As it has for many people, the pandemic/recession combo has caused some disruption to our financial life. Mrs. Wallet lost her job, our tenant has been unable to pay rent for months, and our mortgage company overpaid our property taxes by thousands of dollars and increased our escrow payments by ~$800/month at precisely the worst time possible. I’ll have to write about that last one more later in its own post! To add to the dumpster fire, we’ve also had some big unexpected expenses, such as dealing with termites (the kind the insurance doesn’t cover of course, because there are apparently different kinds). In total, our net income was reduced by over 55%. Cue for us to freak out, sell everything, and start living on the street and eating out of garbage bins, right?
Sorry, I had to. As usual, our frugal lifestyle has prepared us well for adversity, and we’re rolling with the punches. We already lived off one salary and saved or invested the other (as well as some of the first), so the change hasn’t felt huge. While this time is even worse than the first time Mrs. Wallet lost her job, we are similarly faring well. Our savings rate has dropped from 70-75% to between 35-50%, depending on the month. Our lifestyle has mostly been unaffected (with the exception of the changes brought about by the pandemic and social distancing), and we’re continuing to invest as usual. However, even our lifestyle has to give at some point in the face of all this!
For the month of June, Mrs. Wallet and I are conducting an experiment. We’re enacting a spending freeze!
What’s a Spending Freeze?
Good question! A spending freeze is just what it sounds like – a period of time, usually a month, where you “freeze” your spending, with the goal of figuring out how little you can realistically spend. This is both an attempt to temporarily super-charge savings by reducing spending, as well as an inquiry into what our actual “necessary” expenses are. Because let’s be honest, most of what most people spend is absolutely not necessary. There are a lot of ways to go about a spending freeze. It could be for a month, six months, until you land a new job, or any length of time, really. Different people will go about it with different rules and levels of gusto, as what qualifies as “necessary” differs greatly from person to person, as well as their reasons for doing it.
An Example
In our case, we’re freezing our spending for one month and pretending we both lost our jobs and are uncertain when we’ll find work again. How hard can we slash our spending? What would that look like? Where is there extra slack? The goal of our spending freeze is to catch up given recent unexpected expenses. We also hope to unlock previously hidden fat in our budget that can be redirected to other purposes like saving, extra emergency funds, or investment.
We’re not going full hardcore on this one. For example, I didn’t cancel my car insurance (or at least the part that’s not legally required) since we’re not really driving or anything drastic like that. Health and eating healthily is also an important value to us, so we’re still eating quite well, although we’re making some compromises for affordability that we wouldn’t usually make. It’s possible we may extend the spending freeze a bit depending on how it goes.
Delaying vs Eliminating
One thing that’s important to realize about a spending freeze is that in some cases, you’re only delaying expenses as opposed to eliminating them. For example, we’re delaying some purchases that will be necessary for an ongoing remodel of our bottom floor garage apartment. Those will still happen, but they wouldn’t happen if we’d both lost our jobs, so they won’t happen during our spending freeze. In other cases, you may be able to permanently eliminate expenses, realizing that you really didn’t need that thing or it didn’t bring you as much happiness as you thought it did. That’s a good thing!
How to Successfully Freeze Your Spending
While it’s easy to say “I’m going to freeze my spending!”, if you leave it vague and abstract, you’re unlikely to succeed. This is particularly important if you are in a relationship with a partner or have kids who you expect to abide by the freeze or will be impacted by it. Explaining what’s going on and why as clearly as possible will ensure things go as smoothly as they can. If you try to go about this and have different reasons, goals, tactics, or expectations than your partner, it can lead to unnecessary conflict and ultimately may jeopardize the success of the experiment. Similarly, if these things aren’t clear and explicit, it can lead to drama you don’t need and convert the process into a struggle.How to successfully freeze your spending:
- Figure out your “Why”
- Decide on the details
- Figure out how you’re going to do it
- Do it!
Figure out your “Why”
As I’ve mentioned, people will have different goals, lifestyles, ideas of what “necessary” means, and reasons for freezing their spending. Why do you want to enact a spending freeze? If you don’t have a strong Why, a sort of guiding light, reason, and goal for your spending freeze, it’s unlikely you’ll be successful. Many of us are in financially distressed situations right now due to the state of the world and economy, so that can provide a pretty strong Why for those who are willing or forced to experiment.
Decide on the details
How long will your spending freeze last? If you’re in a tough spot, such as being out of a job, this may be less clear, but otherwise, it’s helpful to decide on and commit to a concrete minimum amount of time. Our minds work much better with certainty, and it makes it easier to bear if you’re simply delaying some expenses. You could also base it on saving a certain amount of money or some other quantifiable goal. What is the scope of your spending freeze? How far are you going to take it? Does it apply to your music subscriptions? What about healthy food or eating out? The more clarity you have at the start of the process, the more likely you are to succeed.
Determine strategies and tactics for ensuring success
How or where will you go about cutting spending? If you realize there’s extra fat in your spending on food, what strategies or tactics will you use to cut it down? Again, the goal here is both to explicitly consider what you’re committing to as well as equip yourself with the tools necessary to make the process as simple and successful as possible. If you simply say you’re going to cut your spending on food in half, but you don’t know how you’re going to do it and have to stress about it on the fly, you’re setting yourself up for failure.
I’ve previously written about cutting spending of the Big Three (housing, food, and transportation), and I am about to post a survival guide with more short-term tactics, which I’ll link to once it’s published. you can find even more information all over the internet. Google is your friend. YNAB also has some excellent free content. Mr. Money Mustache is an inspiration if you’re looking for advanced tactics.
Bonus: Advanced Tactics
Speaking of advanced tactics, one, mostly symbolic, tactic I’ve seen is to literally freeze your credit card(s) in a block of ice (or at least put them in the freezer), like in the image at the top. While obviously, you can just go get it, this helps force some mindfulness into spending decisions and prevents impulse buys. You don’t simply have your card in your pocket, after all!
One other strategy you can try to supercharge your spending freeze is to combine it with a side hustle experiment. The idea here is to see how much extra income you can drum up during the month as well. This could involve actual side hustles, which may be more difficult due to the pandemic, or it could involve simply selling extra stuff laying around your house that you don’t need. We all have it! The beauty of combining these two strategies is that time spent earning money generally isn’t time spent spending money. Just don’t bite off more than you can chew!
Freeze!
The last step is just to do it! Take the leap and see how you do. The results may be counter-intuitive; you may find that you don’t need to spend so much to be happy anyway! Either way, take it easy on yourself and manage your expectations. We’re all human, and slipping up is bound to happen. Especially if this is your first spending freeze, don’t be disappointed if you don’t cut your spending to zero immediately. If you slip up and spend more than intended, don’t panic or beat yourself up! You just received valuable information, feedback on where you’re at, and an opportunity for learning and growth. Framing any slip up’s this way will help you have a more successful and enjoyable experience.
Our Spending Freeze
Our Why
Mrs. Wallet lost her job, we’ve had other income streams reduced, and both our recurring and short-term expenses are higher than usual. We’re also in the middle of a pandemic/recession, with much higher levels of economic volatility and uncertainty. This has the potential to result in further shocks to our financial situation or difficulty in Mrs. Wallet finding a new job. I’m also doing it because I’m a finance nerd and I like experiments!
Details
We plan to freeze our spending for June, with the option to extend the freeze depending on how it goes. We won’t be making any drastic changes like canceling car insurance or anything like that. While we are still planning to eat healthily, we’re willing to budge a little and compromise quality for quantity temporarily. The goal is to unlock some of the hidden fat in our budget to uncover opportunities to reduce our spending.
Strategies and Tactics
The biggest three areas we believe our budget could be trimmed down are remodeling and home maintenance costs, groceries, and entertainment. Obviously, the alcohol and eating out categories are pretty straightforward – simply don’t eat out or buy alcohol! In order to accomplish the former, we purchased easy meal ingredients and plenty of healthy snacks.
In order to reduce our grocery spending, we plan on trying out Sam’s Club or Costco for some items, ditching Whole Foods completely in favor of cheaper alternatives like Sprouts or Wal Mart depending on the item, and incorporating slightly lower quality ingredients and more carbs into our diet. Remodeling and home maintenance costs are a little different. While we think we can unlock continued savings in our spending on entertainment and food, remodeling and home maintenance costs need to happen, but will simply be delayed.
Execution
Now there’s only to do it! I’ll update this page a couple of times over the next month to let you know how this experiment went for us.
Updates
6/15/2020 –
The spending freeze is going pretty well. My biggest spending weakness is groceries, and so far we’re keeping spending down pretty well in this area. The switch in store strategy, what we’re buying, and having Mrs. Wallet do more of the shopping seems to be working. We had also accumulated a lot of frozen and canned food when we were worried about supply chain shocks due to COVID-19. Working through that is helping out as well. We’ve had a couple of seasonal expenses, like vet visits for the animals and registration for our car, but otherwise spending is staying low. Mrs. Wallet is struggling a little with not spending on alcohol and corner store purchases, but spending is still down significantly versus where we usually are at this point in the month. Looking good overall, and I’m hoping the second half of the month will look even better!
