In a perfect world of self-sufficiency, the homestead itself would meet all of our needs. If you live in this perfect world, please write to me with directions, a map, and a compass, because I haven’t found my way there yet. Ergo, my wife and I need to balance the Paper Crane Farm budget. We both work full time right now, so balancing the budget is not all that hard. However, since we want very much to exit the hamster wheel of full time employment, the question is how we can balance the budget without working full time.
Balancing the homestead budget
Part 1 – How much do I actually need?
In balancing the budget, paying off our debt would be a good start. Some of our student loans will finish in the next couple of years, but the mortgage will be with us for the foreseeable future. So monthly expenses will be at least mortgage plus taxes. Add to that other non-negotiable expenses. Lists vary by household, but they might include electric, gas, water, car payment, car insurance, homeowners insurance, internet, phone, gasoline, and food staples. This creates the baseline above which our monthly income must land. I can grow some fine carrots, but National Grid doesn’t accept payment in carrots. So that’s Part 1 of how to balance the budget, generating that ‘How Much Do I Actually Need?’ figure.
Part 2 Sources of Income to get you there.
Our intention is not to quit our jobs and live the farm life until our savings run out, but to create a sustainable household economy wherein we’ve found sources of income that exceed those necessary expenses. This sounds obvious (of course you have to earn enough!), but the opportunity lies in how. Right now, the ‘how’ is my wife and I trudging to work every day instead of seeing our kids. The income from our two jobs exceeds the monthly minimum, and everything left over goes into savings. As much as it is about cost savings, the homestead budget is about high finance as well. It’s about using your savings to generate that oh-so-necessary income through CDs, retirement plans, mutual funds, savvy tax filings, etc. In retirement, which is in effect what we’re talking about, earned income from your savings could be your only source of cash. I’ll post regularly with what we’ve learned about maximizing this.
You then supplement these earnings by whatever means you can, selling farm produce or other services, renting out a room, working a part time job, or other sources of small money. Because it doesn’t have to be big money. It just has to be enough that, when combined with the earnings on your savings, you can get over that How Much Do I Actually Need number.
Let’s do some simple math. Assuming that your retirement savings are invested in the stock market, they say that you can draw 4% of these savings down each year and still have the total grow. That means that, if you have $100k invested, you can draw an income off that sum of $4k each year for eternity. Let’s say that you wished instead to have an income of $5k a year. Your retirement investment would need to be $125k instead of the original $100k (5k is 4% of 125k). What this means is that every thousand dollars you shave off your annual budget is equivalent to having an extra $25k in the bank. Thinking of renting out a spare room for $10k/year to help pay the bills? That’s $250k you didn’t have to save prior to retiring.
Part 3 Frugal Living
If shaving $1k off the homestead budget is equivalent to having invested an extra $25k, can’t we find a way to shave a little more? This is what happens at the margins. Most people, ourselves included, spend money over and above the necessities. For instance, we spend too much on groceries. It’s really hard to drop the fixed costs of things like mortgages and insurance, but good choices can have a huge impact on these other expenses. Frugality is how you creep down the monthly expense line. Growing your own food can be a great example of this. Very few of us grow absolutely everything we eat, but the more we eat our own product instead of buying groceries, the less we spend. I don’t intend to buy eggs ever again. On the other hand, I’ll probably continue to buy coffee in the coming years. There are products in the middle, that I currently purchase, but could make/grow in the future, such as mushrooms.
Every year we get better at moving in the right direction along that spectrum. Despite buying a home and having two kids, our annual expenses have gone down every year for the last eight years. We do not live impoverished lives. We simply finds things to do every day that stretch the budget. The fact is that these add up. From 2014 to 2015, we trimmed $600/month off a budget that had already been consistently trimmed over the preceding seven years. How did we do it? Lots of little things. Finding a cheaper cell phone plan ($75/month), refinancing the car payment to a longer term small interest loan ($100/month), using credit cards that give 5% cash back on groceries and gas, eating out less, crafting presents instead of buying them, buying in bulk, cooking in bulk, signing up for bank accounts and credit cards with large sign-up bonuses, etc. Each year we find a couple of new things to try. Chipotle was giving away vouchers for free burritos to people who texted in during a specific period of time. That got us dinner for tonight. How much did it save us? A few dollars perhaps. But a few dollars a day times 365 days adds up to a mortgage payment.
Frugal Living is where we get creative. This is what is going to allow us to take the great leap from full time work to independence one day. And it’s where a lot of my posts will find their inspiration. Several other blogs do a Five Frugal Things I did today segment, and I’ll contribute one here:
- We made a big batch of mushroom soup with mushrooms from the discount rack, as well as kale, carrots, and onions from the garden. A batch of soup is a week or two worth of lunches.
- Dinner tonight is the free burrito we got from Chipotle.
- Dessert tonight will be the cookies we made from the Valentine’s Day cookie dough we bought at 75% off after the holiday.
- I got a new cell phone today. I’ve been eyeing this phone for 8 months, but have waited to buy it until it finally went on sale this week.
- The chickens will be fed tonight with kitchen scraps that my in-laws collected for us, rather than composting them themselves.
What are your Five Frugal Things?