Welcome to episode 9, in this episode we are going to get into the nitty-gritty of cost-cutting. Since deciding on moving our mortgage to Kiwibank, this provided the motivation to re-visit our FIRE spreadsheet and do a full audit on all our outgoings. Between Leish and I also have accounts at four different banks so to simplify things, we decided to move all our banking to Kiwibank. Of course, we needed to make sure that we were still getting the best deal, as some things are just not negotiable like instant access savings accounts. Fortunately, the Kiwibank savings accounts stacked up quite nicely and going through this process opened up my eyes further to risk management. For example, we are just about to pay down a big chunk of our mortgage, but we would like to leave a buffer in our accounts for any unforeseeable. So this requires a glance at the FIRE spreadsheet to find out what costs would need to be covered should no income be coming in. And I can see over 1 year it was around $70,000, but out of this $70,000 some of this is discretionary spend and really around $50,000 is essential, so ideally a buffer of $50,000 would cover us for one year which is a very decent amount of time to correct things should we need to.
OK, so I needed to get practical in my thinking, let?s just say we had no income and we needed access to day to day funds, putting the buffer in a Term deposit would make this hard to retrieve so despite it offering the best return we needed another option. Kiwibank has an attractive 2.7% rate on a 90-day notice period savings account, but that is still not immediately accessible, so what if we split our savings allowing for 90 days of spending to be available immediately and then we would be able to access the 90-day notice saver funds. So back to the calculator, at a spending rate of $70,000 per year (notice I am prudent here, also allowing for discretionary spend) if we divide that $70k by four we get $17.5k of spend for 90 days, which leaves $32.5k for the 90-day notice saver. Now in terms of instant access savings, these are fairly poor returns, the online call bonus saver has the best at the moment at 1.2%, and this is built of a base rate of 0.3% and a bonus of 0.9% if there are no withdrawals in a month. So rather than opt for a much lower instant access savings account as well as the online call bonus saver I opened up to online savers to maximise the return as if we ever needed funds out of our savings, we would lose 0.9% that month so why not split it, we decided on $5k in one account and $12.5k in another account. This way we would still get 0.3% on $5k if we ever had to withdraw, and the $12.5k would be protected at the full bonus rate, and if we don?t need to withdraw, we get the full bonus on $17.5k ? bonus!
Sooo, that is our home loan, day to day banking, and savings buffer sorted. We could now look at which areas of the FIRE spreadsheet where we could get a tangible cost-saving without devaluing the way we live our day to day lives. The following lines on the spreadsheet were identified in the crosshairs as ideal targets:
- House and Contents Insurance
- Life Insurance
- Power (Electricity and Gas)
- The Weekly Shop
- Doggy Day Care
Starting with House and Contents Insurance, we were previously with Westpac, our old mortgage provider, so I sent Kiwibank an enquiry asking what their insurance would be for like-for-like cover, it came out cheaper but they did advise to up our contents cover (as they would), but by making a valid point that they replace many items for new items so for these items we need to consider the new value, not the current second-hand value so fair enough, we upped the cover. They said the average was $80,000, but we are now part of the FI community. I am sure we could find a way to replace the contents of our house for $50,000! We also maximised the excess, and the bank tried to convince us this was not the best strategy, but everyone has different philosophies around this, and my personal one is that we only really require this insurance for a total loss situation and happy to pay $1000 excess in this scenario. For anything under $1000, we are not going to be claiming on our insurance as it would only push future premiums up so rightly or the wrong l would rather just keep the monthly premium down. So after comparing the final quote with others online, this offer was really competitive, and despite the extra contents cover, we were saving in the region of $25 per month ? very useful.
So sticking with insurances, Life Insurance, to be honest, we had already sorted this out prior to the getting the new mortgage. We have a financial advisor for this area, and he is very personable and responsive to my FI needs! I had noticed over the last five years our monthly premium creeping up to around the $200 mark from originally around $155 if my memory serves me correctly. So with a re-assessment of our needs with the main aspect being we were about to reduce our liabilities by a considerable chunk by reducing our mortgage and maintaining expense levels despite income increasing we, plus changing providers to AIA w were able to save around $80 per month ? very nice!
Next is a very interesting one, since we moved into our new house in 2014, we took the original provider and have been loyal to them. They were amongst the cheapest and the time and gave us a really good service, and I liked their website portal. However, over nearly five years, I had never tested them and a simple Google and finding out about Power Switch again despite their numerous TV adverts. Anyway, it really is so simple, just have your bills to hand, enter in the details, and it spits out the most competitive providers for your utilisation and Bingo ours were a split of Electric Kiwi for electric and Nova Energy for Gas, and Power Switch notified Nova on our behalf and sent a direct link to Electric Kiwi. Both applications have been seamless to date, and in the next few days, we will be fully switched over ? with potential savings of over $500 per year.
Broadband was very simple, although it could be argued I was a tad lazy. Leish had received an email that she would get $10 per month off the broadband bill if we committed to another 24 months. Now there are a lot of deals out there, and we have been with Vodafone for years. When I looked into the detail further the new rate was actually around $15 cheaper per month at $72.99 per month and allows the existing $10 discount per month off Aleisha?s low use mobile phone which equates to just over $20 per month, so yes we may have technically got a better deal elsewhere but overall the savings would have been small and it would be entering into the unknown on service levels and technology installation and consistency ? sometimes it is better the devil you know ? regardless a $15 savings per month is not to be sniffed at!
Moving on to the weekly shop, this is always a bone of contention in the Jones household and me, to be honest, I think the main problem is me! You see, when I first got on the FI journey without realising it, despite getting paid a decent salary I was eating the same thing every day as it was easier to budget, Weetbix for breakfast, a reduced item from Countdown on my lunch break and then frozen fish cakes and vegetables heated up in the microwave for dinner ? yes I was a right catch me! Believe it or not, my weekly shop spend was around $20-$30 per week. This resulted in a killer savings level, but I doubt this very much would have been good for my long-term health, so thankfully Leish stepped into my life not too far into this most basic culinary journey. Leish is a great cook, and she understands how to eat healthily or even just properly compared to me so when it comes to budgets for the weekly shop it is fair to say her benchmark is always going to be higher than mine. Anyway, before we debated this year, yes, we have about a yearly debate on average over this, the bills were around $250 per week from Countdown, online shopping delivered. My new office is very close to a Pak n Save, and they do online shopping collection, so we put a challenge down to see if we could get it to $200 per week, we are not quite they yet but around $210 per week so still $40 per week saving or a massive $2,000 over a year ? fantastic!
Finally, our beloved dog Saroo? named after the orphan boy in the true-life film called Lion. Well, we got little Saroo as a rescue pup, or not so little as he is nearly 30kgs now. He had, had it tough and probably a bit tougher with new doggy parents who themselves were still learning the ropes! It didn?t help that we specifically asked for a low energy dog and they came back with have we got the one for you. To be fair little Saroo made his best impression of a low energy dog at the shelter. When we got him home, we quickly found out this was not the case, he was about as high energy as they get, and we needed help, as the YouTube videos were not cutting it. We needed professional help which we got and some daycare for a bit of respite and socialisation. Neither was cheap, and after the training we continued with the Day Care mainly because he loves it so much, but we have weaned him down on the amount he goes, and in the last few weeks we agreed on 1 day a fortnight from one day per week, at the start it was four days a week. He is two and a half and now and such a lovely and sometimes naughty boy, but we love him very much and his new Day Care regime has saved us nearly $900 per year. And there is no loss in value here as we get to see out little boy even more!
One of the great things about spreadsheet is there is no need for mental arithmetic, so with the aid of a few formulas or formulae should I say, I quickly saw that this fairly quick cost-cutting exercise had saved us as a family in the region of $5,000 per year ? which I found incredible as we were already so focussed on getting the best bang for buck. But what I think it shows, that without a real concerted effort to audit your expenses you never really know how much you could be saving and a dollar saved is a dollar earned which can be added to your FIRE savings pot. So take the time and use the free tools you have available to you to really make the difference in your financial independence journey. So until next time, happy fiday.