BiggerPockets Money Podcast - 30: How to Cut Expenses for a Faster Route to Financial Freedom

Episode Date: July 23, 2018

We’ve interviewed more than 30 people for the BiggerPockets Money Podcast over the course of this year — and we’ve got a LOT more people to interview! We’ve heard from so many  listeners: “I’d like to get started on the path toward financial freedom, but I don’t know where to begin." Today, Scott and Mindy share EXACTLY how you get started with tracking your spending, and how to make SIGNIFICANT cuts in your budget to move you down the path faster. Looking to become financially free? THIS is the episode you need. Links from the Show BiggerPockets Forums Mr. Money Mustache Mad Fientist Biggerpockets Money Show Waffles on Wednesday Mint Personal Capital Bureau of Labor Statistics Envelope System ChooseFI – Episode 09: Travel Rewards BiggerPockets Money Podcast 01: The Surprising (Scientific) Truth Behind What Makes You Successful with Mr. Money Mustache BiggerPockets Money Podcast 02: An All-Out Approach to Financial Independence at an Early Age with Scott Trench BiggerPockets Money Podcast 05: Jump Starting Your Early FI Plans by Live-in Flipping with Mindy Jensen BiggerPockets Money Podcast 07: How Breakfast Food Motivated Financial Freedom with Mr. and Mrs. Waffles on Wednesday BiggerPockets Money Podcast 29: From $200,000 in Student Loan Debt to $150,000 Net Worth in 3 Years with Nick and Alyssa Paros BiggerPockets Money Podcast 27: How to Get Even MORE from Your Travel Rewards Credit Card with Lee Huffman BiggerPockets Money Podcast 03: Cutting Your Grocery Bill in Half with Erin Chase from $5 Dinners BiggerPockets Money Podcast 25: Raising a Family While Seeking Financial Freedom with Chris and Debbie Emick BiggerPockets Money Podcast 06: Fearlessly Paying off Massive Student Debt on $30,000 per Year with Sarah Wilson Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to the Bigger Pockets Money podcast show number 30. My net loss was like probably $500 on this $10,000 investment where it could have been an $1,800 gain. But that $1,800 gain wasn't even meaningful to my position at all in the first place. I should have been focusing instead on saving money and trying to earn more money. It's time for a new American dream, one that doesn't involve working in a cubicle for 40 years, barely scraping by. Whether you're looking to get your financial house in order, invest the money.

you already have or discover new paths for wealth creation, you're in the right place. This show is for anyone who has money or wants more. This is the Bigger Pockets Money Podcast. How's it going, everybody? I'm Scott Trench. I'm here with my co-host, Ms. Mindy, how are you doing today, Mindy? Scott, it's just another great day, as always. How are you doing today?

I'm doing great. I'm very excited for today's episode. Today, it's just going to be me and you talking about money and, in this case, saving how to cut back on your expenses. It's a philosophy of cutting back on your expenses. your expenses, why you should cut back on your expenses, and how that can help you move towards financial freedom. And then next week, we're going to follow up with a episode about increasing your income and investing for financial independence. Yep, that's going to be a really great show,

too. You know, this show came about because I get a lot of emails from people, money at biggerpockets.com. And people are asking me, how do I get started? I love this concept of financial independence. I want to be financially free, but I don't know how to go about it. So what is the first step? What do I need to do first right off the bat? And I started thinking, you know, we've got a ton of really great shows where our guests share these very things. But we never really put them into a specific order. Start here, go here, do this first, do this second. So today we're going to take some time to do just that. This is your first step. This is your next step. Yes. And we're going to go into why that is. You know, this, we're focusing on spending today in the first part of it,

because this is what is probably within the most control of people. You know, if you're an average listener of the show, you're probably earning immediate income, maybe a little higher, you're probably not having too many financial mistakes, not a ton of debt or anything like that, and you're probably starting with few investable assets, right? And that's what we're assuming in today's episode is by reducing your lifestyle expenses, by reducing your spending, You're going to increase the amount of cash flow that you're able to accumulate on a monthly or weekly basis, which is going to allow you to invest. And you're going to develop the habits that will help you form a lower cost lifestyle down the road,

which means that you need less total net worth and less total cash flow from your investments to sustain financial independence. It's a double-sided benefit here with the cutting your expenses. And it's why we focus on it so heavily and why we're focusing on it first. before we get to income and investing next week. Yeah, if you don't have your expenses, your expenditures under control, you're just not going to have a successful, easy path to financial independence. Yeah, and think about it.

If you have no housing expense, very little transportation expense, and you have a reasonable food budget, you could spend a lot of money each month on entertainment and fun things and just rewarding experiences and live a lavish. lifestyle for $20, $30,000 a year in cash flow from your investments. So if you can really focus on cutting back those expenses in a way that still brings you happiness, you're going to have a much easier time at funding financial freedom. You know, it's as much easier to generate $3,000 a month than it is to generate $10,000 a month in income from your passive investments.

Yep. Totally, totally agree. Awesome. Well, shall we get to the episode? Tax season is one of the only times all year when most people actually look at their full financial picture, including income, spending, savings, investments, the whole thing. And if you're like most folks, it can be a little eye-opening. That's why I like Monarch. It helps you see exactly where your money is going, and more importantly, where your tax refund can make the biggest impact. Because the goal isn't just to look backward, it's to actually make progress. Simplify your finances with Monarch. Monarch is the all-in-one personal finance tool designed to make your life easier. It brings your entire financial life, including budgeting, accounts and investments, net worth, and future planning

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Scott, what would you say is the first step someone should take on their road to financial freedom? Well, you know, there's this kind of like outline that I kind of have in my head. about how financial, because I always have to organize things until it outline. And that's just how I think in general. And I kind of approach financial freedom from this like top level view of, hey, first you work on your spending. And again, I always assume that you are, you the listener, or people in general are folks that have optimized in the income front throughout the course of their career, education, all that kind of stuff. So that they have a pretty good job or the best

that's available to them given their set of circumstances. So assuming that's the case, then the first place to start, I think, is with cutting back on spending. And then as we kind of make progress there, maybe moving into the income front or the investing front. But even before we get to going into like spending basics and how you actually can make a dent in your spending, I think the first step that we hear from listeners over and over and over again is that they're not necessarily managing their finances optimally or really paying a lot of attention to it until they read something or until they have a discussion. or stumble upon information that changes their mindset. So I wonder if the first step is actually self-education. Oh, you know what?

Becoming aware of this concept of early financial independence, early retirement even, when I was pre-F-I, pre-going down this path even, early retirement meant age 62. If you were lucky, you could save up enough that you could retire three years early. And just it didn't even occur to me that you could retire when you were in your 50s or 40s or 30s unless you win the lottery. And my husband was working one day. He had a horrible day at work. He's like, how do I quit my job early? And this site popped up, Mr. Money Mustache.

Mr. Money Mustache, what's that? So he goes in and he checks us out. He's like, this guy is full of crap. There is no way that this is real. He's lying. He's selling something, whatever. But he starts reading. And before he found that sight, he had no idea that this was possible.

It's not that hard. And the math doesn't lie. You can't make 4 plus 4 equals 17. It always equals 8. So this guy went through, this Mr. Money Mustache Cat went through and did all of this math for you. He's like, these numbers don't lie. This is real. This is achievable.

Yeah. And like that's exactly the same story that happened for me as an individual. I started my job and I was lucky to find this concept within three months of starting my first full-time job out of college. So I could basically go off to the races as a young single guy with nothing hold me back on it. But like that same concept applied for me. I wasn't really, I mean, I was saving money and just putting it away and trying to invest because I heard that was good practice. But I wasn't motivated to actually consistently drive aggressive change to improve my financial position because what's the point in having an extra million. in 40 years. That's not really relevant or motivating to me. What was motivating was,

man, this Mr. Money Mustache guy, the Matt, Mr. Mad Scientist, these guys are legit. And I can produce a result that will be life-changing now next year and in three years because, you know, I'll have more wealth now. I'll have more freedom now and I'll have the potential to retire really early and live a completely self-directed life during my prime. And that was kind of like the moment where I was like, okay, now I'm going to optimize. Now I'm going to figure out how can I make as efficient progress as possible in all of these categories. So what was your first step? Absolutely cut every spending, all your spending and live in a box and eat rice and beans and peanut butter and jelly and that's it? Well, well, my first step, I guess,

paradoxically was I was like, hmm, you know, I am making $48,000 a year and spending about 35 or so. and I have no other assets outside that. So I'm going to invest. That's how I'm going to get really wealthy. And that didn't make any sense. So what I started doing personally was I started picking stocks. And that was inefficient for me because I didn't have a large amount of capital to invest. We've talked about it on a show before, but it's very difficult for a full-time worker

with a small portfolio to beat the market. And I failed. I lost money. I betted a bunch of Chinese stocks because, hey, they're undervalued. People don't have all the information. Well, I didn't have all the information. I lost on that. Yeah. So I smile when you say this and it looks like I'm laughing if you're watching the video. Sometimes it's very funny to have some extra information that Scott hasn't maybe shared with everybody. Scott is terrible at picking stocks, but he's really, really great at other things, like picking real estate investments.

Scott has a pretty sweet real estate portfolio. But his stocks, I mean, he just picked like the worst of the worst. And do you have any money left over from your stock picking? I didn't lose all of my money from these investments. I invested in a couple of different companies. But I just, I lost money in a year that the stock market gained money. So and again, the whole silliness of this entire exercise for me was that I was investing less than $10,000. So my net loss was like probably $500 on this $10,000 investment where it could have been an $1,800 gain.

But that $1,800 gain wasn't even meaningful to my position at all in the first place. I should have been focusing instead on saving money and trying to earn more money. Well, yes, but I will stop you right here to say that if you only have $10,000, yes, you should still invest, provided that, you know, you're out of debt and all that. and we'll talk more about that later. But Scott's not saying if you only have $10,000 you can't invest. He's saying that there's other things to focus on first. Yeah.

What I should have done is stick that in an index fund and get to work on spending, cutting back my spending and increasing my income, which I was doing at the same time, but I would have shifted my focus there a little earlier and made that a bigger priority. Yeah. So I want to talk about cutting spending. And more specifically, I want to talk about tracking your spending. My number one tip for anybody who says, what's the first step?

Where is your money going? I buy groceries. I buy gas. I pay my mortgage. Okay, how much is all of that? Well, I don't know. I probably spend $150 on groceries. I can almost guarantee that if you don't know how much you're spending, you're not

probably spending whatever you're thinking. You're spending a whole lot more because groceries have this really sneaky way of adding up. So does gasoline purchases and, oh, it's only a dollar. I'm going to grab this and that. And all of a sudden, every dollar that, was in your pocket is in somebody else's pocket. So my first step, even before making a budget, is tracking your spending. And we interviewed some people, Waffles on Wednesday, a couple from the West Coast who have created a spending tracker. And they give you instructions on how to do this.

And it is, you can use it on the go. It's basically a Google questionnaire that you fill out as you spend so you can do it on your phone. Every time you make a purchase, you put it in there. And for the first couple of weeks, I would say look at the results, but don't really beat yourself up over it. After a month of tracking your spending, go in and really look at what exactly you're spending. You will be surprised at how much money you're spending on things that you really didn't need. You didn't want, you didn't care about. You could get cheaper someplace else with a little tweak. And what Once you've tracked your spending, then you can go in and make a budget. Then you can say, okay, I want to direct $500 of my income of my expenses.

I want $500 to go to groceries. Or I could probably get by on $300 on groceries or gas or whatever it is your spending. Look and see where you can cut your spending. And maybe food is really important to you. Look at other things that you can cut that aren't so important to you. One of my favorite things to say is save where you can so you can spend on what's important. Yeah, I love it. And another option also is I use mint.com and I also use personalcapital.com.

I actually plug in my bank accounts to both and I track different things with both of those sites. Well, Mint actually has my total net worth, including my retirement accounts and all that kind of stuff and real estate equity and all that. And personal capital does not include some of the real estate stuff because it's just, I don't want to rely on a zestimate to track my net worth and I don't want to rely on retirement accounts. But anyways, if you put these stuff into mint, for example, it'll actually show all of the transactions. And if you spend, if you're like me and spend most of your money through credit cards and debit cards, this site will actually show all of those transactions and you don't have to go through the process of recording all of your spending over the next month.

You can actually look back at last month or the months before and make that and do that exercise right now. It'll take you maybe 30 minutes to go ahead and actually see where your money is going. And I completely agree that this is the first step. Knowing where your money's going is the first step in terms of figuring out what actually are the levers that you can pull, that you can make a big change in on your personal finances. And glaring weaknesses will be exposed for almost everyone in these areas. It would be like, wow, I had no idea I was spending so many, so many dollars on buffalo wings or beer at the local brewery or whatever. These are things that I regularly struggle with.

Yes. But yeah. As you have shared with us. And then you have to be like, hey, what can I actually make a change on? You know, one good one for me was I signed up for a second gym membership. So I have a, I get the Costco membership at a 24 hour fitness. But I wasn't going and I wanted to work out with my girlfriend. So I got a second gym membership for a month or two while we went through this workout

kick and I forgot to cancel it. Tracking your spending reveals that on that third month. So I don't waste money for six more months. It's just, it's a very simple exercise without even actually cutting back anything. You may find things that will just save you hundreds or thousands of dollars a year. Yeah. And okay, so you just laid out like 50 things that I want to talk about. Okay, so you said that you track your money on mint and personal capital. I do too. They're amazing programs. How much do you pay for mint and personal capital. I don't pay anything for them. I don't pay anything either. And that's what I wanted to hear you say, because this is a free way to track your spending. It's a free way to see what's going on in your personal financial situation. Why would you not

take advantage of free? You said something about you use credit cards and debit cards, and that's how you're able to track your spending. This is something that some people really struggle with. I only want to pay cash the, what is the Dave Ramsey envelope system where you take all your money and you put it into... envelopes that are labeled, you know, groceries. I have $300 in my grocery envelope. If I spend it all, I have no more money for groceries for the rest of the month. And that's a really great way to get your your spending back on track, but then you lose out on credit card rewards and things like that. So if you really need help spending, you know, tracking your money in that way, in that solid cash in hand way,

that's a great way to do that, but you're not able to use mint.com so easily. Again, you go back to, you know, the spending tracker that the waffles on Wednesday people shared with us, or even just something so simple as writing everything down in a notebook. You just want to know where your money's going. I agree. There's a million different ways to work to do this. And pencil and paper can work just as well as Mint or Excel or, you know, on the extreme, we had Nick and Alyssa Paris talking about their multi-dimensional banking system where they have like eight different bank accounts and they project out every major expense and save up for it throughout the year. All of these things work, and it's just what works for you, but the basic premise is

understand where your dollars are going and be able to categorize it across the major types of things that you're purchasing, and then look for opportunities to cut that will have a very limited impact or no impact on your happiness, things that are just waste. And that's the very first step, I think, in cutting back on spending. Yep, I totally agree. Now, your little note about getting a second gym membership and then forgetting to cancel it, your computer, your email account, your cell phone is a great way to keep track of things like this. You know, put a note in your calendar.

Cancel gym membership on this day. Pay bills on this day. If you're having a hard time keeping your bills paid. If you're, you know, whatever you want to remind yourself, it pops up in your email. It pops up in your computer screen. It pops up in your phone. And that's a really great way to keep track of things, at least until you get in the habit of doing it. it. Start tracking your spending. Put a thing at the end of the day. Did you track your spending? If not,

go back and do it now. Save every receipt. When I go to the gas station, I hit no receipt because I don't want to waste paper. In the beginning, save every receipt. Take your receipts and make sure that you're writing them down. Put a checkmark on it. Whatever you need to do, if you're serious about getting your financial house in order, it's going to take a little work. Not a ton of work, but it is going to take a little work. You're just breaking a habit that you've, or starting a habit that you've never been in before. Now, once you've started tracking your spending, you're going to see the categories of expense, right? And one of my favorite things, I'm a numbers geek, so I have these numbers memorized because I use them a lot. But the National Bureau of Labor Statistics tracks averages

across America for major spending categories. And if you look at this, you break it onto a pie chart, which of course I did, you'll see that the major expenses for Americans over two-thirds of expense come in three categories. Housing, which is 33% of American household spending, transportation, which is 17%, 33% 17 is 50%. So that's half your spending right there for an average American. And then 13% is food. So we're almost at 2 thirds, 63% between these three categories alone, housing, transportation, and food. So let's go ahead and dive into these three categories because, you know, the remaining stuff, the budgeting that we just talked about is really going to only impact you on your food in the short term, and then this entertainment fund section,

which is really only about 20% of American household spending. So there's a limited amount of opportunity you can do there, but the good news is that's immediate, and you may realize those impacts right after you begin tracking your spending. Housing, transportation, and food, these things might take a little longer to kind of make significant cuts on. And let's walk through these one by one. So for housing, both Mindy and I, I have actually kind of figured out some ways to really use our housing the way we live to contribute to our net worth and financial freedom. Mindy, you want to reference what you're doing with the live-in flips? Yes. So I buy ugly houses. I buy houses that are a horrible color. They have shed

carpeting, gross old appliances, but are habitable. I can move into them. There's not a mold issue or a meth issue or, you know, any sort of structural issue that would make it unsafe for me to live in with my family. We move in and we start tearing it apart. We take out all the ugly. We replace it with beautiful. And we live there for two years. And this is a really important distinction because the government has given me a $500,000 freebie, up to $500,000 because I'm married. Scott, yours is only $250 because you are not yet married.

What this is is a capital gains exclusion. I pay no capital gains on the sale of my home if I've lived there for two years as my primary residence, up to $500,000 as a married person. Scott would be up to $250,000 as a single person. So what this means is I buy a house, my current house. I paid $176,000 for this two bedroom, one bath, really ugly house. And I added a second story. It's now four bedrooms and three bathrooms. I have completely redone almost everything. Daphne's room is last. But once I get her room done, every room has been touched in this house. And it is now worth, I could probably put it on the market for $550,000 and sell it almost instantly. It really looks beautiful. My husband and I have

done most of the work ourselves, and he's really, really talented. So how much equity have you created in the last few years? So I have, I probably put $100,000 into the house. And to the house. house. So I started off now. My base cost is $276,000 and it's worth $550,000. So what is that? $275,000, is. That's incredible. And all that is tax-free. That's like earning a $300,000 in income, $350,000 or $400,000 in salary over those years. Right. That's the equivalent of that. And I was a stay-at-home mom for two, three of these years. My husband was working a little bit. it's not that hard to do. You do project by project. We did the bathroom in a weekend. We did the kitchen in a really long weekend. I paint the walls on the weekends. We did the deck over the course of a couple of weekends. It's work. Nobody is just going to say, oh, did you want $275,000 here? Except for the government. The government's like, oh, you know how you just made that worth more money? I'll just give you a pass. So that's how I have. my housing. I buy an ugly house that nobody else wants to live in. I make it look really pretty.

Now everybody wants to live in it. So I sell it to them and then I go find another ugly house and move in and start all over. I've done this eight times and I've made about $100,000 on each flip. Unbelievable. Yeah. So that's that's no small chunk of change. Yeah. So on my end, I have, I do a different type of house hacking, which is I guess the term that Brandon Turner coined a few years ago. But I buy so far duplexes, move into half of them, take a roommate, and then rent out the other portion of the duplex. So both of them have been two-bed, one-bath units in duplexes. So let's talk about your first property that you did this with. How much did you pay for the house? So I paid $240,000. I put down $12,000. I probably

put another $8,000 into it over the three, four months since buying it, got the nicer unit ready, rented that out to somebody else while I slept the other one, got a roommate for my unit, and then I had $1,700 in rent between the roommate and the other unit, and then $1,50 in mortgage expense. And now that property is worth probably $400, $450,000 and rents for about $2,800 a month on a $1,400 mortgage. I refinanced the mortgage, which lowered my interest rate. And now I'm doing another, I living in another duplex doing the same thing. I probably should have moved out a year ago, but I like living there now. So I'm a little less, a little less aggressive about the house hacking right now in terms of moving on to the next property. And this property, I actually now live in the

upper unit with my girlfriend and the lower unit rents for about probably 1,300 on a $2,000 mortgage. So in the first house, you took, before you moved there, you were paying rent somewhere. What was your rent-ish? My rent, prior to that, was probably 550. I was also living with a roommate, and I probably had utilities of about 60, 75 bucks a month. Okay, so let's call that $600 a month. You were paying out $600 a month. By purchasing a two-unit house and renting out one and one bedroom,

you're now positive $250 every single month. Yeah, I was probably breaking about even because I was still responsible. I was responsible for more utilities as a landlord. So with all that cash flow coming out, I was probably break it about even. But I was managing it myself, I got my tools, all that kind of stuff,

didn't have vacancy. So every month my cash was not being depleted by the $550. It was prior to the move in, which is a huge benefit. And did you feel deprived living in this bedroom, in this house that you now own? So the first duplex was definitely a, downgrade from my apartment living previously. So I was not hosting parties or friends over at this

place. My new house, which is not, as I just shared with the numbers, is not as good as that first property, but is still a significant bonus to renting anywhere in the city. I do love living there and do have, we'll have people over from time to time and have a great situation that's really convenient to work. So one little patch of inconvenience. I don't, I wouldn't say it's a terrible house. The first one, I thought that was cute. You could have had parties there. Oh, I was, I'm very happy I did that. And I will take the nearly $200,000 in equity created and large amounts of cash flow that have been generated over the last four years for the small inconvenience of spending 15 months in a place that was not my ideal location. Absolutely.

That was a really good financial investment for me. And overall, huge benefits my life, for sure. Yes, definitely a good idea. And I know there's some people that are listening that are saying, oh, well, I'm married. I have kids. I can't move. Well, could you fix up your house? And how bad do you want it? I don't want to be, you know, mean and if you're not willing to do anything, then you can't ever have financial independence. Maybe housing is something that really means a lot to you. Look at your other expenses. This is just one place to cut. But like Scott said, this is. This is a what did you say 37%? Yep. And all of this is a matter of degree as well, right? Housing is a major expense on your budget. It's going to be almost certainly if you're anything like a normal American, right? If you want to move towards financial freedom, you have to say, to what degree am I willing to change this to make this a better investment, right? So that, to me, wasn't a huge sacrifice. I was just living with a roommate in not my ideal part of town, right? But, But Craig, who we're going to interview shortly, a guy works at our office, he slept on the couch in it, right, like right near where I bought my first duplex.

He actually went a step further, bought a duplex. And instead of a sleep in a room, he slept in a room so you could Airbnb out his room, which is another level of extreme, right? That's even farther of a degree than where I took it. And there's everything in between. There's how you do it. You live in a nice home that's under construction a lot of the time for the first year. Yes. Yes, it is.

It's a big dusty mess, but I am willing to trade a year of comfort for a nice big fat paycheck. Now, Scott alluded to Craig's interview. It's actually coming out next week. So, spoiler alert, Craig has some house hacking tips. Craig has a lot of life hacking tips. And I'm really, really, really excited to share that episode because Craig is a kid. I call him a kid because he's, what is he, 24 or something? I'm not.

So I can call him a kid. Craig is a kid who has really figured it out. And I'm kind of jealous of how together his life is at such a young age. He's just going to kill it. And he's another one of those guys that loves what he does so it doesn't seem like work. He's going to continue to work. But he's not really like, I've had some jobs where every day was like, oh, I can't believe I have to go to this place again.

I hate everything I do. And now I've got this really awesome job that I love. So Craig's just like that. The slowest way to move toward financial independence or financial freedom with your housing decision is to buy a house that stretches your, you know, that requires 40% of your cash flow to cover the mortgage, right, or the other expenses related to the housing or to rent and have 40% of that, right? So if you're stretching yourself to your financial limits to qualify for rent or mortgage, that's the slowest way, the slowest decision you can possibly make toward financial freedom. On the other extreme, what Craig's doing, renting out your bedroom to sleep on the couch so you can have extra cash is probably the fastest way, right? That without short of living under a bridge. But somewhere in between that spectrum is a point that should be right, I think, for most listeners.

And you have to decide where that is. Is it more towards qualifying the biggest, nicest piece of property you can possibly qualify for and renting out your bedroom or taking on a roommate or whatever it is? that seems extreme to you on the cost-saving side. But somewhere in between is the right choice, I think. Yeah, I agree. And Craig has actually got even more fantastic tips. All right. So the next, so that's housing, right?

And so there's got to be, there's something, you know, hopefully that gets you thinking about how do I make some changes to my housing over the next few years? This is not going to be an overnight change, like cutting out your subscriptions you don't use anymore. But hopefully that gives you some ideas about what you can do over the next few years to maybe make a dent on that housing situation. The second kind of major category of expense is transportation. And for this kind of discussion, we'll break transportation into two buckets.

We have car transportation to and from work relating to your commute and the vehicle choice that you have. And then travel for vacations or leisure or to visit family, whatever. We actually have two episodes, I think, that cover the options surrounding these. So first, let's talk about Mr. Money and Mustache and what he does to eliminate his transportation expense. Yep. Mr. Money Mustache joined us for our inaugural episode number one. And he just dropped knowledge bomb after knowledge bomb. He rides his bike everywhere. I actually live in the same town that he lives in. And I see him on his bike all the time. He doesn't take his car hardly ever. And when he does, he has an electric vehicle, which has saved him an enormous amount of money just on fuel costs. Right. now, he doesn't drive a Tesla, which is, you know, one of the most well-known electric vehicles. He drives a Nissan leaf. So it's significantly less expensive than the Tesla.

Still, same price for gas, nothing because it plugs up with the electric. Well, what I love about Mr. My Mustache is that he's, you know, it's a two-part decision. You know, while he was building his network, while he was working towards financial independence, he chose to live in a place that was within biking distance of work, right? And he used that as his major means of transportation. And he still does today. And what I think is brilliant about what he does is it's not just a numbers thing, although, of course, he's done the numbers to show that it's more efficient to live your life

while biking and eliminating your reliance on car transportation. But it's a happiness thing. And what I thought was so great about his interview was how he goes into, hey, these types of changes, they're not just going to save you money and help you move towards financial independence, which is great. they're going to make you happier. They're going to make your life more fulfilling. It's better to get some exercise and bike to work and not pollute the environment than it is to drive a gas guzzler to car every day, costing you money and hurting the environment and making you weak because you're not tough when you're not biking or using your human power to control your life.

Yeah, I drive to work when I come into the office. I'm only in the office two days a week generally. And I do drive to work because I am 40 miles away, and that's significant. And if I were going to be into the office every day of the week, I would consider coming closer, moving my house closer to the office because 40 miles is a long way to drive. But as I'm sitting in traffic, sometimes Google Maps will route me down the expressway and sometimes it'll route me down the more local roads. As I'm going down the local roads sitting in traffic, here comes this bicyclist passing me because I'm not going anywhere. You can't go faster than the car in front of you. And when they're stopped, you are too.

Or you should be. Or you quickly will be. But the bicyclist just keeps going. There is almost no traffic for a bicyclist. So not only is your physical well-being getting stronger and more healthy, your mental well-being is getting stronger and more healthy because you're not sitting there swearing at the guy in front of you who just cut you off. Nobody's cutting you off.

There's not that many bicyclists on the road. One thing that strikes me, like a memory I always have when I talk about this is I'm biking to work one day and I pull up at a stoplight next to a shiny, bright red F-250 pickup truck. And, you know, it's this big burly guy driving it and he looks tough and he looks like the kind of guy you'd expect to see driving it. And I'm getting ready to zoom past him. And he goes, he yells at the window, sucks to be poor to me on my bicycle. And I just remember being caught so unawares by this comment and being like, wow, like, what is going on there? Like, how do I respond to this? I'm like, it's much more efficient because I just, you know, zoomed past him while he's waited lied for this light.

And I'm going faster. I'm like, I'm saving so much money on this bicycle. And he's probably having the complete opposite effect on his commute to work. He's sitting in this thing and he's probably got a loan on it. It's depreciating rapidly as a brand new truck. I just remember being like, wow, like, what a different philosophy of life that I've developed from what this guy has, you know? Yes.

And that story makes me laugh every single time because you're not poor. Yeah. Well, it's just making this assumption. Yeah, absolutely. He doesn't have a card, therefore he must be poor. Now, in your real life, does it matter what that guy thinks of you? No, you don't care because you know the truth. I'm building wealth because I'm biking.

Appearances can be deceiving, I think, on these things. And I think the lesson for transportation is, yeah, biking is great, walking is great. But again, if we're talking about housing the most absurd choice or not the most absurd choice, that's the wrong word. The most inefficient choice for financial freedom is to buy the house that stretches you to your absolute maximum on your financial limits. The same is true for a car. Buying that F-250 pickup truck for $35,000 and financing it and then driving along. a long commute every day to work is the slowest or one of the slowest ways to move toward

financial independence. The fastest way is to get rid of the car altogether and bike everywhere or do what Craig does. We'll reference Craig again and rent out your car on Turrow or whatever. We're giving away his whole show. So we'll let him talk about all this in for detail. We should not give away his whole show. And also, I made a mistake. Craig is not next week. He's in three weeks, episode 33. So by then, everybody will have forgotten all the spoilers we've given them. It's still a really awesome show. Craig is just killing it at life. Yeah.

But, you know, if that's the most efficient way to move toward F5 and the F-250s, the slowest, somewhere in the middle is the reasonable one. And I think where I'd suggest or maybe I'd venture to say Mr. Money Mustast what suggests is live within biking distance of work. And if you're going to have a car, get something that's paid in cash, that's a highly efficient vehicle and use it when you need to resort to it. And that's what I'd sort of lead to. I'm not as good about biking as I like to think I am, but I do have almost paid off Toyota Corolla.

And I think that's a fairly efficient route towards financial freedom. Yes. And just because you're living close enough to work doesn't mean you have to bike every single day. Aim to bike one day a week. And then after that's a habit, aim to bike twice a week. Aim to bike every other day to work. It doesn't have to be an all or nothing thing. And I think that some people can kind of get caught up in that,

oh, I've got to cut out all my spending. I can't ever have fun. Well, that's not true. You can go see a movie. Just don't see a hundred movies a month. You can rent a movie on Red Box. You could rent a movie on Red Box or get Netflix for the cost of one movie at the movie theater. But if it's a really awesome movie that you want to see at the movie theater, then go ahead and do that. You don't have to cut out everything. Just cut out the things that are stupid and frivolous and that don't change your life. And another thing I'll add about biking, I'm sorry we're harping on the biking so much, but is that I find on days that I bike to work that I don't even know where my wallet is. Like it's somewhere in my bag that I carry to work every day. I don't even use it because when I bike to work, I pack my lunch.

I plan for the day because I might need things that I can't go just go back and fetch. I can't just like store them in my car. So you plan out your day and you don't spend money. You know, how absurd is it? Are you going to sit in line at Chick-fil-A in the drive-thru on your bicycle? You know, obvious, like, that would never happen, right? You're never going to run this, like, unnecessary errand that would occur all the time at a car on a bicycle. It's kind of, it's kind of hilarious to think about that, that image because it's so, it's so unrealistic. I'm picturing you in the line. That's funny. Yeah, maybe I'll do that one day just for fun.

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Anyone can call or text for free confidential support from a train responder anytime. 988 suicide crisis helpline is funded by the government in Canada. So, okay, so we talked about transportation, your everyday transportation. Let's switch gears a little bit and talk about vacation transportation. I will continue to tell the story forever. Sometimes I feel a little maternal towards Scott because he was born after I graduated from high school. So that always makes me feel young. But I came into Scott's office maybe a year ago.

And I said, hey, Scott, I want to tell you about this concept of travel hacking or credit card hacking or where you open up credit cards and you earn points. And then you can travel for free or almost free. And he's like, well, you know, I've got my Southwest card. It gives me 1% cash back. I'm good. I was actually really proud of myself for not pushing it because I tend to be kind of bossy. And I'd be like, no, no, really, let me tell you. It's way better.

But I was like, okay, you know, should you ever be interested? There's this really great episode of the Chusify podcast, episode number nine, where they talk about travel hacking. And then I don't want to just reference that episode anymore. I want to interview somebody on my podcast about travel hacking. So on podcast episode number 27, we interviewed Lee Huffman about credit card hacking and travel hacking. And he had some pretty amazing tips that I had never even heard of before. That episode, I think that episode 27 is kind of like your PhD at BiggerPockets Money Show, BiggerPockets.com slash Money Show 27 is kind of like an advanced degree in travel rewards

and all of these different possibilities. I do love our friends over at ChooseFI and they did convert me. So their episode, episode nine, I think is a good intro to the concept of travel hacking and what really kind of got my mind morphing on this. And I will say for travel hacking, and this is the concept of getting opening up new credit cards, hitting the minimum spend to hit their sign up bonuses and collecting significant airline miles or credit card points that you can redeem for travel is what they're kind of the people, most people instinctively think of. Lee Huffman shows that you can also use these rewards for other types of spending as well. So there's an opportunity here to travel for extremely low cost or buy nice things with credit card points just on your normal spending. I guess personally, this was a huge revelation for me, like you said, and something that I right, you know, indeed rightfully gets a say, I told you so because I did not think about this beforehand.

But I will say that after opening up a few credit cards, I found it a little overwhelming to have all these cards and it wasn't tracking my own spending. You know, here I am. I talk about personal finance every week on this show, and I was losing a little track of my own spending because of the confusion for the cards. So I think that for me, there's a huge benefit to these travel hacking cards. I got the Southwest Companion Pass, which we can talk about on episode 27. Jealous.

But I did not. I am actually slowing down my credit card churning nowadays and putting my spending into two cards that I think would be the most prime benefits and keeping it simplified. So there's a huge spectrum here. You can go the whole distance and open up 50 cards and collect thousands and thousands of points if you're organized and ready to take on that challenge. Or you can just take the benefits that make sense to you and are really applicable. The Southwest Companion Pass allows me to get basically a two-for-one deal on every flight where I can bring my girlfriend along when I go to visit my parents or go on vacation or go to weddings. And that is a huge, huge cost saver to me that I think outweighs many other benefits of just, you know, 50.

thousand points here or there. Yep. And not every point is worth the same. So when I lived in Chicago, Chicago is an American Airlines hub. And I got 100,000 British Airways points. British Airways has partnered with American Airlines. So in America, when you book a British Airways flight, you'll typically fly on American. American is the cheapest way to fly to Hawaii.

So when I lived in Chicago, a hub of American, I could fly to Hawaii for. very cheap. It was very easy to use those points. I got a lot of points. I opened a card. My husband opened a card. We had 200,000 British Airways points. We moved to Denver, which is not an American hub. And now those points are significantly more difficult to use and therefore worth significantly less to me. So that's not a card that I choose to pursue anymore. I pursue the Southwest cards because we're always on Southwest. We've got a couple of hotel cards. We've got like a regular general card. And we did also get caught up in the opening up too many cards and trying to hit that minimum spend on too many things and missing it on a card. So now you're like, well, great. I just

spent almost $4,000 on a card that's going to get me almost 4,000 points as opposed to the 50,000 plus almost 4,000 points that I would have gotten if I would have hit that spend because I wasn't paying attention. In podcast episode 27, Lee gives a couple of tips. on how to keep track of them. There's a wallet that you can use to track where your points are when they're expiring. And he goes a step further. When I was doing my credit card churning, there's not a card right now that I'm trying to get a spend on. So I still do it when it's a good idea for me. But I'm not out there opening 50 cards because I don't have the mental bandwidth right now. And that's okay. I get a discount on what I can get a discount on. But one of the tips that

he gave was when you buy stacking, stacking rewards points together. And a great example of this is my local grocery store will frequently offer four times fuel rewards points on gift card purchases. So if I'm trying to hit a minimum spend, I can go to the grocery store and use my credit card to buy gift cards. Then when I buy them during the four times fuel rewards, every dollar that I spend gives me $4 or four points off of fuel rewards, which is like 10 cents off my gallon of gas. So I can pay in this market where gas is like $3 a gallon. I can pay $1.50 for a gallon of gas. So I'm saving money on gas while making my minimum spend and getting all these travel

rewards points and also getting gift cards that I'm going to use later. Maybe I get Christmas presents for it. Maybe I'm just buying store, like grocery store gift points, whatever. But this is a way to stack it so you're getting benefits from more than one program. And that's not something that I ever really considered until Lee brought it up. Awesome. I think it's fantastic. And I think that that's yet another way to defray transportation expenses where you can get money back on gas, right, with these kinds of credit card points.

But I think for transportation in general, it's really about making a smart vehicle decision, trying to situate your house and your work as close together as practical. and then making an intelligent decision about where you should begin with your travel awards. I think that a lot of listeners would really benefit from seriously considering at least opening up the two cards that helped you get a Southwest companion pass. If you're in the United States, that's a big benefit that, assuming that you're near an airport that has reasonable number of Southwest flights, that's a two-for-one deal that I think is a good starting point for a lot of people. And then exploring all these things that you just said that makes sense.

in your personal situation where you can get huge returns on cards that make sense. Yep. And one last tip about credit card rewards is credit card churning and travel hacking is this is really only feasible and really only makes financial sense when you're able to pay off the balance every month. If you have a huge debt load, you know, this might not be the option for you right now. Yep. Yeah.

This episode, by the way, is really assuming, I think, for the most part, that you're starting from scratch without any bad habits and bad debts, right? Those we can talk about in a future episode of how to tackle from a negative starting position for sure. Yep. So the third topic that we're going to talk about, the last of the big three, is food. And as a mom, as the probably 99% preparer of food in my house, I enjoy food. Food is my thing.

I really love cooking. I wanted to interview Aaron Chase from $5 dinners. as close to episode one as I possibly could because I think she's got a really great plan there. I think she's got a really great idea. And when we interviewed her, Scott sat there with his mouth open. Oh, my goodness. I can't believe it the whole time. He's like, I didn't know that was a thing.

I just learned something. I learned something else. And his eyes were just opened. And how much money did you save on groceries like the next week? I saved a lot of money. So he cut his grocery bill in half just by listening to these tips that Aaron shared in episode three. So if you have not yet listened to episode three, you need to. Biggerpockets.com slash money show three. I will say one side effect of her show is that I now look

for what meat is going to be on sale at the local grocery stores. And I'm a big fan of stakes. So I go and get like New York strip steaks for like 25 bucks. So I'm actually spending more on meat, but I'm eating much better, much better meat. So, you know, a kind of curse from Aaron's of helping me find these discounts. That's a really great tip, though. If you are a meat eater, look for what's on sale. Shop the grocery store specials. Like, get your circular and have an idea of what you're going to make with pork or chicken

or steak or a roast or whatever it is you're going to make. And then build your whole week around what's on sale meat-wise. Yeah, I would go to like, oh, this king's supers has rib-eyes for like 60% off. I'm getting rib-is the whole week. And you can freeze them. We're just getting out of the holiday season, July 4th, was just a couple of weeks ago. And that's a really great time to stock up on your meat purchases. Put them in the freezer and have meat for several weeks afterwards.

The Labor Day is still coming up. August doesn't really have much going on. It's so hot, though. Nobody ever wants to go outside anyway. But Labor Day will have more meat on sale. So look at what's on sale. start paying attention to what prices are. How do you know what's on sale?

How do you know what a good price is if you don't know what the regular prices are? And grocery store prices fluctuate considerably. So look at what's on sale. Recognize the low prices and stock up when there is a good sale if you have the room. If you don't have the room, then don't stock up on stuff that's just going to rot. Absolutely. Great tip. And I think that for a long time, I regarded food as, hey, if I just go to reasonable grocery stores and make reasonable purchases, I'm going to do the bulk of the work here.

And that is probably a good step for most people if your food budget is out of control and you're eating out a lot. Just having a meal that you've prepared from a reasonable grocery store prepared. But why not? Just go ahead and listen to that episode three, biggerpockets.com slash money show three. And take the advice that Aaron gives and go ahead and save even more right off the bat. Just get that really efficient shopping habit started immediately to save tons of money on your grocery bill. Yes. something that I was missing out on for a while.

She's a mother of four extremely active boys. And, you know, they're getting really, really big. Boys eat a lot. So do girls. This myth that girls don't eat as much as boys is complete garbage. My girls eat more than I do. They're just food. I wonder what will happen at the, between the ages of 15 and 18.

That's when boys really begin eating, I think, a lot more than girls. That is true. Finally, my girls will kind of level off. and her boys will go crazy. But she's spending almost nothing on groceries. We go through two or three gallons of milk a week between me and my brother at that period. My girls are going through two gallons of milk right now. They're 11 and 8.

All right. Maybe I'm wrong. Yeah, well, I guess Carl also drinks some. Okay, anyway, nobody cares about how much milk I drink. But I think that alongside that meal prepping is just, you know, When the food budget for me gets out of control when I forget to bring lunch to work or don't have snacks around that are healthy. You know, if I have some healthy nuts, some healthy fruit and a prepared lunch, I'm not going

to go and spend a lot of money at going out to eat or whatever. And I still forget this. I'm not perfect of this. I don't think anybody is. But the more I do it, the more I save and the healthier I eat and the better off I am. Yep. Okay. One thing that your little top three, 65% of spending doesn't take into account is child care.

And I don't know if it doesn't take into account child care because that's not an expense for everybody or if it isn't as big in expense as it seems. But it is a pretty hefty expense. And we're trying to get more people who can speak to this different ways that they have saved money on child care. And one of those people reached out to us, Alyssa Peros from episode 29. She wanted to share how she has handled child care in her family. Yeah. So I think what Nick and Alyssa have done is Alyssa went down to four days a week, has child care for one day a week, one or two days a week, and then has they live near both sets of grandparents. And they help out with that as well.

And so she's been able to kind of considerably reduce the cost of child care through lifestyle. family and work arrangements, a combination of those three things. I think that's as good an example of how to defray these costs as maybe out there for a working professional. And guess what? Some people aren't going to have that advantage. Some people aren't going to live near grandparents or family that can help out and defraying those expenses. Some people aren't going to live in places where they can have neighbors or friends watch the kids or help out in a pinch and are going to have to show out a lot more in child care expense. Everybody, every family is going to have to deal with this situation differently and use the advantages that are available to them to help kind of with these things.

And moving away from family, I think, has a cost, right? I live in Denver. My parents live in Maryland. If I ever want to have kids, you know, and I'm in Denver, that's going to be a challenge for me, and it's going to be a direct result of my choice to move across the country away from where I grew up and away from that support network. And I think, you know, that decision should hopefully come with maybe income opportunities that allow you to defray those costs. But I think there's going to be a lot of examples as we interview more and more families of unique ways that people do it. Chris and Debbie Emick from show number 25, for example, I think Debbie left her job to watch the kids full time. And that's how I handled child care when I had kids. I wanted to stay home with my kids,

first and foremost, but I also wasn't making very much money at that time. So it wasn't really difficult to say, oh, well, I could go back to work and work 40 hours a week to just barely afford the child care, which is pretty much a net zero to my family. Or I could stay home. And we actually planned and saved a little bit before we had kids so that I could stay home. I wanted to stay home. I stayed home for eight years. My husband had a great job. He was able to work from home even. So that's another way to look at it is how much is it going to cost you for child care versus how much are you bringing in? If you're bringing in enough that makes it worth it, maybe that's not even a concern for you, but if you're not making enough to make it worth it, possibly staying

at home, maybe even taking care of somebody else's child for a nominal amount of income could be a better choice for you. And the reason why, by the way, this doesn't show up on the national average for American spending as a major category is probably because this expense is very serious and very formidable, but it's really for the first five or so years of the child's life that this is really going to be as big an expense, right? After that, they're going to go to school full-time. And that's going to be, I think, that's going to help offset a lot of that expense. So that's only for most, the average Americans are only going to have this expense for five to eight years, however long they have children in that range that are going to need full-time child care.

Right. Then you've got summers and you've got a lot more options once your kid is in school. There's a lot of summer day camps that are run by your local cities, parks, Recreation District. And those are a lot of fun. My kids went there the first year that I was working while my husband was still working. Now I am fortunate enough to have reached FI. My husband quit his job that he did not enjoy. And now he, I don't want to say he watches the kids because he doesn't. He takes care of them, but they're his kids. He's not babysitting. He's just taking care of them. So now he takes care of the kids in the summertime. And we will swap with some families. I have a family that we were swapping two days a week they were there and two days a week they were

at our house. So when all the kids are together, you also have an opportunity to kind of get things done because the kids are playing with each other and they don't, this bother you is not the right word. But they're not constantly asking you for things to do or you're not breaking up fights because they're playing by themselves and having a great time. Yeah. Yeah, I think with child care, there's no one right answer. You're going to see different families from different places in a country handling these situations differently using their unique circumstances to the best of their ability. having a child does not change the math of approaching financial freedom. You still have to save more money, earn more money, and invest intelligently in order to build

your wealth. And you're going to have to work with the situation that you've got to the best of your ability to move forward with that. We plan on interviewing a lot more families as we go, but I think that we'll continue to see more perspectives on this as well. So I'm excited to do that. Yes, I am too. And another idea is nanny shares.

If you have one child and your neighbor has one child, it's relatively easy for you both to hire one nanny and share the cost. It's going to be more expensive. The nanny is going to bring in more money, but it's actually less expensive for you. And you have a more focused child care experience because the person caring for your child is only caring for yours and one other. other. Awesome. Well, the last kind of topic I want to talk about with the saving front is just this concept of if you want it bad enough, you can make these things happen. We're going to talk to Craig in a few weeks and he's someone who wants it badly and he's going to be a great example of this. But someone that we've already interviewed is Sarah Wilson from episode six, biggerpockets.com

slash money show six. Sarah never earned more than like a $30,000 salary and was able to pay off $30,000 in student loan debts in like three years? Three years by just hitting it as hard as she can. She decided when she graduated college, she did not want this debt hanging over her head forever. So she knocked it out of the park. She did everything she could. Every extra dollar she had, she threw at her debt.

She picked up side jobs. She picked up like the extra jobs. She had really low cost entertainment with her friends who were all. all kind of in the same boat. They didn't have a lot of money. So instead of going out to eat, she would invite people over. This is my favorite tip from her show. She would invite people over for a baked potato party. I will supply the baked potatoes. How much is a bag of baked potatoes? It's like a five pound bag is about $3. And somebody else will bring the butter and somebody else will bring the bacon and somebody else will bring the cheese. Can you make vodka out of

potatoes too? Just kidding. That's probably not what you did. I think that is. I think that is. how you make vodka. I've never made vodka, though. That's interesting. Okay, so send us your vodka recipes. It's a raging, raging potato party. Yes, it's a raging potato. But you can, you know, it's a very low cost. How much does it cost for a bag of cheese, a couple of dollars? It's even less expensive if you buy it in bulk and then shred it yourself, but that's kind of a pain in the butt. A stick of butter. How much is that? How much is some steamed broccoli? How much is, a little bit of bacon. All of these people coming together making a meal that costs in total, what, $10, $15 for, you know, 10 people to eat? That's nothing. And then you still have potatoes

coming out of your ears forever because you can never get through a five pound bag of potatoes. I can't. Yeah. And this hustle was necessary for Sarah. She had a lot of debt and not and did not have an income that was going to be able to afford her the luxury of living a, you know, meet middle class, upper middle class lifestyle and still pay on that debt. She had to do this and she did it. And now she's in a much better position and is able to begin building significant wealth. I look forward to having her on the show again, maybe in a year or two, and seeing what she's done now that she's gotten back to zero.

This, if you're privileged enough to earn a median to upper middle class income for your family, you don't have to do that. You should be able to save a significant amount of money without doing that and use this types of folks' stories. as inspiration to help you kind of make those changes so that you can begin saving significant on money and still living in relative luxury. To recap what we've kind of talked about here, I mean, Sarah Wilson embodies this general hustle, but it's understanding where your expenses are coming from. It's isolating the big ones.

If your average is going to be housing, transportation, food, maybe childcare, if you have children under five, and finding ways to optimize on all those fronts. And if you can do this, you're going to drastically reduce the amount of money that leaving your pocket each month. And if you're able to do it on a permanent basis, you're going to reduce permanently the amount of money that you need to spend in order to sustain financial freedom. It's a huge, drastic improvement and that can accelerate your path to financial independence. Yep. And I cannot wait for next week's episode where we talk about increasing your income and all the different ways to do that. Yes. I mean, we're going to recap some of the best guests we've had

on the show so far in some of the big themes, both on a career fund, side hustles, stock investing, real estate, alternative investments. Very excited to talk about that kind of stuff I can nerd out about it all day, as you can imagine. Okay, Scott, should we get out of here this one? This episode ran really long again. I just, I love talking about this stuff. Yep. So we're not going to do a famous four because it's, we've already, me and Mindy have both already done our famous fours on our episodes, which are episode two and episode five of the bigger Pockets Money. Also, no jokes this week, so I'll give you double next week. Okay. Scott for the Bigger Pockets Money podcast, episode 30. This is Mindy Jensen, over and out.