Financial Reset: Spending less and earning more for a month!
11 Aug, 2024
Unlucky Jonny. He has always been the recipient of my great ideas. Amazingly, he accepts them graciously and helps me get on with them. Our 16-year-old is automatically signed up for our plans, too. Thankfully, she is pretty easygoing as well. Although, she does have her limits.
My latest bright idea was for our whānau of three to spend the month of July earning more money while spending less of it.
Call it a Financial Reset.
Why?
When the general societal vibe is that we are all in a rough state economically, it is easy for an individual to feel powerless. Although optimistic by nature, I’m not immune to this feeling of gloom.
But instead of accepting that we are in a financial crisis, I’d prefer to take the bull by the horns and own our situation. Because I’ve tracked what we spend and earn for so long using PocketSmith, I can quickly and correctly conclude that life has become more expensive, but we are still doing OK financially.
But it’s worth digging deeper into those numbers and working out the difference between rising expenses, such as food, rates, electricity, fuel, and insurance, and lifestyle creep. There's no point in me whining about a ‘cost-of-living crisis’ if my monthly expenditure rise actually comes from taking more holidays, buying luxury items, and generally blowing our pūtea.
Also, what we spend is only half the equation. While we can cut our spending, we can only cut so far, but there is no limit on what we can earn.
So, for July 2024, we decided to focus on increasing our income and cutting our expenses, and today, I will share what happened.
Try not to freak out the teenager.
Given that we have a teenager in the house and I’ve spoken to hundreds of people who credit those teenage years as the time they absorbed their parents' view on money, we took the time to explain to her what we were doing. I don’t want her to leave home with the view that Jonny and I were penny pinchers who never left the house. Instead, we explained that we are financially stable but interested in the math behind how much we earn and spend. Given that I’ve cajoled, directed, and encouraged her to use PocketSmith herself in 2024, she gets what I’m trying to do here. It pays to pay attention to your money, and for one month, we have been particularly focused. Also, she makes her own money now, so I said that if she feels particularly deprived at any point during July, she is welcome to go and purchase the missing item herself!
Therefore, with the team assembled, we began.
The answer is “NO.”
I sprung this challenge on my family on short notice in late June. I credit the Rebel Finance School 2024 with motivating me to widen our ‘gap’ between earning and spending. We already had a couple of things planned for July that we had committed to and saved up for, so they stayed on the calendar, but for everything else, the answer was NO.
Should we go out for lunch? NO.
Should we stock up on cat food because it's on special? NO.
Should we test out the new Gondolas in Queenstown? NO.
I find NO the best answer simply because “maybe” has too many grey areas. For example, regarding the Gondola in Queenstown, we had to fuel up the car and drive there for an appointment anyway…so while we were there…maybe it made sense to try the Gondola. NO!
I want to make clear from the outset that 31 days of largely saying no didn’t impact our happiness levels one bit. We’ve still had a great month; we just found ways to enjoy ourselves that didn’t involve dishing out our dosh. We’ve had a month of making do, and survived.
I’ll often advocate a financial reset month such as this for those starting to look closely at getting their finances back on track. A month of saying no resets your financial baseline spending and tells you the gap between what you earn and what you spend. The bigger that gap is, the more money we have to spare to pay off debt or, in our case, invest in ETFs. This data also helps us plan things like how much we should have in our emergency fund (3-6 months expenses), how much we spend per year, and how much we need to save for retirement.
In a reset month, the answer is generally always no.
However, I probably couldn’t have chosen a worse month to do it. Midwinter is the most expensive month for heating our home. The heating runs full-time to combat temperatures that fall well below freezing every night (and sometimes during the day), and this year, July was particularly cold. We spent $860 on electricity and diesel in July (just $481 in July 2023). Keep that figure in mind when I share our total July spend. In addition to this one vehicle was due a WOF, the other a minor repair. Such is life. And to top it off, we had already committed to expenses related to the school formal, and those costs were a bit of a surprise, I can tell you 😳
We cut our spending in the following ways:
We are dialled in on our regular expenses, such as rates (which we pay weekly) and insurance (which we pay monthly). It was the daily frittering that we needed to stop.
We didn’t go shopping for enjoyment or entertainment. If we needed a specific thing, we bought that particular item only.
We ate from our pantry and our freezer, reducing our grocery spend. Plus, we used up all the opened but unfinished tins, jars, and containers of food, which had the added bonus of tidying up my pantry.
I did not buy snacks or coffee while at work. I’m not going to lie; I felt bad that I was not supporting my local coffee shop!
We cut or put on hold subscriptions that we no longer needed or needed less of.
We turned off the central heating in less-used rooms during the day and worked from the living room instead, but our bills remained high!
We drove the car less, walked more, and looked for deals on fuel.
In Alexandra, we have two leading supermarkets, New World and Woolworths, and out of habit, we mostly frequent the former. We meal-planned and shopped to a list in a more disciplined way, but for the first time, we also took a moment to look at special offers and loyalty programmes for each supermarket. We then shopped accordingly. It was a minor inconvenience, but honestly, we have plenty of time to do this, and it did (and will continue to) save us money. Our grocery spend was under $1,000 for the first time in years. A minor miracle!
We tried to make more money.
This was the part of the month I was more interested in. How much more could we earn? You can only cut spending so much, but you can go for it as far as earning more income goes. I will admit that we didn’t go too “Dave Ramsey” here, where he says, “You only visit a restaurant if you are working at it”. Our situation is not that dire, but we did hustle nonetheless. In hindsight, we should have hustled more!
We grabbed the easy money first.
First, we earned easy money by selling items we no longer used, which, of course, had the bonus of helping declutter our whare, something I’m always trying to do.
When I saw stuff leaving our house, I got on a roll and also gave away a lot of items to charity stores or members of our community via Facebook buy/sell. I gave away more than I sold, but we saved on landfill fees by finding a new home for things we no longer wanted, but someone else did. I ‘could’ have made more money here, but my time is valuable, too, and I didn’t want to spend an hour chasing a $10 sale. No shade on others who do, though, and I can think of plenty of people who have used this strategy to get out of debt! Plus, it amazed me how people muck you around when you are giving stuff away. It was a bit of a hassle, to be honest.
Both Jonny and I said “YES” to extra hours at work. It might not sound like much, but we both put in an extra hour here and there across the month, filling in for colleagues or working additional time on existing projects. Jonny completed a few one-off graphic design projects, albeit at ‘mates rates’, bringing in a little more income.
Finally, I scouted out more income via the blog but was either turned down when I approached a company for support or I turned down the opportunity offered, as it would have compromised my integrity. So, no luck there.
Kindness also paid off in July.
I’m always happy to help those who ask for it. And I love dogs. Therefore, we dog-sat for a few weeks without expecting financial gain. They provided all the food that the dog needed, and we provided walks, pats, lots of love, and a warm home. But they unexpectedly gave us a $250 gift card, which I included as income. I was also gifted a beautiful bottle of port for helping someone out, which was a lovely bonus. Plus, we had committed to a social catch-up, and a friend insisted on buying us a drink in return for a night’s accommodation, which was so kind. A family friend left us some beautiful honey from their bee hives, and neighbours provided a steady stream of rabbits for our dogs (we now have a new foster dog). I’m sure other lovely things happened, which I currently forget, but the gist is that if you are kind to others, they reciprocate with kindness.
We were still social, even on a budget.
A wonderful blog reader sent me a copy of the Vicki Robin book, Your Money Or Your Life: 9 Steps to Transforming Your Relationship with Money and Achieving Financial Independence, which kept me entertained on these cold winter days. More kindness! Plus, I caught up with my book club group. I never want to leave my warm home on a winter's night to go, but I’m always pleased I made the effort! We had friends over for dinners and drove to a nearby town for coffee with friends. I often picked up the phone to catch up with friends and whānau.
Given Jonny and I are always out running or walking, you can’t beat a good catch-up with people you know (either vaguely or well) on the side of the road, so I also did plenty of that. With a prepaid swim card, we kept up our weekly swim and spa at our local pool, and as volunteers for our local Otago Central Rail Trail Park Run, we both helped out and competed in this free event. So, to avoid spending money, we certainly didn’t lock ourselves away—quite the opposite. This was one of our most social months.
The grand reveal…
Paying extra attention for one full month translated into the following numbers. I used the PocketSmith Income & Expense Statement to provide the needed information and rounded the numbers for simplicity.
Monthly averages for 2024 (not including July):
Expenses: $7,100
Income: $8,900 (after tax) - Higher than I thought!
Our average gap between earning and spending is normally about $1,800. This is the money we invest.
July 2024 numbers were:
We spent just $4,400. Which is $2,700 LESS than our average monthly spend.
We earned $9,500, which is $600 more than our average monthly income.
July was a huge success because we created a much larger gap between earning and spending than normal: $5,100. We managed a 53% investing rate, which I am delighted with!
This far more significant gap lets us “live on less than we make and invest the difference”.
PocketSmith dashboard showing our July 2024 numbers.
Why didn’t we make more money?
I would have liked to see our income higher, but despite our best efforts, that’s just the way the cookie crumbles sometimes. Had we not sold some items and worked a few extra hours, our income would have been even less. While our part-time PAYE incomes are stable, the income from The Happy Saver is very irregular, and we can’t predict how things will play out at the beginning of each month. This is just the reality of a fluctuating income and the economic climate.
Of course, there is an obvious point to be made. Jonny and I each work just two days a week at PAYE jobs, and we could both find full-time jobs and increase our income that way. If things ever got dire, we would, but having worked part-time for 16+ years now, neither of us could give up this work-life balance we have created. And, working full-time would put an end to The Happy Saver, as it would simply be impossible to find the time to work on it.
Our reduction in spending made a big difference and created a $5,100 gap between earnings and spending. Making more money is helpful to get ahead, but if you have been taking part in Rebel Finance School 2024, you will know that creating a gap between earning and spending is vital. This month, our gap was created by reducing expenditure. Next month we might be able to increase our income. Who knows!
Pete Adeney's (aka Mr. Money Mustache) classic 2012 blog post, The Shockingly Simple Math Behind Early Retirement, shows what a high savings/investment rate will do for your finances. If you want to give yourself the ability to retire early, read this post. The higher the percentage of your income you can invest, the earlier you can retire from paid work.
What did we do with the gap?
We invested all of it. As usual, we invested in our KiwiSaver (via our incomes), but the bulk went into our Smartshares US 500 ETF fund. Simple.
Because we manage our money well, we have plenty in our bank accounts for normal spending, short/medium-term spending, and our emergency fund. This means that we can safely invest our money in long-term investments and let it grow and compound over time.
Chin up; it might just all work out OK.
In fact, it probably will!
Despite New Zealand feeling gloomy right now, all the companies that make up our ETF and KiwiSaver investments continue to head to work each day, determined to make a profit. I have no qualms whatsoever about utilising our money to buy share assets that will go up in value instead of purchasing consumer goods and services. While my downturn in spending is not great for the New Zealand economy and the small businesses I didn’t support, my actions are great for the long-term viability of my whānau and those I support.
While we didn’t quite make the income we wanted, we slashed our spending without forgoing one moment of enjoyment. This kept me optimistic during a cold Central Otago winter. This month also represented a ‘normal’ month where unexpected expenses do often crop up (car repairs, power bills, and school formals), yet we knocked any unnecessary spending on the head.
Therefore, I conclude that this reset month was an absolute success, and the insights we have gained will stay with us for many months to come. If we feel our lifestyle is beginning to creep into the “just flushing good money down the toilet zone,” we will do another reset and rein it back in once again.
I’ll end with this thought.
It was timely that I read another blog post from Mr. Money Mustache in July called $656,000 of Frugal Things I Still Love Doing, as he said:
“One of the points of Mustachianism is that you usually don’t have to try all that hard. Just tweaking your lifestyle to be slightly less ridiculous and more efficient than average is usually all it takes.”
