Mastering Financial Independence: Cutting Expenses for Early Retirement

Mastering Financial Independence: Cutting Expenses for Early Retirement

In this episode of The Retire Early Retire Now podcast, host Hunter Kelly, a certified financial planner, offers high-income earners practical strategies to achieve financial freedom and retire early. He emphasizes the significance of prudent money management instead of just high earnings. Hunter identifies and advises on optimizing five key expenses: lifestyle creep, housing costs, dining out, unused subscriptions, and high-interest debt. The episode includes actionable tips like setting spending boundaries, conducting quarterly subscription audits, and implementing debt repayment strategies. Listeners are challenged to cut one expense category this week to improve their financial health.

00:00 Welcome to The Retire Early Retire Now Podcast

00:41 The Trap of Lifestyle Creep

01:04 Five Key Expenses to Cut or Optimize

02:23 Expense 1: Lifestyle Creep

06:42 Expense 2: High Housing Costs

11:41 Expense 3: Dining Out and Convenience Spending

13:20 Expense 4: Unused Subscriptions and Memberships

14:52 Expense 5: High Interest Debt

17:36 Final Thoughts and Listener Challenge

18:25 Closing Remarks and Disclaimers

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Transcript

0:00

And welcome back to The Retire Early Retire Now podcast. This is the podcast where we dive deep into all strategies that help high income earners achieve financial freedom sooner, live better, and take control of their retirement. I'm your host, hunter Kelly, certified financial planner and founder of Palm Valley Wealth Management. Now, if you're like most of my clients, high income earning, you probably realize that earning more doesn't automatically mean you're getting ahead. In fact, I've seen people making 3, 4, 5,$600,000 a year, and they still feel like they're spending the wheels financially. Why? Because it's not just about how much you make, it's about how much you keep and what you do with what you keep, right? And so here's the trap. As your income grows, your lifestyle tends to grow right alongside with it. New cars, new houses, new, nicer vacations, more convenient spending, but if you don't intentionally cap your lifestyle and redirect that income toward your future, you can accidentally turn your golden handcuffs into a financial treadmill. So in today's episode, I'm going to walk you through five expenses that you should cut or optimize. If you're serious about retiring early or becoming financially independent, and don't worry, this isn't about deprivation. This is about trade-offs, strategic trade-offs, so that you can buy back your time, reduce your financial stress, and create options for your future self. so, whether you're just getting started or you've already built some momentum, this episode will help you reevaluate where your money is going and how to realign with your bigger goals. Because at the end of the day, it's not about how fancy your life looks, it's about how free your life. Actually is. So if you like this podcast, go ahead and leave a five star review on your favorite podcasting app. And if you know someone that, hey, maybe they seem like they're making a lot of money, but they often complain about how they don't have a lot of money. This podcast maybe a great one to share with them, to give them some tips and tricks on how to cut and better align their spending so that they can become a little bit more confident. Peace of mind and financially independent here in the future. So let's jump right into it. So expense number one, and I wouldn't call this such a, exact expense, but you need to be cognizant of it, and it's the biggest killer of wealth. We've done probably one or two podcasts on this, and that is lifestyle creep. So lifestyle creep is the sneaky killer of wealth. Man, you're in residency or you get your first big time promotion, things of that nature. You go from making five figures to six figures, whatever the case may be. I. And now you feel like you have tons of money. You start buying luxury cars, constant upgrades to your house or buying bigger houses, gadgets, effortless spending on things that don't necessarily matter. You just feel like you have the money to go do it. So you're just impulsively spending money. And then at the end of the month you're like, oh, where did all this new money go? How do you contain this lifestyle creep as your income increases, especially for those people that increase their income fairly rapidly through whether that's going from, a resident job to. being an attending physician or getting a big time promotion or getting some sort of new degree where their income increases quite, quite rapidly, well, you may want to do something, like set boundaries on your spending, right? So I. In my line of business personally, my income has grown quite a bit over the last two or three years as I have been building, this business, building, this practice, this wealth management practice. And so I have set myself, I. an income that I feel fairly comfortable with, that I'm gonna continue paying myself for as long as I possibly can. Right? Now, that doesn't mean my income will increase, right? It's just what I'm paying myself, my expenses that I'm living off of. And so as my income increases, that money is just gonna go to savings. Now, there is a trade off here, right? I don't necessarily want people to feel like, oh, I can't do this, or I can't do that. What I want them to do is strategically think about. What is most important, right? So if you think you can get away with paying yourself$5,000 a month or$10,000 a month, whatever that is for you, and be able to do all the things that you want to do, and then also be able to save to work toward financial independence or retiring early. Then do that. Right? And so as your income increases, try to keep that target spending the same, right? So let's say for example, I pay myself$10,000 a month. Well, my income theoretically will continue to increase hopefully at a 20 or 25 or 50% rate my, if my practice is growing fast enough, right? and. But that doesn't mean I'm going to spend more as that goes on. Now, maybe five years down the road I may realize, well, 10 do$10,000 just isn't enough for what my lifestyle is at this point. Right? And so I have to reevaluate if I start spending more, is that going to, take away from other goals that are more important? And if they're not, then I can increase that spinning. Right? The other good thing about. Keeping that, that target the same for an extended period of time, is that as I make more money and I save a bigger percentage of my income, that's going to give me a margin of error, as I need to increase my spending. It's not such a big deal, because maybe I'm saving 30% of my income, whatever that may be. Right? And so the moral of the story here is keep lifestyle creep. And check by understanding what's important to you, what you actually want to spend your money on, and have a target spending rate slash save rate that you want to hit every year and try to keep that spend rate, that burn rate the same for as long as possible. Obviously there's inflation and things of that nature, so at some point you will have to increase your spinning. But if you can hold on to that same spending rate for five, 10 years, then your savings should increase as your income increases as well. So, number two, expense that people should cut or at least consider. Optimizing because it's going to be likely one of the largest expenses of your lifetime, and that is high housing costs. So right now, interest rates are still fairly high relative to what they were four or five years ago. housing prices hasn't, depending on where you live, haven't really come down much or if at all. And so it's tough to say, Hey, I'm gonna go out and. And buy the super expensive house with a super high interest rate. It's just not fun, right? or you may be on the other side and say, Hey, we'll just figure it out. We'll go get a, a very high mortgage rate, or, or we'll buy this house and the mortgage payment will be 30 or 40% of our income and we'll just refinance down, down the road. These are things that you want to say. All right, let's step back. Let's really look at this. Do we really need this big of a house? Can we, can we get away with a smaller house, at least for, until the kids get into high school or, or whatever the case may be for your situation? I. or is there a, a reasonable expectation that we can refinance later? and things of that nature. Now, what I'll say is, don't ever buy a house that you can't afford right now. Right? Um, we don't know when interest rates are gonna come down. We don't know the cost of that in or that refinance when the interest rates come down, what your situation will be like. Maybe you'll need to move anyways. So the, the, the refinance thing didn't make sense, whatever that may be. Whatever house you buy at that time, make sure that you can save it. And then if you refinance for a lower rate at later on down the road, that makes sense, then good, you're saving, uh, quite a bit more money on top of a house that you could have already afforded anyways, right? So make sure that you're doing your research, doing your due diligence, not getting over your skis on debt. for a house that is going to eat away at your wealth long term because 30 or 40% of that housing cost is going to, or your income is going to that housing cost, we don't want that. Right? Because that's gonna eat away at our wealth and we will not. Want, we will not be able to retire maybe as early as we want, or become financially independent as early as we want. keep that housing costs as low as possible. That's just gonna give you more freedom, more choice, more flexibility. And that's what this podcast is about. I don't want people feeling like they're house poor, retirement poor. I want people to have flexibility and have options with their money and not have I. Worry or stress about money. that has always been kind of the impetus or purpose of this podcast and my firm as well. And one of the things, or a memory that sticks out in my head is when I first started dating my wife, we went to dinner. I was meeting her dad and her mom for the first time, and. And, I grew up with parents that are frugal for lack of better terms. And when we went out to eat like, Hey, you got one, one meal, you only get water. it's just kind of how my dad was. He is very frugal. I didn't wanna spend a lot of money and I can remember going to dinner with her parents. And, her dad was ordering appetizers and desserts and, about as much sushi as it would feed the entire restaurant. And I thought that was interesting'cause he wasn't necessarily worried about money, right. Um, he just wanted everybody to have a good time. And not that my parents didn't want people to have a good time. They, they want people to have a good time. but. It was clear that my wife's dad was not, worried about money, and so obviously, I didn't know his financial situation at the time. my, Over time have realized that hey, he's done a really good job. He's worked really hard and things of that nature and that, and got him and his wife to where they are today. But, I just remember him being so nonchalant about spending quite a bit of money at dinner and I was like, well man, I can't wait to one day that I have enough money that I can just go out to dinner and not, worry about what I'm spending, and make sure that everybody's having a good time and enjoying themselves. it wasn't the, the dinner that was in Borden about that story. It was just the. The freedom that I felt like he had, because money just wasn't a worry. Whereas my entire life, money had always been a worry, growing up because of how frugal my dad was. And, and it taught me a lot of good lessons about saving money and things of that nature. But, it was just interesting to see'cause I'd never really experienced that. And so, um, again, that's kind of where that comes from. I just want people to, to be able to. Live purposely with their money so that they have more freedom. as they continue to grow wealth and be able to do the things that they want to do, right? So, expense number three, which I kind of jumped the gun on that story a little bit, but dining out and con convenience spending. So people, I know that as high income earners, most of you are very. Busy professionals. and so it's easy to kind of overspend on dining out out of the convenience or paying for things that are more convenient, ordering food in through GrubHub and all, all those sorts of things. And so they, they tend to get very expensive, right? So. Maybe a$10 lunch, driving to lunch or making it yourself turns into a$20 lunch very quickly, which if you do that five days a week will end up being about$5,200 a year. And so you compound that with dinners and, and other frivolous spending on top of that, that easily could double to 10, 15,$20,000 a year on just stuff that may not necessarily be that important. And so what I'm getting at here is just be very intentional about. Where you're spending your money is ordering that GrubHub or, buying something outta convenience, really adding that much more time into your day to where you can, do things that are more important to you or be able to make that, that money up other elsewhere. Right? Just, think about where you're spending your money, whether that be dining out, if it's important to you, if dining out's important to you. Again, if you're a foodie, things of that nature. Where else can you cut, in, in, in your budget to make sure that you can do that and still reach your. Your retirement goals are, are, become financially independent. Number four, unused subscriptions and memberships. I'm terrible about this. gym streaming, app services, whatever that may be. Do a quarterly subscription audit. Go through your credit card statements. Get on Apple, your iCloud, whatever that may be that you use, and see what you're being charged for on a monthly basis. And if you're not using it, like get rid of it, right? So that's an easy way to cut money or expenses out of your budget, that you may not be using. There's good automated reminder tools like Truebill and Rocket Money if you need help with that. but make a point to go in once a quarter, twice a year or whatever that may be, because maybe you signed up for some sort of. Fitness app or something that you're paying$30 a month for, that you used three times six months ago, you don't wanna continue paying for that. it's easy to get caught up on these subscriptions, especially with things like how cable is getting cut out and their. They're going to all these different subscription models where you may have three, four, or five different ones that are at$20 a pop. And so that could be a couple hundred dollars a month that you're just paying with tv, let alone all these other types of, subscription models and, and things of that nature where that can add up fairly quickly. So just take a look every few months and say, Hey, am I using this or am I not? If I'm not. Go ahead and cancel it. Right? Makes it super easy, to cut expenses out of your budget. Number five expense that you should cut out is high interest debt. Worst thing you can do is get into credit card debt. I call it the freedom tax. Every dollar that you pay in this high interest type, Debt is just taking money away from your freedom, right? So credit card debt especially is anywhere from 15 to 30%, generally speaking. Pretty much nowhere, in the start market, unless you're just getting super lucky, are you making 15 to 30% on an annual basis. So these credit card companies, these high debt, people, even sometimes auto loans, depending on where you get the auto loan from. Just ripping your money away from you, ripping your wealth away from you. So stay away from that high interest rate, debt. So you can do things like an avalanche debt payment plan, snowball method, that Dave Ramsey talks about a lot and has coined kind of his, his, debt. Pay down method. So just get rid of that high interest debt. So if you have high interest auto loans, high interest credit cards, get a plan and pay that thing off, whether that be the avalanche plan or the that snowball, method, just get rid of it, right? that's number five. Number five is to get rid of that high interest debt. Like I said, we started with lifestyle creep. Lifestyle creep is the silent killer of wealth. We wanna make sure that we're. Picking, a target spending rate every year and trying to stick to that for long periods of time, 2, 3, 4, 5 years, long. and as our income increases, that means we can save a higher percentage of our income because we're keeping our living the same. And then as our income increases over that long period of time, then slowly increasing our lifestyle so that, we can stay ahead of our savings so that we can become financially independent, being very smart about how we're buying housing. making sure that it's not creeping into 30 or 40% of our income going to, housing costs. Because again, that's just gonna. Eat into our ability to build wealth over a long term. Being diligent about where we're spending through, whether it be subscriptions, dining out, things of that nature, those small things can add up with time. So just understand what's important to us. If dining out is important to you, where else can we cut out of our budget to continue to save and keep our lifestyle creep down, and then high interest rate debt. We always talk about this, get rid of it. I don't like it. There's no point in it. If you have credit card debt that you're rolling over every month, get rid of that as fast as possible. So one challenge I have for the listeners today, which I appreciate you guys listening. Pick one category to cut this week. So what I think the easiest one would be subscriptions. So go check your subscriptions. If there's a few that you're not using, go ahead and cut that, save that money and use that toward maybe starting a brokerage account. Or paying off some high interest debt, whatever that may be. So pick one category this week to optimize. maybe you set your spending target for the year or for the rest of the year so that you can get on, a good savings plan. Start saving, More than you are currently. So whatever that may be, go ahead and pick one and cut it out this week or optimize it. And again, I appreciate everyone that listens to this podcast. it's been awesome getting your feedback. There's a specific topic that you want to hear. There's a link in the show notes where you can send me a text, or an email. Just talking about, Hey, I'd love to hear more about X, Y, Z. Would love to talk about things that you want to hear. That's gonna make it way more valuable to you than to me just coming up with different topics and such. So again, share this with a friend, Lea five star review on your favorite podcasting app, and we will see you next week. This podcast is for educational purposes only. It's not meant to be financial or investment advice. Do not make decisions solely based on this podcast alone. Please seek professional help when making those decisions. Please keep Palm Valley and wealth management in mind when making those considerations.