One of the cornerstones of my investing philosophy is to live frugally. Frugal living offers many benefits to the individual investor, which I’ll expound upon frequently as I post. My foremost goal is to retire by 40 years old, paying expenses with the passive income stream I will have built by then. Living frugally will offer you a two-fold approach to increase your overall wealth and make retiring early possible, even with a modest income. First, by spending less money you will naturally have more money at the end of every month with which to invest. Second, you’ll have less operating expenses, and therefore will require less passive income to live on.
Every month I will write at least one article on how to live frugally. This may be something as small as an observation on daily expenses, or something major-such as a life changing event.
I’d like to talk today about cable television. I decided to cut cable television a couple months ago. Before this event, I had never really thought about living without cable TV, as I really enjoy sports events and certain cable network television shows. Also, the idea of 24-hour news and updates from around the world is appealing. My monthly cable bill was totaling over $100, which included my basic cable service, high-definition box and channels, unlimited high-speed internet and an upgraded Starz package.I looked at my cable bill and did a simple calculation:
At a 3% entry yield it would take a $40,000 investment to pay that bill every month!
And that is a simple calculation, before figuring taxes. That is pretty astounding. I thought to myself, there must be a better way. I quickly decided to cut that bill by more than half and end my subscription for cable television, but retain the high-speed internet. My bill now comes out to just over $45 per month, which is a little easier to swallow.
How do I cope without cable television? Very easily. I purchased a small, amplified antenna which picks up about eight high-definition TV channels. I was actually able to watch the Super Bowl free, and in high-def. I also retain most major morning news outlets and local evening news. This is all beside the point, as I really don’t watch a lot of television. The point is this: most content is now readily available online. I can usually watch almost any cable show a couple days after it’s released and I can watch a large amount of content live, in a streaming format. I can visit Hulu, YouTube or individual network websites for free online content. I can also decide when and where I watch that content. So, not only do I save money, but I also offer myself more flexibility. After cutting my cable TV, I really am astonished I didn’t do it sooner. I don’t know why I didn’t do it earlier, but I do know that life after cable is very palatable and the extra $50+ per month I can save and invest is very, very nice.
Don’t get me wrong. I’m not saying everyone should call up their cable provider and immediately cancel their cable television services. I am saying, however, that perhaps looking at your bill and investigating whether any services can be downgraded or eliminated might be worth the time. Saving just $50 on cable allows me $600 per year with which to invest or save.
That $50 per month I no longer spend means I need $20,000 less in equities (using the calculation above) with which to retire.
Saving money amplifies your ability to retire early by not only allowing your money to accumulate faster and therefore compound faster, but allows you more flexibility on how much passive income you will really need later in life.
I am living cable-free. I am also happier than ever.
Thanks for reading.