for me. I drove the Rav from 2002-2015 and put 120,000 miles on it.  When we were getting ready to move to Canada, I sold it to one of my roommates for $4,000 USD. I converted that sale to $5,000 CAD, and bought Nic’s grandmas 2009 Pontiac Vibe that had 60,000 kilometres (~37,000 miles) on it.

About a year later in 2016 I was in a bad car accident – the other driver blew past a stop sign and totaled my car, luckily I only ended up with a broken elbow and whiplash afterwards. Insurance paid me out $7,200 for that car and I then bought a 2009 Toyota Corolla with 70,000 kilometers (~43,000 miles) on it for $7,000 and that’s the car I am currently driving today and it recently passed the 100,000 kilometers (~62,000 miles) mark. She is a gold Corolla… with manual crank windows…. very fitting for an 80 year old grandma like myself…her name is Carol and I love her.

So, I have yet to put in any of my own money towards a car payment in my life as the original sale of the RAV4 has fueled the costs of the used cars since then. That’s 18+ years of no car payments. For that, I am extremely grateful to my parents initial purchase and I am also grateful for my wife to show me that there is nothing wrong with used cars. Yet, I still think it was a poor financial decision on my parents end.

Nic’s Story:

I have a different story. I drove a hand me down manual ’90’s Honda Civic Hatchback in high school in the early 2000s, then later upgraded to a rusty minivan. There was no practical way for me to use a car in college, but I bought a used Honda Accord with 175,000 miles on it for $7,000 USD when I graduated and was working in Boston after using public transit for a bit to save up for that car purchase.

The Accord was also sold when we moved to Canada (we practically sold everything we owned at that point but that’s for an entirely separate post), for $1,300 USD with over 260,000 miles on her. When we moved, I bought my brothers 2006 2-door manual Honda Civic with 200,000 kilometers (~124,000 miles) for $3,500. I sold that car for $2,000 because the need for 4 doors was imminent with a baby on the way and the plan to teach Court how to drive a manual car backfired as she’s a wuss and was petrified of driving a manual unless it was on a highway, and even then, she wasn’t an anxious wreck. I purchased a used 2011 Chevy Equinox for $8,700 in cash with 80,000 kilometres (~50,000 miles).  We thought we’d want a an SUV for our growing family but we quickly realized this vehicle was too big for us.  We sold the Equinox for $8,800 and instead bought a used 2013 Subaru Legacy that had 160,000 kilometres (~100,000 miles) for $6,000 (seller was looking for a quick sale so we got a good deal).  She as winter tires worth $2,000, heated seats, and remote start with a 2 mile radius.  She’s our fancy car.

There you have it. We currently have used, older, reliable cars that have been paid for with cash and should last us for years.

When we transition to early retirement we’re considering selling one of these cars to become a single car family. We can take the proceeds and throw it into the market to let compound interest do it’s thing to fund our future car purchases. We likely can sell Carol for $5,000 and the Subs for $7,500. We can take the proceeds from the sale of one of these vehicles and throw it into the market.  If we assume it grows 7% annually while we continue to drive our other car, we will have enough to fuel our next car purchase.  The difference between the growth from the sale of the first car sold + the sale of the second car sold years down the road vs the next used vehicle we purchase will remain in the market to keep funding our next car after that which should last us again for another 10 years. 

Where we live in Canada, everything is spread quite far apart and unfortunately public transit is not adequate to get around so it’s not practical for us to be car-less.

I sure am glad my mentality has shifted to buying used instead of new (thank you Nic and the FIRE community), it definitely isn’t what I was told growing up. 

As a parent, we are planning to have our child(ren) work throughout high school and university to help pay for a reliable used car if they choose to want to drive a car at that time. Hopefully public transit continues to become more and more efficient, car sharing becomes more mainstream, and the Uber’s of the world continue to make not needing to own a car more and more appealing. And who knows, teleportation may exist 15 years from now let alone driver-less vehicles.

What has your car buying experiences been like? Are you a new, used, or lease car person? Or are you a total badass and don’t have a car?! 

Support This Blog

If you liked this article and want more content like this, please support this blog by sharing it.  Not only does it help spread the FIRE, but it lets me know what content you find beneficial.  Writing is NOT my strong suit and it honestly takes me hours to write each post so the more encouragement the better!  Engaging in the comments below keeps me motivated.  You can also support this blog by subscribing to receive emails anytime a new post is published.  Thank you FImily!

We believe in stacking up life hacks to keep your enjoyment levels to the max without depleting your bank account.  Here are some ways to further educate yourself and save thousands of dollars over your lifetime by making some simple adjustments:

• Investing Newbies: Check out our free Investing 101 Series.
• How much are you paying for your phone plan?  Canadians, learn more about Public Mobile, and see how we are paying $3/mo for our cell phone plan.
• How much are you paying for internet?  Canadians, learn more about the various Independent Service Providers out there to see who services your area so you can lower your monthly bills.
• How much are you paying for home insurance?  We were able to reduce our rates by 25% by switching over to Square One Insurance.  If you live in BC, AB, SK, MB, and ON, check out Square One for your home insurance, landlord insurance, and/or tenant insurance.  Use this link to receive an extra $15 off your quote.  (Note that you must use this link to start the process to get the $15 off even if you prefer to pay over the phone.)
• How much are you paying for your monthly utility bills?  See how you can likely save on this monthly expense.

The post Master the BIG Stuff – Transportation appeared first on Modern FImily.

What do we mean by Master The Big Stuff?

The biggest three expenses for most people include housing, transportation and food. We want to emphasize that optimizing your savings in these three areas will likely save you hundreds, if not thousands, each and every month. Rather than focus on saving the pennies, focus on the areas where you can save BIG.

If you can focus on streamlining your savings in these big categories, the little things that bring you joy that come at a small cost in comparison, like catching up over a coffee with a friend every so often or going out to lunch occasionally with a coworker, doesn’t impact your FI journey as heavily.

The goal is obviously to take these additional savings each month and throw it at your debt or start propelling your investment accounts. Onward and upward.

This first part of the Master The Big Stuff Series is going to focus on housing. We won’t cover buying and flipping homes or rental properties, or being a property manager for a house you don’t occupy (although that’s definitely another way to reach FI too, get that passive income!). This is strictly about reducing the amount you currently pay to have a roof over your own head. Let’s get into it!

Financially Optimize Your Living Situation

Rather than spend over $1,000/month on rent and pay 100% for utilities in a 1/1 apartment, rent out a 2/2, get a roommate and cut your housing costs in HALF.

Rather than buy a 3,500 square foot house, that you’ll likely spend countless hours cleaning, why not buy a 1,500 square foot townhouse for HALF the price which still allows you to live comfortably and invest the difference?

OR buy that big house, but rather than let the extra rooms sit empty 90% of the time, become a landlord and rent those rooms out to roommates to COVER YOUR MORTGAGE (OR MORE)? Then downsize to a smaller place when you no longer want roommates and take the proceeds and invest it?

OR rent a room out in your home on Airbnb? Maybe you live in an area bumping with tourism and could make some decent cash during season? Or maybe your city or town holds an annual event or conference where you could rent out your place and go on vacation during that time instead to avoid the crowds (I’m looking at you Calgary Stampede).

OR convert your unused basement into a rental suite? This could be a double whammy, in that you could make extra monthly income renting it out while also likely increasing the value of your home by more than the cost of the upgrades.

There are SO many ways to house hack and easily slash your housing expense by at least $500/month. And this doesn’t have to be a 20 year play. You likely can rent out rooms for a few years to supercharge your mortgage and become mortgage free in less than 10 years (depending on where you live of course and what the housing market is there). 

An Example of House Hacking

Let’s say Jessica had a $200,000 starting mortgage loan at a 4.5% interest rate for 30 years and she still has 25 years remaining. Sound like someone you know?

If Jessica was able to contribute an additional $1,000/month to her mortgage by house hacking and getting a roommate or two to live in the extra unused rooms in her home, then used her renters hard earned pennies to contribute towards her mortgage, her mortgage would be paid off 15 years and 9 months EARLY! That sounds like freedom to me!

If she could super charge it even further and get even more than the $1,000/month of rental income, she could obviously pay the mortgage off even faster than 9 years and 3 months instead of 25! BOOM.

Our Real Life Senario

Ok ok, time for us to share our real life example. So, here’s what we did:

In 2012 I bought a 3 bedroom 1,900 square foot townhouse in Florida that cost $169,000 USD. It also had a large private den with a half bath on the first floor.  The second floor was the main living space.  And the third floor were the bedrooms.  I put 20% down (~$34,000) and had a mortgage of ~$135,000 remaining.

We rented out 2 of the 3 bedrooms and we rented out the large den/bedroom as well for 2.5 years while we were living in the master bedroom. We charged anywhere from $650-900/room/month depending on the size. On average, we were making over $2,250/month by renting out the rooms.

We were paying our monthly mortgage like normal (which was WAY less than $2,250) but then supercharging it by throwing the additional $2,250 (minus taxes) towards our mortgage each month. 

This cut our mortgage down from a 30 year payoff to a roughly 4 year payoff. 4 years!!! Would you have roommates for 4 years if it meant a paid off house afterwards?? It was a no brainer to us. 

We ended up supercharging it even more by putting additional savings of our own towards the mortgage (about $1,000/month from Court’s personal account when it was just her living there and another $650/month when Nic moved in) and paid the house off in 2.5 years.

2.5 years and we had a paid off townhouse! 

If we had stuck with paying the minimums on the original 30 year mortgage, that $135,000 remaining balance on the house would have ballooned to $196,000, by the end of that 30 year period. That’s $61,000 in interest to the bank. And that’s on a LOW interest rate of 2.7%! Instead, by supercharging our mortgage payments, we only ended up paying $5,000 in interest to the banks!  You can check out current mortgage rates being offered to see what’s available to you.

Imagine what the difference the accumulated interest would be if we were talking about a mortgage balance more than twice that amount, with an interest rate more than double ours?! We did the math and if you double our situation to a $270,000 mortgage at a 5.7% interest rate, you’d be looking at $272,000 in interest to the banks over the course of a 30 year mortgage period. That’s more than what the original mortgage amount was for!

After those 2.5 years, we were mortgage free and any money that would have gone towards mortgage payments was instead now headed to our investment accounts. And those little dollar employees were working hard for us in there.

When we moved to Canada, we kept our fully paid for house in Florida and rented it out to a family for 2 years, where we netted $900/month (after ALL expenses accounted for: taxes, home insurance, a high HOA, American Home Shield systems and appliance insurance, and repairs). So we made a total of ~$22,000 in additional profit during those two years.

We sold that Florida townhouse in 2017 for $270,000 which came out to ~$240,000 after closing costs / fees. Note that our tenants were REALLY good and they were not the reason we decided to sell. We also had a fantastic realtor who was also our property manager (don’t settle on your realtor or property manager if you decide to become a landlord – ask them tons of questions before committing!).

Ultimately it was too hard for the control freak in us to be thousands of miles away from our investment property. What if there was a major hurricane or flood or fire? It stressed us out far too much (not that being close would prevent any natural disaster from occurring). We learned that even though the passive income was so SO sweet, being a landlord from a distance was not for us.

To sum it all up: renting 3 rooms for 2.5 years ($67,500) + renting the entire place for 2 years ($22,000) + profit from the sale ($240,000) = $329,500 in proceeds from the house over a 4.5 year time frame.

Of course, we DO have to account for what we put into it though.

The purchase price of the house was $169,000 and we put $34,000 down that had been saved up for prior to purchasing so we need to account for the down payment. Over the 2.5 years we were living there, we were paying our normal mortgage amount as well as contributing $1,425/month extra (Nic’s $650/month contribution started when she moved in so this is the overall average), totaling $1,975/month, which comes out to $47,400. And we need to account for the $5,000 in interest that we paid towards the mortgage during this 2.5 year time frame. Plus I put in about $2,000 when I first bought the place to fix a few things and paint all the walls (myself of course, come on you guys!). So a total cost of $88,400 is what we shelled out on the house overall.

When all was said and done, we netted $329,500-$88,400=$241,100.

Now all of this so far has been in USD.  Converting this to CAD at a USD/CAD exchange rate of 1.30 yields $313,430 CAD.  We now are using the earnings from this house to account for our current mortgage on our Canadian house (that USD/CAD exchange rate though… love it.)  We purchased our Canadian townhouse in 2016 for $315,000 CAD and decided to hold a mortgage on it since the interest rates were low which allowed us to have the cash on hand in case of an emergency/opportunity with the plan to pay if off by 2021 once we reach our FIRE number as we plan to be debt free going into early retirement. Because of this timing, we do not include a mortgage expense in our FIRE calculations.

We had the Florida house money sitting in a high interest savings account earning 2.8% interest and our mortgage interest is 2.59%. So we’re actually MAKING money by having a mortgage and slowly paying it off vs paying for it in cash upfront. Mind blown.

We also want the extra cash on hand in case the stock market crashes in the next year or two so we can have the option to move funds out of the high interest savings account and shift it into our stock portfolio when we can buy shares of our favorite low fee index funds when they are on sale.

Some Things to Consider

The key to all of this is that prior to buying the townhouse, we had been living with roommates for the past 8 years (4 years in school and then 4 years after school once entering the real world while trying to keep expenses low to pay off student loan debt / save for a down payment). So the idea of living with roommates wasn’t a “step back” for us.

We didn’t let lifestyle creep impact us. We didn’t shift to feeling like we had to live on our own once we landed jobs out of school. That would have made it MUCH harder mentally to go back to living with roommates. We just figured we might as well be the landlord collecting rent from our roommates, rather than paying someone else to let us live in their place. 

We totally get that this is not ideal for everyone, depending on where you are at in your life, this is just our experience. For example, this would be MUCH more difficult to do if you have kids. But if you are in school, just starting your first job, or are generally very flexible, I would HIGHLY recommend looking into this strategy.  We also recognize the crazy foreclosure market we were dealing with when we purchased our home was a very atypical time.  That’s not to say good deals don’t exist anymore.  They just may be harder to come by.

Total side note: Up until owning our Florida townhouse we had both only lived with female roommates. When we had our own place it just so happened to be that all of our roommates were males over that 2.5 year period except for one female (and she’s now married to one of our old roomies – just call us match makers!).

And you know what?! It was great! The guys were so quiet, respectful, and clean. They didn’t know how to cook much, so they were never even IN the kitchen ha! We both worked shift work too, so we had very wonky hours and most of the time we were home when everyone else was at work and vice versa so it was a great set up for all and it felt very private.

Are you already thinking about ways to house hack? What stage of your life are you in? Do you think you can figure out a way to use housing as a way to MAKE money for you? Have you figured out a different way to house hack? 

Support This Blog

If you liked this article and want more content like this, please support this blog by sharing it.  Not only does it help spread the FIRE, but it lets me know what content you find beneficial.  Writing is NOT my strong suit and it honestly takes me hours to write each post so the more encouragement the better!  Engaging in the comments below keeps me motivated.  You can also support this blog by subscribing to receive emails anytime a new post is published.  Thank you FImily!

We believe in stacking up life hacks to keep your enjoyment levels to the max without depleting your bank account.  Here are some ways to further educate yourself and save thousands of dollars over your lifetime by making some simple adjustments:

• Investing Newbies: Check out our free Investing 101 Series.
• How much are you paying for your phone plan?  Canadians, learn more about Public Mobile, and see how we are paying $3/mo for our cell phone plan.
• How much are you paying for internet?  Canadians, learn more about the various Independent Service Providers out there to see who services your area so you can lower your monthly bills.
• How much are you paying for home insurance?  We were able to reduce our rates by 25% by switching over to Square One Insurance.  If you live in BC, AB, SK, MB, and ON, check out Square One for your home insurance, landlord insurance, and/or tenant insurance.  Use this link to receive an extra $15 off your quote.  (Note that you must use this link to start the process to get the $15 off even if you prefer to pay over the phone.)
• How much are you paying for your monthly utility bills?  See how you can likely save on this monthly expense.

The post Master the BIG Stuff – Housing appeared first on Modern FImily.