December 18, 2013 | Posted in:Early Retirement

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Imagine that one day you’re on vacation and you’re visiting a coastal region somewhere in North America. There’s a tropical storm coming up the coast. It’s still a few hundred miles away, but it’s already started producing great waves.

So you grab your swim trunks and your flip flops and head down to the beach to check them out. The beach is packed, because pretty much everyone in town had the same idea. And you notice that there are a LOT of people swimming. Since you’re in your bathing suit, you decide to take a dip as well.

You’ve been in the water for a while, jumping through the waves, when suddenly you start to realize that you’ve been pulled out from the shore a little bit. It isn’t too big of a deal. You’re still in control of the situation, because you can still feel the sand  under your feet.

Swimming Pig

But after a while, your situation has degraded. You try to swim towards land, but you aren’t making any progress. Minutes go by and you’re still in the same place. You start to panic. You’re stuck in a rip current.

The water gets higher and higher as minutes pass, and eventually your toes can’t feel the ground.

Rip Current Pig

You have a few options at this point.

You can continue to swim in place until you completely run out of energy, at which point you will drown. You can pray to whatever god you believe in to send somebody to save you. Or you can simply swim parallel to the coast and escape the rip current with ease.

Now, let’s grab a towel and dry off.

In relation to personal finance most people choose option #1 and #2 without ever realizing that option #3 exists. Just like people die in rip currents every year, so too do people find themselves in the WORK-SPEND-WORK cycle without the understanding of how to break free from it.

In the scenario above, the time that you spend swimming is a metaphor for how long you will have to work. Also, it reflects the effort that it takes to just get by. It’s literally harder to just get by than it is to have financial security.

Every wave that crashes over the swimmer’s head is a paycheck, and the force that’s constantly trying to pull the swimmer further from shore is their spending.

When you imagine the typical Middle Class citizen, you have to imagine a person that’s swimming against the current as hard as possible. Typically, they’ll remain there for the duration – until they retire or die.

I’m not even going to bring debt into the picture. In this scenario, debt would most likely be a powerful cannon that would blast you nearly half a mile from the shore into shark infested waters. Every trinket you finance is a lead weight strapped to your body. Maintaining this type of lifestyle cannot possibly lead to wealth.

As far as option #2 goes, have you ever wondered why the lottery system is so popular? These are the people who are wishing and praying for help, rather than taking action. Some of them win. MOST of them don’t, and they continue to swim in place hoping for the wrong thing.

Currently, I’m in a transitional phase in my own life. I’m still swimming as hard as ever, but I’ve freed myself from the potentially fatal rip current – the 40 year working career. Basically I’ve decided to take the rip current head on, but with a floatation device. Now things don’t look so bleak. The paychecks are still crashing into me, but I can barely feel the undercurrent’s effects at all.

Imagine that during our rip current scenario that you’ve had a blow-up floatation device in your pocket this entire time. You may never really feel like there’s an opportune time to blow it up, because if you do, you will have lost a few strokes which could end up being fatal.

But what if losing those few strokes isn’t fatal? What if you’re able to get a few breaths into your floaties, and they actually help keep you semi-afloat?

This can be accomplished in a few different ways, all of which fall under the umbrella of Optimization.

The goal is to obtain the highest income possible, while minimizing monthly expenses. Big waves, minimal undercurrent. Whenever you widen the gap between income and expenses, in your favor, you are essentially blowing air into your water wings. You create buoyancy.

earn spend optimize

People let cell phone and cable TV contracts keep them from inflating their personal floatation devices. They think that it’s too expensive to terminate contracts, and will submit to premium costs on these things instead of paying ONE high cancellation fee. This type of thought process isn’t logical.

For example, back in January I had all I could take with Verizon. We were paying $134 per month for cable and high-speed internet. To cancel our plan we had to fork over $200. This meant we had to deal with an extremely large $334 final payment. That’s a LOT of money!

But now let’s compare that to our current situation. We were able to switch to a local high-speed internet company that charges less than half the price of Verizon’s $70 internet only plan. $34 after taxes. Add in the cost of Netflix and Hulu to replace cable and we’re looking at a $50 bill every month.

If I were to stay with Verizon for one full year at $134/month it would have cost us $1,608. Instead, we paid the first month to Verizon, the $200 cancellation fee, and a $30 installation fee with the new company plus 11 months of service.

This led to a first year total of $914. With current rates, the second year will cost us $600. This frees up about $84 per month of money that would have otherwise been spent. This is one simple way that we have created buoyancy.

Cell-phone contracts control the masses by locking victims in to two-year agreements. In exchange they get a subsidized phone and an outrageous monthly bill. How outrageous? Two phones with minimal data plans with Verizon were running us $160 every month. The cost to break the contract per phone? About $250. EACH.

The price for new, RELIABLE, unsubsidized, non-contract phones: $300 each. The cost of the monthly plans? Mine is $10. My wife’s is $30. $40 TOTAL. (Find out more about the provider that we use, Republic Wireless, here.)

We had to halt our swimming in order to blow a massive breath into our floaties for this one. Total cost if we kept the Verizon plans for a year: $1,920. Terminating two contracts early, purchasing two phones, and carrying plans for an entire year: $1,580. A second year will cost us $480. This frees up $120 every month!

This type of thinking carries over to almost every aspect of life. If you have a financed vehicle that’s upside-down (not literally), sell it for a loss. There are probably 100 thousand decent vehicles for sale in the US for under $7,500. If your vehicle is paid off, run that sonofabitch into the ground.

The fear that you’ll have to take on loss isn’t rational either. When you purchase a new vehicle it loses value the second you drive off the lot. Instant depreciation. Low-cost used vehicles, however, tend to maintain their value. They DO depreciate, but not nearly as quickly and noticeably as new or newer vehicles.

By moving into a smaller house with a less costly mortgage, we were able to shave a few dollars from our expense ledger, which helped us to comfortably fill our water wings to near maximum volume. The only thing left to do is to try to increase the size of our wave; to make more money.

How are you going to escape the rip current? What steps are you going to take to reduce your obligation to work?

This week I want you to find one monthly bill that you hate and know that you can reduce. This should be something that you’ve been reluctant to take control of, because of an ugly cancellation fee, or because you fear the loss that is associated with it.

Make a short-term plan to reduce this bill as fast as possible. Take control of at least one of these expenses and you’ll soon find yourself closer to the shore.

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34 Comments

  1. Oriol
    December 19, 2013

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    In my opinion, this is one of your best posts! I love the analogy!.

    • theFIREstarter
      December 19, 2013

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      I agree, great analogy!

      Long term thinking is a mindset one must develop as soon as possible if you are going to reach financial freedom at an early age.

      Adding up the monthly bills over ten years is an exercise I always find useful and quite fun.

      Saving £3 a month on my gas bill sounds pretty boring, but an extra £500ish after compounding in the retirement fund, combined with having to save £900 less (yearly expense of £36 / 0.04 – the 4% rule) to reach my retirement number, means a total “saving” of £1400 over a ten years.

      Certainly not to be sniffed at eh.

      • Retired To Win
        December 21, 2013

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        That savings projection really gets HUGE when you apply this exercise to your choice of vehicle. I have calculated that I have lowered my “retirement number” by $200,000 by choosing to drive and maintain my 1996 Dodge Dakota rather than accept the concept that a vehicle is a status symbol and manhood substitute that needs to be updated every 5 years.

        My message: trade in that late-model cash-crunching status symbol — even it you have to take a loss — and start accelerating your drive to financial independence.

    • Johnny Moneyseed
      December 22, 2013

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      Thanks Oriol. That means a lot.

  2. Holly@ClubThrifty
    December 19, 2013

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    Speaking of Verizon, my home wifi bill is $180 this month and I almost had a heart attack. We sold our house and moved into a rental temporarily and its in the middle of nowhere where we cannot get internet other than satellite. Since we’re only living here for a few months and the owner just got a new roof, I didn’t want to put a satellite up. Anyway, our only option was a mobile wifi hotspot and we’re paying for it through the nose. Fortunately we move next month and I can get normal $30/month wifi from ATT Uverse.

    Also, I got the new Moto X from Republic Wireless last week and it really is an awesome phone!

    • Johnny Moneyseed
      December 22, 2013

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      At least your way-too-high internet bill is temporary! Some people deal with high prices like that over the long-term. I don’t understand why. My mom pays something like $400 every month to Verizon for cable/internet/phones.

      I’m glad you’re liking the Moto X!

  3. Thegoblinchief
    December 19, 2013

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    I really like the image you used! We’ve cut almost all of our monthly bills as much as we can, but now we have to attack our debt as fast as possible (home improvement loans, student loans, and finally an underwater mortgage).

    Can’t wait to get out of the rip current — the time it takes to get debt free will be longer than the time it will take us to get FI.

    • Johnny Moneyseed
      December 22, 2013

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      A lot of people look at their debt and think that they’ll never have a chance to become FI, but debt is the main struggle. Once you have money and no debt, you have freedom. When big things come up, you have money to pay for them. Life gets easier. And once you’ve mastered debt, you may have mastered money. That means you’ll keep more of it once you start saving/investing.

  4. Katherine Buck
    December 19, 2013

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    Great post. I’ve been thinking about my own cell phone contract, subliminally avoiding that cancellation fee when I’d make it up with what I’d save on a different provider’s contract in a mere few months. It’s a no-brainer! Thanks for the inspiration to get this wrapped up ASAP.

    Take care,
    Katherine
    buck@betterment.com

    • Johnny Moneyseed
      December 22, 2013

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      You could probably sell your old phone and recoup the entire cost of the cancellation fee! I should have thrown that into the article as well. If you cancel your contract you can also request to unlock your old phone. That’ll make your phone more attractive on Craigslist!

  5. Dave @ The New York Budget
    December 19, 2013

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    Great post! Those monthly bills are the worst – I actually just set up a calculator over on my blog to attack those (I put the specific link to it as the website you go to when you click my name).

  6. Kenneth
    December 19, 2013

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    You can lead a horse to water but you can’t make him drink. I emailed this blog post to my 32 YO son, I keep showing him MMM articles etc. I think he’s getting close to “getting it” but so many, like him, are just treading water as you point out.

    I only have one egregious expense left, and it’s Dish TV at my country home (2nd home). It’s costing $65/mo, but I just received an email from them yesterday that they are increasing this $5/mo. That may be all the incentive I need to kill it. Even assuming $300 for a professionally installed high gain antenna, and $15/mo early termination fee with 8 months remaining, it won’t take too long to reach break even. Then it’s $70/mo in my pocket after that..

    • Johnny Moneyseed
      December 22, 2013

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      Kenneth — It took me a long time to see the light as well. Give you son some time and he’ll eventually come around to it. Keep sending him finance-related articles, and it may happen sooner than later.

      ONLY $5/month extra comes out to be an additional payment per year.

      Don’t let them talk you down from cancelling it either. Promotional rates are traps.

  7. Jimmy
    December 19, 2013

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    Very well said, I love the analogy. I just accidentally came across your blog the other week and found we share very similar views on most things financial.

    Tomorrow I’ll be taking a large loss to realize substantial monthly savings. Though different than the examples you provided, the underlying theme is present. My former residence sat on the market for over a year (I moved out of state for a new job), and I received 0 offers for it—until last month. I’m taking a whopping $6 k loss (13%), but that will be fully recovered in 10 months. It was a hard decision, but sometimes you have to take your bumps and move on.

  8. Ryan @ Impersonal Finance
    December 19, 2013

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    Spot on analogy here, bro. I’ve been caught in both financial and actual riptides, and neither one of them is fun. You can’t always fight it, but swim sideways and you’ll make progress. Cancelling cable and cell phone plans were huge for us, too, in freeing up a bunch of money we could put to better use.

  9. This Life On Purpose
    December 19, 2013

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    Nice analogy! And definitely not a fun experience, in either case. But the fact is, if you can see the situation clearly there is an easy way out. Sometimes all you need is someone who to explain it to you.

  10. AnnW
    December 19, 2013

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    That would be our storage unit bill. I’m against it, but I don’t have much influence there. It is filled with lots of my daughter’s art projects, etc. Time to bite the bullet.
    I’m really impressed with your intellect, Johnny. Makes me feel proud and safe at the same time that you decided to serve us and your country. Ann

  11. Micro
    December 19, 2013

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    There are a lot of different areas to shave costs as long as you are willing to look around and think long term. Another option for TV is to simply purchase a digital antenna. Every standard station is still blasting those signals over the air for free so why not take advantage of them. If you don’t want to deal with putting in an antenna then you can opt for a service like aereo. You lease an antenna from them for $10 a month and they will pipe in the content through your internet connection. You even get around 20 hours of DVR space too.

  12. David Mitchell
    December 19, 2013

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    Awesome blog Johnny! As you know following this same advice has helped me so much. My phone bill from $90 a month to $10 was a huge step. Also selling my dodge ram for a cheap Honda is saving me on gas, insurance, etc! Your advice is not only solid but also practical and sustainable!

    • Johnny Moneyseed
      December 22, 2013

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      David — I’d like to hear how all of this expense cutting has impacted your monthly bottom-line. And thank you!

  13. Gram moffatt
    December 19, 2013

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    great analogy. keep up the good work.

  14. Prob8
    December 19, 2013

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    I imagine the biggest expenses for most people are housing, transportation and food. You’ve touched on some of the big ones here and hopefully it helps someone find the motivation to take action. Having ditched cable and cell phone commitments myself, I can confirm there is no sacrifice – not even for the wife and kids. Nice post.

  15. Robb
    December 21, 2013

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    Great analogy. Getting free isn’t that hard, you just have to know what to do. I’m gonna be sending this link to a few people I know. :-)

  16. Chris @ Flipping a Dollar
    December 21, 2013

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    Wife and I got rid of cable a few years ago, haven’t looked back. Switched over to Republic Wireless last month! Just waiting on the damn final bill from AT&T so I can pay it and get our iPhones unlocked to re-sell on eBay. Making these changes have given us at least $200 a month to add to our house fund that we were just wasting.

    And for anyone wondering, the Moto X from RW has been great for eBay research while I’m out on the fly. No issues with just using 3G either!

  17. Gary
    December 21, 2013

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    I wonder if anyone has tried the Free to Air (FTA) Satellite?

  18. Jacob
    December 22, 2013

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    You have to get more and more creative these days, as all major corporations have realized the BIG money is in subscription-based services. Everything seems to have a monthly fee attached, so freaking annoying.

    We keep our subscriptions to a minimum. No cable, cheap internet, inexpensive shared cell phone plan, no Hulu, no Netflix, no car payments, and no other services. Pair that with optimizing our utilities usage and keeping our misc. spending in check, we can barely feel the rip-current.

    The mortgage is our last weighty anchor that needs to be let loose. Looking at a longer-term transition, but that would basically put us on a jet-ski ;)

  19. Steven
    December 24, 2013

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    I like the change of pace with the analogy of the article. My favorite part is the honesty of breaking contracts and the fees that were paid to make things right for your expenses. As a wise man once said the numbers don’t lie. Going to cancel DirecTV in the new year and take a hit early but benefit in the long run. Merry Christmas.

  20. Steve
    December 26, 2013

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    The timing of this article is great! I just went through analyzing our internet, satellite and phone bill. We’ve been in a bundle as a customer for almost 15 years and if you add up 150/mo for 15 years and tack on some modest interest, you will see what it “costs” to see and stare at the TV… depending on your numbers… 50,000 (yes, 50 GRAND!)…

    All it took was a phone call to Directv and my internet provider. we removed some channels (12/mo), we removed a receiver (6/mo), we auto pay (5/mo) removed home phone service (40+/mo), customer loyalty 10/mo for 3 mo, then I cancelled my gym membership (38/mo) and started doing body weight exercises at home.

    over 100/mo in savings – just for modifying my existing ‘stuff’ and we aren’t without anything – we haven’t even noticed the channel difference on our TV (it was only 10 channels)…

    Looking for more savings as I go now.. we (my wife and I) already save a high percentage of our gross income (a little over 40%) and I’m constantly looking to push that higher….

    next area of attack is our monthly food bill ! :)

    Chat with you all soon!

    Steve

  21. Kemkem
    December 28, 2013

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    In your previous post, you said you couldn’t understand why you are getting more traffic. This post is one of the reasons why. It is awesome!!! Very well put together. It is not condescending either. It just tells you like it is without preaching, which a lot of the blogs tend to do. Luckily for me, l was able to save and get rid of massive debt. I still have some decisions to make regarding properties, but l am just waiting to see how things work out. I am thinking of selling the big mortgage house (it breaks even with the rental and even makes a small profit). The problem is its in a state where prices will always be flat, and the taxes high so chance of going underwater at some point. If l sell, l will make a small profit now, and still,keep the other house, in the same state, but mortage payment is half of the other. It’s nice to finally be in this position, many years were lean. I will show my friends this article, but like someone said above, you can lead a horse to water…but l know they will give me the usual excuses..great blog!!!!

  22. Alex
    December 30, 2013

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    Its amazing what a little bit of research and effort will get you. I have Comcast cable and internet (with the highest speed) for only $37/mo including taxes/fees. I did a little research and found out that my HOA offered basic Comcast for free so I called Comcast up and found out they can offer me a higher cable package, the latest DVR box and the fastest internet for the above price. Saving me about $100 over the average person. And I don’t miss any premium channels like HBO because I can get all that for free using that high speed internet!

    I pay $55 a month on my phone but that’s only because I have 4G and unlimited talk/text WORLDWIDE. I have many family members overseas so I have to keep that. Otherwise, I could have gotten away with only $35/mo. Things like this add up to literally saving me thousands a year that I can invest.

    • Johnny Moneyseed
      December 31, 2013

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      What would you pay if you didn’t receive the cable package?

      Couldn’t you sign up for an internet calling plan instead of using an international cell phone? Skype can call pretty much anywhere in the world for about 4 cents per minute. So, the difference of $20 that you’re talking about could afford you about 500 minutes of international calling!

  23. Giff
    January 7, 2014

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    Excellent post. I’m a fellow Marylander looking to cut the cable cord. Do you mind sharing what local internet provider you are using? Verizon is on my last nerve ….

    • Johnny Moneyseed
      January 7, 2014

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      The ISP that I use is only available in my specific county. What county do you live in??

      • Giff
        January 7, 2014

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        I’m in Montgomery …the only ones that I can find are Hughes Net (very expensive), Comcast and Verizon.

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