My husband and I started our business in 2002, and have been growing it ever since. The first few years were pretty rough financially. We incurred a lot of debt, were earning very little, and basically had a life of forced frugality. Eight years later, things are quite a bit different in terms of debt (only a mortgage) and income. But our lifestyle has changed very little. We still drive the same old cars (my husband’s is 20 years old, mine is 19), still buy all of our clothing and household stuff at thrift stores, still cook nearly all of our meals from scratch… We did have a big splurge in terms of entertainment a few months ago, when we signed up for Netflix – now we spend $9/month for movies.
As our income increased and our business grew stronger, we could have started spending a lot more money. We could comfortably fit car payments and other doo dads into our monthly budget now. The reason we don’t is because we are focused on the big picture and our long-terms goals. Without those goals, there would be little to keep us from just spending our money as we earn it.
Our goals involve paying off our mortgage in order to be truly debt-free, saving as much as we can for retirement, and getting ourselves to a position of financial flexibility within the next 15 years or so. By flexibility, I mean that we might not be quite to financial freedom at that point, but we’d like to be to a point where we can work less and be able to focus more of our attention on things that don’t necessarily bring in money.
Goals like that only work out if you break them into smaller steps that you can focus on regularly – otherwise, you wake up one day and realize that the 15 years have gone by and you’re still treading water. So we’re paying extra on our mortgage every month – a concrete step. We put 20% down on our house when we bought it last summer (thanks to the equity we had built up in our first house by paying extra on that mortgage for six years). We got a 15 year loan with a 4.625% interest rate, and like knowing that every month, when we put additional money towards the principal, we’re cutting time off of that 15 year term.
For the retirement aspect, we’ve both been maxxing our our IRAs for a few years now (in the early years of our business, we could only afford $100/month in each account). We also have an HSA that we’ve been contributing to since 2006. Hopefully we’ll never need the money for medical bills and can use that account for retirement too – but it’s nice to know that the money is there (tax free) if we ever do have a medical emergency, since our health insurance deductible is $5000.
Since paying off our mortgage is a huge priority, there is very little temptation to spend our money on other stuff. Having our IRAs, HSA, emergency fund, and our son’s 529 plan forces us to diversify and make sure that we’re working towards our other goals too, but the mortgage keeps us focused on the big picture, which is to be free of all debt. It’s much more satisfying for us to see the balance dropping on our mortgage than to have a new pair of jeans. Yes, the amount it’s going down each month is relatively small compared with the total balance, but over time, it adds up.
For us, big picture goals are what make frugality fun and exciting. What keeps you frugal? What are your big picture goals? I’d love to hear your stories and what motivates you to make frugal choices every day.