Financial Transitioning from One Lifestyle to Another of Your Choosing

(I welcome your comments and questions through the "comments" option below any entry. --Laura)

To most people who have asked how on earth we have managed to move from a city life in the South to a bush cabin in Alaska, my quip has been “my husband’s mid-life crisis.”   Some nod sagely, as though they KNEW it had to be something like that, and then turn to other subjects. Others, though, don’t let us off the hook so easily.  They lean in and inquire, “No, really, how?”  I sense a plaintiveness in the question:  Maybe it means: “I once wanted to do something like that.  Maybe it means:  “How does one let go?”    My impression is that the subtext of these questions is how do you shed a lifestyle loaded with heavy financial and time commitments, like mortgages, car loans, tuition payments, business and social obligations, and all the things we think we are “supposed to buy and do.”  

We did not transition quickly.  It took many years, starting before Alaska was even considered.  While other blog entries describe our life off the beaten path, this entry attempts to reconstruct concrete changes we made that anyone might implement, in advance, in the city, on the job, in order to enable lifestyle changes of their choosing.

I think of the process like brushing a dog.  You’ll be surprised by the amount of light weight dead hair you remove from a dog.  Afterward, s/he looks exactly the same (or better) and you don't miss the dead hair. 

My three pieces of advice follow, with examples for each:

1)    Shed expenses you don’t value

2)    Shed commitments that cost more in time and money than you value 

3)    By doing 1 and 2, you will become more intentional.  You will create a “values map” that makes either/or choices clearer, enabling you to free up dollars and hours you can allocate in different ways more to your liking.

1)    Shed expenses
My husband maintains excellent financial records.  Every December, starting about eight years ago, we  reviewed our list of all service providers (including insurance(s), car repair, Internet, tailor, hair dresser, website host, bank) to ascertain how much we spent and whether a switch to a competitor or to our own efforts would be worthwhile.  We were not cutting services, just analyzing price/value.  The first year, we saved $12,000!  We were amazed to discover that much fat in the budget, largely, I’m sorry to say, from staying with vendors who inched the price up for “loyal” customers.  In more cases than I expected, our threat to move generated a decisive price discount from the exact same vendor. In other cases, we learned something new as a result of our inquiries.  For example, we decided to shift insurance to a high deductible plan that would pay for catastrophic care but not normal, annual health care.  We found that all of our doctors gave us an automatic 25-33% discount for paying cash at each visit and service (like a mammogram).  We paid these bills out of our tax exempt Health Savings Account which was allowed to pay for things, like glasses, beyond the scope of our prior insurance. Over several years, we found that we paid less in out of pocket expenses for services (including outpatient surgeries) than we had previously paid in insurance premiums.   

You can imagine that these results inspired us.  For me, the process became a scavenger hunt for additional “money under the mattress.”  Here are a few examples: Frugal women recognize the trade-off for dying one’s hair.  $8 for a box or $80 at a salon?  A change in supermarkets yielded savings of $100/month.  We started eating out at some favorite restaurants at lunch instead of dinner, attending matinee movies and Tuesday or Sunday night play performances.  I became more attentive to the crispness (or not) in the crisper drawer of the refrigerator and became a more creative and attentive cook.  When getting together with friends, we more frequently invited them to eat at our house instead of going to a restaurant.  Not only was it easier to hear each other (what a concept) but many friends who don’t cook much at home regarded this as a big treat.  Furthermore, our food bill for four was invariably less than a restaurant bill for two.   With additions like these, the second year we saved an additional $5000, and on and on through subsequent years. 

I feel confident that our experience would be feasible for anyone.  Undoubtedly you would choose different vendor changes or savings appropriate to you, but at the end of a year, you would have more money to spend where you value it, rather than where you weren't paying attention, which is the goal to seeding your future goals.

Well, money in hand has a tendency to be spent.  After it burned a hole in his pocket, my husband plunked down $20,000 on undeveloped land in Alaska.  I asserted that the next big expenditure afforded by savings would be mine, and when the dimes and dollars added up I booked us a three week tour of India following attendance at friends' three day Mumbai wedding. (Note a difference in our choices?)

 2, Shed commitments of low value

The second endeavor involved assessments of time as well as money.  We were astonished to add up how much time we spent on various endeavors. We reviewed business networking, socializing, and charitable commitments.  To me, the first category was the easiest to assess, but we soon discovered how intertwined were the messages of all these outlets and our reasons for engaging in them.    

a)    Business commitments: If the goal of business networking is to generate revenue (directly or indirectly), as Dr. Phil would say, “How’s that working for you?” This is easy to measure.  We added up all the dues and time associated with business networking events.  We rated each one according to revenue generation, pleasure, and lost opportunity cost.  Sometimes, those that ranked low on revenue, we justified by saying, “well, we like those people.”  This caused us to evaluate whether we saw “those people” elsewhere. In the case of friends, we did.  In the case of acquaintances, we then assessed whether the time and cost of membership was higher or lower than the pleasure of seeing those people we never sought out elsewhere.  First we shed business lunch meetings, because they take up such a large portion of a work day that the lost opportunity cost was high. Then we scrutinized other business commitments. Obviously some networking groups offer high value to members of particular industries.  Measure them. In our case, we decided over the next few years to keep a few but ditch most of them without damage to our businesses.      

After we assessed the external, superficially business related expenses (networking), we applied the same rigor to our office expenses.  Below are some easy changes we implemented that might suit a wide range of people, whether employed or retired.

i)         An E-Fax program costs $12/mo.  Faxes are delivered to Bryan’s laptop computer, wherever he is.  Goodbye fax machine and unsolicited incoming faxes.

ii)         A “virtual” office dropped our office expenses to less than $100/mo.  We have a street address for mail, staff to meet unexpected visitors and attractive space for occasional meetings. Most of our clients are remote. Once we added up how few local clients wanted an office meeting at our place as opposed to theirs or at a restaurant or Starbucks, it was really easy to shed the cost of an office.

iii)         Forwarding our land line to my husband’s cell phone cut the bill by 2/3.  This means that we don’t have a phone that rings on a desk anymore but we don’t have to change our number either, which many people/companies hate to do.  Now both sets of calls go straight to his cell phone, wherever he is, whether Mumbai or the boonies of Alaska.  I've read that about 15% of Americans have shed their land lines in favor of their cell phone only.  It makes sense to me.

iv)         Phone messages to the cell phone are automatically transcribed by Google Talk and sent as a text email with an audio file to his email account (he has a Blackberry).  He finds this helpful when he is in a loud location where he wouldn’t be able to hear the caller or in zones with poor cell reception or in meetings where he can't take calls but can discretely check mesages below the table and, if appropriate, forward them to me or others in his business to call back.  Frankly, I’m not sure how important this is but my husband loves it. 

v)         Notary services are provided by many service providers we already enlist (offices of lawyers, banks, accountants, condominiums).

vi)          We have found an absolute line of demarcation between service providers who do and don’t use technology to save time and money for themselves and their clients. I wonder if some of the difference reflects sunk costs for snazzy office furnishings and long leases.  For example, we saved 50% by switching auditors to a new one who received rave reviews by clients regarding his use of email, phone, and fax machine!  As an auditor, he is required to visit each office to review documents in person, but so much work can be done in advance by technology that the in-office time is much abbreviated.  Our prior auditors sat in our offices for days, then disappeared, then reappeared, asking to see this document or that that we could have delivered in a number of ways.  No wonder their costs were higher – they were far less efficient. 

 

b)    Social Commitments: We did not cut back on small gatherings with close friends, but we reviewed the large parties we used to host, some of which overlapped with business and charitable commitments while some were purely social. My father once made a sage observation.  He said that if you invite someone as a guest three times and he/she doesn’t reciprocate, you can recognize an unrequited relationship.  With this in mind, I reviewed lists of large parties we had hosted.  The resulting short list of those who had reciprocated was rather humbling.  Maybe readers have a different experience, but I have noticed that most social groups have a minority of repeat hosts, surrounded by others who may be delightful or at least frequent guests but who never reciprocate. I concluded that part of my prior interest in hosting big parties was that I was good at it. While there was some ego satisfaction in that role, it didn’t suffice under our new, strategic scrutiny of time/money value.  So, I donated a large coffee urn and 4 dozen wine and champagne glasses to a church, for future use at wedding and memorial receptions.

 c)    Charities:  Since the tax deductible donation to a charity is often ½ or less of the ticket price to one of their fundraising galas, and since many of those events are BORING, we decided to pass on more of those, too.  If the organization met our requirement of low overhead (see www.charitablenavigator.org) and a 501C3 tax exempt organization (on www.irs.gov), we now tend to write a donation in honor of the friend/colleague, knowing what proportion of a gala ticket price the organization would net otherwise.  My husband and I remain committed to certain charities of long standing, but after scrutinizing several years of budgets at our church home, for example, we resigned, concluding that other churches accomplished more for their members and community and that our pledge was paying for high overhead, like a club - not what I expected from a church. 

 
3.  Become intentional

Over the course of several years, undertaking our strategic evaluation of time and expenses, we became much more intentional.  For example, we lost touch with none of the people we valued.  If we shed an organization, we sought out those people we liked most or explored competing  organizations that provided those services better. We freed up thousands of dollars and hundreds of hours per year, and allocated them as we wished to revenue generation, true friendships, family, and hobbies.  We no longer feel as harried.  We no longer say, “we’re too busy.”  My husband’s frequent lower back aches disappeared.  

These assessments contributed to a few large decisions, too.  For example, we downsized our  home.  By 2007, we wanted to build a cabin in Alaska and spend several months a year there.  We split the revenue from the larger home between a smaller high-rise unit in the same neighborhood and cash to build the Alaska cabin (see blog on "Building a Home 40 Miles from the Nearest Road" and the power blogs).

Having undertaken such a lifestyle change, we seem to be the priests in the confessionals for dozens of men and women who want to make changes but don’t know how. I hope that these sorts of practical ideas may be useful for anyone suffering from a sense of “is this all there is” dissatisfaction in their own lives, coupled with a burdensome sense of expenses and commitments. 

Take away points:

1) You may be able to free up a lot of cash from your existing expenses simply by comparing competitors with your existing service providers and asking for discounts.  

2) By asking judicious questions about your costs, goals and results, you may be able to ascertain whether you get your money’s worth from organization memberships, social expenditures, or business/home costs).

3) By checking out the financial statements of charities you support, you can ascertain how much of your donation funds what you value and also asses which other organizations do it better/cheaper.              

 I believe that a lot of people can shed commitments in order to embark on their goals, too, whatever they may be.   Good luck to those of you who decide to try. I think you will find the process worthwhile.

(I welcome your comments and questions through the "comments" option below any entry. --Laura)