Rule Five: Reduce or Eliminate All Recurring Monthly Costs

All the time I am offered all sorts of free stuff. Usually, I am asked to sign up for some “benefit” that incurs a fixed monthly charge to my credit card. This could be anything from a 53 cents per month “payment protection”, to a $12.99 “credit monitoring service”. I always refuse.

The quickest way to loose control of your finances, is to give someone permission to automatically charge you every month. Beyond, automatic charges, there are a myriad of other monthly expenses that really add up. Earlier this year, my wife and I made the painful decision to cancel our cable TV. We were paying about $50 a month for HBO and expanded basic in High Definition. We did the math and concluded that we were giving $600 a year to the local cable monopoly, and that we would save little, if anything, from switching to a dish. That $600 a year was really something like $900 a year in pre-tax earnings. By canceling cable, it was like my boss calling me into his office an offering me a $900 a year raise for dropping cable; we just couldn’t turn that down. Even though we are not struggling financially, I know that that money adds up. We could have spent thousands of dollars on television over the next ten years, and we just knew that we could find a better use for our entertainment dollar. Now, we order movies and TV series on NetFlix or watch free digital broadcast television in high definition, and our picture couldn’t be better.

I am constantly trying to trim our necessary monthly expenditures, such as energy, phones, and Internet service. I even purchased a used cable modem on Ebay for $10 to avoid paying the $3 a month “modem rental fee”.

I know that when times are tough, I will always have fewer bills to pay, and a larger cushion ensuring our family’s financial security.

How The Rules Work Together

By now, you have probably noticed that my rules overlap quite substantially. Not ing anything (other than appreciating assets) that you cannot pay for now, Rule One, implies that you can’t get a car loan, part of Rule Two. Not having a car loan payment every month, helps tremendously with Rule Three, being conservative, and Rule Five, reducing recurring monthly expenses. Rule Four, being organized relates to all of the other rules and so on.

These rules interact by design. They are a part of a philosophy that eliminates all interest payments on non-appreciating assets, reduces recurring monthly payments, and ensuring financial stability and flexibility.

Aren’t You Just Taking An Oath Of Poverty?

On the contrary, I love to splurge on stuff. I travel frequently, eat out often, and own lots of electronic gizmos. I don’t consider myself wealthy, I just have more money left over when I don’t have perpetual obligations such as car payments, credit card payments, or cable bills. Other than mortgage and school loans, both tax deductible, we always pay zero a month in interest. I drive a ten year old car, but it is a 1999 Mazda Miata with 30,000 miles on it that is fun, reliable, and gets great mileage. Our other car is a 2005 Subaru wagon rather than a new Volvo or Audi. Obviously, much of my travel is with awards gained through reward cards and other loyalty programs. It is rare that I go out to a restaurant without a coupon from the Entertainment book or Restaurant.com. I legally rent DVDs for free at the library or at the Redbox using promo codes.

How Did You Come Up With This Stuff

It is not like I sat down one day and figured all this stuff out, and only then tried to live the Rules. The true story is that this is what I was brought up to practice, and it is only recently that I have thought about it, and tried to make some sense out of it. Until now, the “Rules” have not existed in any written form, they were essentially an oral tradition in my family.

Exceptions

I have been very fortunate to have been raised with these traditions, and thankfully, I have not experienced any tradgedies or other circumstances that have devestated me financially. I know that not everyone has it so easy. I freely admit that I would max out my credit card and declare bankruptcy in a moment if someone I love required an medical procedure to save their life, and insurance wouldn’t cover it. I know that families have children with special needs, and wage earners that are unable to find a job. These are the rules I try to live by and they have served me well, but I still make mistakes. I welcome your comments, concerns, additions, and revisions.

What rules do you live by? What works for you?