I know you all spent the weekend just hoping I would publish a post this morning about how Mr. Frugalwoods and I manage our money. Right? Right?!? I know I did.

Hi! We're the headless Frugalwoods team!
Hi! We’re the headless Frugalwoods team!

I’ve received a number of comments and emails lately asking for greater illumination of our financial mechanics and so today, I will oblige. I’d especially like to thank Emily from Evolving Personal Finance for her excellent questions after my August 2014 Expenditures post as well as a thoughtful email I received from a reader yesterday, both of which motivated and formed the basis for this post.

Chief Finance Hound hard at work
Chief Finance Hound hard at work

Anyone can follow the techniques we use, since we don’t employ a financial planner, advisor, stock broker, or Chief Financial Hound (CFH) to manage our dough on our behalf. We take a fairly straightforward approach and don’t do anything too funky. We don’t publish our income or net worth here for privacy reasons, so this is definitely an incomplete picture of our finances, which I’m sorry about. But, you’ll still get this gist, I promise.

Please proceed only with these critical caveats in mind:

  1. Everyone’s individual financial situation and long-term goals are different and you gotta do what works for you. The ways in which Mr. FW and I manage our stash might not work for you and I firmly believe there’s no one-size-fits-all approach to personal finance.
  2. I’m not a financial planner nor am I certified or qualified in any way. In fact, I’m probably the least qualified person I know to dispense financial advice. Ya’ll, I have BAs in political science and creative writing and an MA in public administration. So, yeah…
  3. That being said, Mr. FW and I are 31 and 30, have no debt (other than our mortgage), plan to retire early in three years, and have a net worth that would make most think we’re either twice our ages or some kind of trust fund kids, which we are absolutely NOT.

And now, without further ado… The Frugalwoods Finance FAQs:

How Do You Budget?

We actually don’t. Mr. Frugalwoods and I never sit down and hammer out a budget. Why? For us, it honestly works better to assume we’re not going to spend any money and consider everything we do spend as a debit to our savings rate. I know that’s kinda bizarre, but hear me out.

If we set a goal of, say, $200 a month for groceries, I’d obsess over how much we were spending and would feel terrible if we overspent. Conversely, if we hit the 29th of the month and I saw we’d only spent $150 on groceries, I’d feel as though I could go blow that last $50 on strained organic goat juice souffles*. What we do instead is set parameters around our grocery purchases (and all purchases) and simply remain consistent within those dictates. We honestly operate from the perspective of “we’re not going to buy anything.” This is obviously not true, but it prevents us from thinking we’re allowed to buy stuff we truly don’t need.

*Not an actual food. That I’m aware of.

Do You Smooth?

Us on actual dance floor. Pretty sure I’m doing T-Rex arms.

We are, in fact, quite smooth operators (you should see us on a dance floor), but we don’t smooth out our expenses–we just pay as we go. Our aim is for our annual expenses to remain low and consistent. Due to our lack of smoothing, our savings rate fluctuates from 65%-85% month to month. We know we’re extremely fortunate in this arena because our assets enable us not to worry if we’ll be able to afford surprise monthly expenses (like a repair for the ol’ Frugalwoods-mobile or some beard cream for Mr. FW).

But Mrs. FW, Do You Really Save Everything You Don’t Spend?

Yah! No lie, we save every dollar of our income that’s not accounted for in our monthly expenses. Our savings percentage rate is cash saved after taxes, after both maxing out our 401Ks.

In other words, we calculate our savings percentage by the following equation: monthly after-tax savings / take-home pay. We both work full-time and combine our income into a joint account.

How Do You Save For Retirement?

Mr. Frugalwoods and I both have monthly automatic payroll deductions into our employer-matching 401Ks. We each contribute the annual federal maximum (which is $17,500) to our individual 401K vehicles. We don’t include this amount in our percentage saved every month; if we did, our percentage would be higher. But, we don’t include it since we don’t consider it discretionary–we’re going to save that amount no matter what and we’re also not going to take money out of those 401Ks anytime soon. More on our plans for a backdoor Roth conversion another day, another time.

Why do we max out our 401Ks?

  • Free money! Our employers are pretty great. Mr. FW gets an 8% match, Mrs. FW gets a 5% match, and Frugal Hound gets nothing but looks great while doing it.
  • Taxes. We don’t have a philosophical beef against taxes, but we’re happy to take advantage of the great tax benefits that a 401K provides. At our current income level, combining Federal and MA income taxes, we’re saving nearly 40% in taxes by stashing part of our income in a pre-tax retirement account. We spend money like we’re in the 15% tax bracket so when we’re homesteading, we can cheaply move money to a more accessible location.

Where Yo’ Money At?

Every cent of our combined income that doesn’t go into our 401Ks or to taxes is direct deposited into our joint checking account, which we have through Fidelity.

We then make a determination of how much to keep liquid in that checking account and how much to put into our taxable investments account (see below). At any given time, our checking account has a minimum of 3 months of living expenses. This allows us to not micromanage our cash flow and easily deal with unexpected expenses without needing to liquidate assets in the taxable account.

We’ve never had segregated “savings” or “emergency fund” accounts, because we consider everything we don’t HAVE to spend as savings. We’re not fans of scattering money across multiple accounts, it’s just easier for us to pool it all together.

We're still headless! Plus, I'm wearing that dress AGAIN.
We’re still headless! Plus, I’m wearing that dress AGAIN. This isn’t even the same wedding as the above dance photo.

Credit Cards: Pro or Anti?

We are a pro-credit card family. Mr. Frugalwoods and I have just two joint cards, which allows us to maximize the rewards points we receive from each.

There are two vital caveats to credit card usage:

  1. Only have cards with rewards points/bonuses that you will actually use.
  2. Only have a credit card if you can pay the balance in full every single month. If you are concerned about your ability to do this, and think you might be tempted to spend more than you can truly afford, don’t get a credit card. We use our credit cards because we get rewards, not because we buy things we can’t afford. Every purchase we make is 100% backed by Frugalwoods cash.
  3. If you pay an annual fee, do the math to make sure the benefits of the card are worth the costs.

There are as many different credit cards as there are opinions about their efficacy and their place in your wallet, so please, do your own research and due diligence. Since you’re reading Frugalwoods, we’ll assume you’re just dying to know which cards we use. Right?! Ok brace yourselves.

After extensive investigation into various different rewards and cash back programs, we’ve settled on the following:

  • American Express Starwood Preferred Guest: The best, bar none, hotel rewards points. As I’ve shared in our travel logs, we use Starwood points to stay in free hotels worldwide. Mr. FW also travels for work and is often able to stay at Starwood properties, which racks up points for us.
  • Amazon.com Cash Rewards: This thing is amazing (no pun intended). We rack up free Amazon purchases every month! Amazon rewards points are as good as cash to us, since we buy a bunch of household supplies from Amazon.com. Mr. FW also buys a bunch of stuff for his office from Amazon, which means he gets reimbursed for cash-back eligible purchases. Further, the card yields 2% back at gas stations, restaurants (pointless since we never go), & drug stores and 1% back on everything else.

We don’t have enough spending to facilitate rewards spread across more cards. We’re able to maximize our points on each of these cards by using them exclusively. The Amazon card is our primary and the American Express is secondary. If you’re trying to rack up rewards points, it’s wise to consolidate your family spending to the same account. Scattering purchases across 10 cards (unless you’re a dedicated card churner) won’t yield much in the way of rewards.

Our accounts are joint for both of these cards, as are all our other finances. We did initially sign up for the American Express Starwood independently since they offered a signing bonus, which was worthwhile. However, since this card has an annual fee, it only made sense for us to keep one account open.

We also keep our eyes out for specific rewards cards and we do just the smallest amount of churning to take advantage of great deals (we opened an account, which we’ve since cancelled, to get super cheap flights for our trip to Hawaii last year). Mrs. PoP at Planting Our Pennies wrote this great post on why she and Mr. PoP don’t churn cards, which pretty much sums up why we don’t either. On the other hand, if churning it your thang, there are many resources available on how best to do it.

Taxable Investments?

Our investment portfolio is remarkably straightforward and invested with a very long-term perspective in mind. We’re in a diversified portfolio that’s quite aggressive. Both of our 401Ks are in low-fee index funds as we’re staunch believers in avoiding fees whenever and wherever possible. Again, we don’t pay anyone to do this for us. Mr. FW manages our portfolio and, to his credit, it has performed quite well over the years.

Mr. FW here. It has performed well not because I am smart, great looking, and have a beard that would make Paul Bunyan feel insufficient (does that make Frugal Hound an ox?…). We’ve done well because we invest in boring index funds and we don’t sell when the market is down.

Frugal Hound: ox or not?
Frugal Hound: ox or not?

Our taxable account is invested fully in the low-fee total market index fund (FSTVX). Our overall portfolio is weighted 90% total market index fund and 10% bonds, with the bonds being held in our 401Ks in order to maximize tax efficiency.

We think it’s prudent not to keep too much excess cash in hand. After all, money sitting all by its lonesome in a savings or checking account isn’t going to make you more money. To make money from money, you’ve got to invest. We choose to invest in index funds, some people invest in real estate, some people invest in inventing greyhound roller skates. The important part is to invest period (and to diversify–don’t put it all in the greyhound skate venture!).

How Many Accounts Do You Have?

Very few. They’re all listed above, but here’s the quick rundown:

  1. 401K for Mrs. Frugalwoods (Fidelity)
  2. 401K for Mr. Frugalwoods (Fidelity)
  3. Checking (Fidelity)
  4. Mortgage
  5. Taxable Investments (Fidelity)
  6. American Express credit card
  7. Amazon.com credit card

Notice a trend? We keep things simple by having most of our accounts with Fidelity. It just so happens that both of our employers use Fidelity for 401Ks, so it made sense for us to do our checking there too. Fidelity has no ATM fees (they reimburse for any ATM you use!) and you can deposit checks via phone (very convenient). By also having our taxable investment account with Fidelity, we get the nice side benefit of free, same day transfers of funds between accounts with no need to wait for an ACH clearing period.

This is just a cute Frugal Hound pic.
This is just a cute Frugal Hound pic.

So there you have the Frugalwoods methodology.

I’ll reiterate that everyone’s situation is different, but if you read this post and were like “dang, I would like to get a greyhound and get a better handle on my money,” here are my top recommendations:

  1. Identify your long-term goals (with your partner if you have one). What do you hope to do with your lives? What do you hope for your kids (if you have them)? Early retirement isn’t everyone’s goal (and neither is moving to a rural homestead)! Thus, I think it’s paramount to figure out what you want first.
  2. Review your expenses (in a non-judgmental way; if you have a partner, see my post on Behind The Scenes of a Happy Frugal Marriage). By review, I mean seriously review every single purchase for at least the past several months. Calculate how much you’re spending vs. your take-home pay. Are you spending consciously and on things that add value and meaning to your lives? Or are there some things you see and think “I didn’t even know we were paying for that!”–trust me, it happens to all of us!
  3. If after you review your expenses you decide you want to save more, I recommend trying out our Uber Frugal Month Challenge. You can also check out my post on How We Save 65% Annually for tips.

Don’t stop the conversation here! Send me your questions, suggestions, curiosities, and advice either below in the comments or via email (mrsfrugalwoods@gmail.com).

I really appreciate all the questions and emails I’ve been getting here in the frugal woods–keep it coming, Frugalwoodsians!

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    1. We redeem our Amazon rewards via Amazon purchases. Since we buy so much of our household items through Amazon, it often works out to free stuff! And we use the Starwood points on hotels when we travel. Glad you’re enjoying the Frugal Hound pics :)!

      1. I do the same here, but I recently converted to the Sallie Mae Mastercard and ditched my Amazon card. Now I get 5% cashback on amazon.com instead of 3%.

  1. I’m so happy you reiterated that personal finance is personal. No one size approaches! But you seriously rock for being so extremely frugal. I think we’d feel suffocated by thinking “we won’t spend anything”, so I think your approach rocks for you and not for us 😉 I think we are both cool with that, though 🙂

    1. Yes! Definitely no one-size approach! It’s so true that everyone responds differently to their finances and you’ve got to figure out what method will lead you to success. Totes fine with that, my friend 🙂

  2. I love how simple you two have your finances down to. It seems like a well-oiled machine now. I mean, realistically, finances are pretty simple (at the bare bones), but implementing that simplicity is difficult. I’m been toying with the idea of moving everything to savings and then moving to my chequing account, and I can’t wait for the day that I don’t have cash flow issues, but I’m not quite there 🙂

    1. You hit the nail on the head there–“implementing that simplicity is difficult.” I think that’s absolutely true. Simple works for us, but I know it’s not right for everyone.

    1. Truth! It’s all about making it work in the end. Love that your parents don’t have a budget either–always glad to know I’m not the only one :)!

  3. You guys are doing awesome and I love your approach!! You do what I call goals based budgeting. Your goal is to save, so all of your money goes to saving and any spending is something that detracts from your savings goal. Goals based budgeting is a lot more easy for some people to stomach because it focuses on the positive (a goal) and there is less line item maintenance because you just try to avoid the lines as much as possible.

    1. Goals based budgeting–perfect! I figured there must be some fancier term for what we do :). See? I told you I’m not qualified in any way. Good thing you are!!

  4. I feel validated! We’re not the only strange people that think that the ideal budget is $0, and that all spending above that are simply necessary concessions! Ha! We agree with your credit card philosophy too. (Use them for the rewards and pay them off!) We even have the Amazon card. Oh, and index funds rock.

    Maybe there’s hope for us to be as cool as the Frugalwoods! But alas, my Chinese genes mean no Moses beard for me. (The wife doesn’t mind that, though.) 🙂

    1. Yay! Budget twins! Index funds and Amazon do totally rock. Sorry to hear about your lack of beard, but glad to hear you’re handling it well 🙂

  5. You have a very simple approach which I love. We have a few more accounts just because I have assets in Canada but we keep our business mainly with Vanguard and TD Bank and we pay zero in banking fees which I love.along with some cool perks. Question: since you and Mr. FW have two joint credit cards, is one card listed under your name as the primary and the second card under Mr. FW? I’m asking in relation to your credit report/score.

    1. Good question! Yes, I’m the primary cardholder on the Amazon card and Mr. FW is on the American Express SPG card. Thanks for asking, I knew I’d forget something :)!

  6. Wow, I’m truly in awe and inspired. I’m so glad to have read this post. It reminds me that your mindset really determines your results. You know you don’t spend money and you know you save money not allocated for in your expenses. By truly living this way, you’ve trained yourself to be huge savers and put yourself in an incredible financial situation. I’m so glad to have read your story! Great work!!

    1. Thanks so much! You are totally right–we’ve absolutely trained ourselves to live frugally. It’s second nature now, but it did require thoughtful work at the outset. I appreciate your kind words, Natalie :)!

  7. I love this post! Yes, personal finance is personal and there is no one right way to handle personal finance decisions. We have a budget, but we tend to go over and have never had a problem with being under haha.

  8. That’s an interesting approach to budgeting. Not sure I’ve ever heard someone explain it quite like that. Budgeting for us was key in reducing our spending. It actually felt like we got a raise when we chose to stick to our budget (because we spent so much less).

    1. Yeah, I know it’s unusual–like I said, I’m not an expert, so I’m sure there’s a more formal/technical way to explain it :). That’s awesome that you spent so far under your budget–nice!

  9. I really like how you guys just simplify your lives and try to avoid as much stress as possible. The reason why I budget is because I wasn’t too good at saving without a budget, but that was before I got serious about saving – if that makes any sense. I don’t think I need a budget anymore since I think I know what I’m doing now, but I don’t want to mess with a good thing.

    Like others said, the good thing about personal finance is that it is personal and everybody should do what works for them. The thing that we can do is keep writing posts like this one so we can give people ideas on how we are able to accomplish our goals and they can try different option until they can find what works for them.

    p.s. Frugal hound must be a good sport or maybe she loves dressing up, like all true ladies. 🙂

    1. We are all about avoiding complexity and stress, for sure! So true about personal finance–everybody has to chart their own path. Frugal Hound is pretty ambivalent about dressing up–on one hand, she gets lots of treats but on the other hand, she’s wearing clothes… 🙂

  10. I must admit, I’m on the spend no money budget but I think I need to discuss this with The Irishman, because for some reason he thinks we need to eat. Although he does subscribe to what he calls the concentration camp mentality meaning leftover four days in a row is something to be appreciated. We maximize reward points by using only two cards as well – one is Costco AMEX, the other is Visa cashback with 4% for groceries and gas (cha-ching!). That employer match is seriously awesome, especially if there is no maximum.

    1. Food–pshaw! So over it :). 4% for groceries and gas is awesome! We are so thankful for our employer matches! The match is % of salary
      so there is a max (the salary %), but we get it all since we put in so much.

  11. Good looking portfolio. It is best to keep it simple. Nice choices on credit cards. I will have to look into the Amazon.com credit card. We use the American Express preferred blue and like the 6% back on groceries and 3% on gas. The Fidelity Spartan funds are the way to go, with a low expense ratio of .07%. I have some of my money in the Spartan funds. Thanks for sharing!

  12. Thanks for indulging me! I find your mindset of ‘don’t spend anything’ very interesting. I’m not sure it would work for us but it makes sense for someone gunning for FI. I’m also a bit jealous of your incredibly simple account structure. We’ve gone with a proliferation of savings accounts in the past, but I think we’re going to streamline as much as possible starting next month. However, we still have a couple random checking accounts open from before we were married (that we made joint but kept open in addition to opening a new joint one) that come in handy very occasionally. Oh, and way too many credit cards, most of which aren’t used on a monthly or even yearly basis!

    1. Oh we totally had a ton of phantom accounts laying around at one point!

      It was actually one of our new year’s resolutions for 2013 to close anything we weren’t actively using. It was shockingly easy (except for a bank of america checking account. I hate those guys!) and we felt a lot better with a smaller financial surface area.

  13. I think you guys are beyond creating a budget, you have developed a philosophy on your spending which is a step above budgeting. Some of us might struggle with the wife shopping for clothes every week or the husband buying power tools, but if your habits and philosophy find this ridiculous then it works for you. We do a projected budget and compare at the end of the month, we are in the mind set that spending $500 vs $400 this month isn’t going to break our financial back, but we do want to keep things going in the right direction and focus more on keeping it at $400. Nice post, thanks. Also I might say this every time you include a pic of Mr FW, that is one big beard, nicely done.

    1. Thanks! It does seem to work pretty well for us. We’ve used this basic framework for the 6 years we’ve been married with few tweaks. I think it would only work for folks who are big on communication and low on judging each other 🙂

  14. Now that I’m sharing finances with a partner, I love creeping how other couples manage their money together.

    Really great that both of you can max out your retirement accounts — that’s impressive!

    Nice job sharing everything.. I’m marvelling at your minimalist number of accounts. I think I have 7 myself haha.

    1. Me too! It’s so interesting how people have such different systems, many of which seem to work just fine! Maxing out the retirement accounts is something we are really fortunate to be able to do. We’ve always contributed, but only in the past couple of years did we reach the max out level.

    1. With a single, lowly BA in Political Science… I may be the most unqualified of all! At least Mrs. FW has a master’s degree 😉

  15. Thanks for the insight!

    We more or less do the same things: simplify and invest everything we don’t need. We do have a GE Capital savings account. It has a yield of .95% which is the highest you can find in this country 🙂 still not great, but having a liquid emergency fund that can transfer to our checking in less than 24 hours with that high of a yield is as good as we can do. We keep half our emergency savings there, and the other half in a more conservative investment fund.

    And for the record, I really dislike Fidelity. But my wife’s 401K is through them, so C’est la vie. But if they work great for you, well, great!

    1. Fidelity has been fine for us, not wonderful but not terrible. I’d love to know where they have done you wrong so I can keep an eye out for it! Their Spartan line of index funds mimic Vanguard pretty nicely in the fee department, and the checking account has been pretty convenient.

      1. Any plans on switching over to Vanguard once you reach ER and are no longer contributing to 401ks? Vanguard’s fees are even lower than Fidelity and would likely save you $ over time.

        1. The very simple index fund portfolio we use has basically the same fees in Fidelity as it would in Vanguard. We use Spartan Advantage Class funds, so the Expense Ratio is 0.07%. This is comparable to the Vanguard equivalent.

          That being said, I imagine we will need to take a fresh look at the brokerage/checking landscape when we ER and are no longer tied to Fidelity by the 401ks. I haven’t yet seen a combo of low-fee funds and free checking with ATM reimbursement other than Fidelity… but I’m sure they exist. I do like having the checking and brokerage accounts all in one place, it makes it really easy to check statements and move money around. I’d prefer to keep that “all-in-one” setup down the road.

  16. Wow, fantastic plan and details. There is simplicity in having a plan and sticking to it. I think people are often looking for complexity and something miraculous but really it comes down to hard work, thriftiness, and sticking to the plan. This is great! Nice job!

    1. Yeah, I don’t want to spend all my time messing with our money. Make a plan, don’t deviate, and then don’t worry about it sounds pretty good to me!

  17. As usual, love this! You two are very much what I hope R and I will be like in 10 years, simplicity and all. I’ve never heard of your “we’re not going to spend anything” mentality explained as such, but this is *exactly* where I operate from. That’s why I traditionally stay away from formal budgeting, but the method I use for tracking spending seems to be working well for now. Mostly because R isn’t always in total agreement with the “we must not spend!!” mentality. I imagine after a few more years we’ll have things down pat as you two do.

    1. Thanks! The system’s success does seem to stem from our similar outlook. I think it would be a recipe for disaster for folks who aren’t yet quite on the same page.

      I also know very close couples who work similar to the way we do but with a “free allowance” for each person every month. The idea being that formalizing that it’s ok to spend _something_ makes communication around it easier. We do this in essence. Neither of us would say “you can’t buy that” to the other. We just tend to have similar ideas on what is worth buying 🙂

  18. Thanks for sharing this! It’s nice to hear the details of a different way to manage money. Even though it wouldn’t work for my husband and I at this point in our lives, things change. I think the way a person approaches their finances should evolve with their life stages. And like you said, there isn’t a one size fits all approach. It’s reasonable to pick and choose different aspects of a management plan and combine them into something that works for your unique situation.

    1. Not for everyone, that’s for sure. I don’t even know if it would have worked well for Mrs. FW and I early in our relationship. People do change and evolve. Thanks for stopping by!

  19. Thanks for sharing this! It’s always interesting to see how other people spend/save their money, and you guys are on an awesome track! Do you really just spend that amount for groceries for the two of you? Man I’m a pig! 🙂

    1. Thanks! Our grocery spending fluctuates by how much bulk purchases we do in a month. But we’re pretty honed in on grocery spending since it’s one of the categories we can easily control.

      I love to cook, so I bulk cook our lunches on Sunday (this week is a Korean take on rice and beans. It makes no sense, but is really tasty and really cheap!). We also eat cheap for breakfast (bulk rolled oats) so we can splurge a bit on dinners and still come in really cheap. We could do quite a bit lower if we didn’t buy so much fresh produce… but we think it’s important for health reasons.

  20. Thanks as always for sharing, Frugalwoods Family.

    I have a question regarding how you handle future anticipated large expenses: How do you guys treat your savings for big expenditure items that will come up down the road? For instance, I’m sure you, like me, only insist on paying cash for a solid used car. And I’m sure, being financially prudent as you are, you plan well ahead of time and think at least one or two years ahead that you may need a car before you even start looking for a car. Do you sock away money in your savings account that is ‘earmarked’ for a car over a couple years or do you just pull from your investment accounts and create a taxable gain at the moment when you need a new car?

    I’ve just been mindlessly socking away a little bit each month in a savings account for a car I may need down the road but I’m wondering if my money would be better served in a taxable investment account? I currently have a 10-year old car and I plan to keep it for the indefinite future (3, 5, 10+ more years) but if/when that time comes when I am in the market again for a car, I want to be able to pay cash at that moment and not finance it or not have to pull money from my investments I intend to keep saving until retirement for it.

    Thank you, Mrs. F!


    1. Woot! That’s a great question!

      Our car is a 1996 Honda Odyssey Van with 202,000 miles on it. So while I’m hopeful it will last for another 16 more years… I’m planning for the more likely case :-).

      We’re actually keeping more cash in checking than I’d prefer, and it’s mostly because of the car. I’d rather not be forced to sell taxable investments to procure a car. We’re keeping about 3 months of expenses liquid, which should allow us to skate by on cashflow alone if we need to replace the car.

      I’m also keeping that cash around because we choose to have a high deductible on our home insurance, in essence self-insuring for all but the most disastrous disasters. This keeps our premiums low, but still covers us if the house burns down. The flip side is that if anything small to moderate happens… we’re on our own to pay for it. Nothing’s come up yet, but that little bit of cash cushion definitely also helps put my mind at ease. At the end of the day, it’s not much gains to miss out on.

      1. Thanks for the response. I have the same thoughts on trying to avoid selling taxable investment. I’ve just been routinely putting money away in a savings account for when that day comes.

  21. Very interesting to see how you’re spending & saving your money. Looks like you guys are on the right track and have things sorted out. That’s awesome. It’s important to have both partners on the same page when it comes to finances.

    1. Yeah, nothing beats communication in a relationship! It helps with money, and pretty much everything else too!

  22. Thanks for sharing! I love to see how other people manage their finances 🙂 I love having a budget as it keeps me on track, but I agree that personal finance is different for everyone 🙂

    1. Budgets are A-OK with me. 🙂 There are many paths financial bliss, and I think for non-weirdos a budget is usually the right move!

    1. The bearded, foosball and ping pong emblazoned, free snack providing fairy tale of software engineering! Not to say that all software jobs are awesome, but the market is so tight for really good engineers that even our compensation and fringe benefits are considered a bit low.

      A lot of places now cater all meals, do your laundry, and give you uber credit to get to work. I really like the people I work with and the lack of BS in our office, so I’m fine giving up catering and uber for sanity 🙂

  23. We’re pretty similar to you guys with the exception that we set a loose budget at the beginning of every year. And you’re right – it builds in a certain amount of “guilt-free” spending because I don’t want to resent Mr PoP for spending on coffee since that’s his addiction and he’s a nicer person when he’s caffeinated (true story!), but I don’t want him to not pay attention and have it become a number with a comma in it by the end of the year. I’m sure he’d say the same thing about something I consider a necessity, too!
    And the only “smoothing” we do is to set aside $1K for our Roth as an additional buffer in our cash reserves each month. It’s more a compromise of where we want our cash position to be than anything else since I’d be much happier with it being around $10-15K (3-4 months of spending), but Mr PoP wants to “jingle” when he walks and would prefer it to be closer to $40-50K. So the Roth funds help bridge the gap between those numbers, and we compromise by starting the year with $20K, and ending with $31K. Then we flush for the Roth deposit and start again.
    So sometimes it takes compromise. =)

    1. That makes a lot of sense! We do a giant financial roundup every January to do basically the same thing: check our assumptions and make goals for the next year. It’s really helpful to view spending aggregated and averaged across many months, and I think it gives a much clearer view of reality than month to month tracking. Of course I do that too, just because I can’t help myself!

      The roth trick sounds like a great compromise. Sure you miss out on a tiny bit of potential gain (or loss), but it’s not much in the scheme of things. Marital bliss is worth a lot!

      1. With the Roth, we also delay depositing until we know our income for the year since the past few years we’ve been close to the limit and Mr PoP’s income is so variable we don’t want to put the deposits in only to have to pull them back out. Better to wait and see if we need to back door it after we get our W2s.

  24. I gots a BA+MA in political science and history and I spout financial advice… er I mean opinion/entertainment all week long, haha!

    We operate our budget the same way – we don’t actually budget anything for spending because we know we’ll save at least 50% of it.

    Check on the credit card. Check on no “emergency fund”. Check on major assets (eventually for us) being index funds.

    Maaaan you guys are like the more frugal American versions of Mrs. Kapitalust and I!!

    1. Degrees are irrelevant! (cries everyone who got a BA 🙂 ) I’m a poli sci major myself so that technically qualified me for pretty much nothing!

      Are you a friendly neighbor to the north? We’re learning that a ton of the frugal-sphere is of the Canadian persuasion. There’s got to be an interesting historical/anthropological blog post about that in there… maybe you could fill us in? (cue Steve saying “uh, we’re New Zealanders, thanks”)

  25. I don’t have a budget either…after all if the goal is to spend as little as possible why would you need a budget? I never really understood monthly budgets as one month can be quite different to the next. Have you read the Tightwad Gazette by Amy Dacyczyn? She didn’t formally budget either.

    1. Too true! I haven’t read the book, but as I’m reading the amazon reviews it sure seems like something up our alley. I’ll add it to the library list, thanks!

  26. Mrs. Frugalwoods,

    Thanks for sharing. 65% savings at a minimum is amazing. Kudos for you to maintaining such a high rate. I am tracking my expenses for the first time this month and I am looking at a savings rate in the low 40% :/. It really interesting that you don’t keep a strict budget. I always thought that was the key to being a great saver. Having a plan and sticking to it; if you go over budget, evaluate why and find ways to cut expenses (Must be the accountant in me). But I could definitely get on board with your mindset of I am not spending unless I need to. Maybe if my whole budgeting-attempt continues to stress me out I might need to switch to your way of thinking.

    I am new to your blog and I am looking forward to following along/learning a lot about improving my saving habits. There is always room to improve!


    Bert, One of the Dividend Diplomats

    1. Hi Bert: Thank you so much for stopping by! A 40% savings rate is awesome–you’re definitely on the right track! For us, not having a budget is much less stressful. It’s just easier (lazier?) for us to live according to our frugal philosophy than to budget in advance. Thanks again for sharing!

  27. This post made my head spin! Not in a bad way, it just made me realize just how unsophisticated hubby and I are about our finances. We got together as two shoeless hippie wannabe’s and nothing much has changed since. We always lived on the edge and whenever discussions would come up about long term financial goals I always just stated that I believed that a GINORMOUS windfall of cash would come our way before retirement … let us pray.

    1. I bet you have more planned out than you give yourself credit for! And, hey, if you have any specific questions, always feel free to email me (even though I’m not remotely qualified to give advice on really anything 😉 ). Thanks for stopping by!

  28. I love your system! I keep somewhat of a budget, even though I don’t follow it very precisely – it’s more for forecasting and so I can smooth out savings throughout the year. Although, to be honest, it doesn’t smooth things out all that much. I like your idea of keeping three months’ expenses in your checking account as a float. Your system sounds like a good compromise between mine and my boyfriend’s 🙂

    Have you looked into the Fidelity Amex credit card? It would be a good complement to your otherwise all-Fidelity system!

    1. Thanks! Good question! We did investigate the Fidelity AmEx, but we’re pretty happy with our Starwood AmEx, so I think we’ll stick with it for the time being.

  29. This is pretty much the same as us. I started tracking my expenses 11 years ago in Quicken 2003 and I’m still using it! That was the game changer for me, seeing exactly how much I was spending and knowing exactly where the waste was (in college, it was takeout food). Pretty soon, it becomes a game where you’re constantly trying to out-do yourself month-to-month, then year-to-year.

    1. So true about the game element! Mr. FW and I are both pretty competitive, so we’re always trying to outdo ourselves. And, you’re so right about the illuminating power of truly tracking your expenses! You just can’t hide from the numbers :).

  30. Great breakdown of the household finances. I also have fidelity 401K, and didn’t know about the free ATm feature for the checking account services. Thanks for the info. Talk to you soon greyhounds.

      1. Yeah, we are above the income limits for IRA deductibility. Which turns out to be OK since we have good index fund selection in our 401ks. If we didn’t, then it would hurt a bit.

        We’ve thought about doing a backdoor roth, but for now I think it’s a better use of our post-tax money to keep it more accessible.

        1. You have been showered with praise on this thread, and rightfully so – you and your husband exhibit excellent financial discipline.

          Have you thought about the backdoor ROTH IRA each year? 10k total between the two of you, for 2014 – another excellent tool for LT capital, esp if you are ERing in 3 yrs. My wife and I are just a few years older than you – but we have been using this ROTH option for several years, as we too, exceed the annual limit for standard IRAs (on top of 401(k) max, and other significant tertiary investing/savings – you will see that you have an add’l influx of CF once your house is paid off ;). I suspect you have enough free CF to fund the ROTHs now.

          Just a suggestion – I wish you well in the future!

          1. I should think more about a backdoor roth. My reasons for not doing one so far mostly center around our very low expected tax rate in ER, which is right around the corner. The flexibility of having the funds not locked up in a Roth is worth something… I’m just not sure how to put a value on it!

            We expect to be in the 0% long term capital gains tax bracket in ER, so shielding our post-tax money from gains tax in a roth doesn’t make much sense.

            I think. 🙂 I really do need to do some more reading and make sure my assumptions are correct.

  31. Just keep in mind, contributions to a ROTH IRA can be removed at any time – not after a certain age like a traditional 401(k) or IRA contribution – and without tax or penalty. This applies to the contributions only – not the earnings. If you contribute $5,000 tomorrow, you can take out $5,000 next week. So your funds are not “locked up”. Please look it up – this is an often a little known fact of the ROTH IRA.

    Additionally, your interest earned in a ROTH IRA continues to grow tax free – and compounds, tax free. The tax-free compounding of interest is of great benefit – regardless of your tax bracket. You are maxing out a traditional 401(k) – saving you marginal tax in probably the 28-33% tax bracket – however, assuming robust growth of your funds in 30 yrs, you will be paying a hefty penny on the compounding interest of your earnings (a good “problem” to have). Which is why I am a fan of both pre and post tax investing (“tax diversified” investing).

    I plan to ER a decade or so later than you all, to account for future children expenses, etc (plus we do buy the occasional movie or sporting event ticket 😉 But I wish you all a happy retirement out in the hinterlands!

    1. All good info. But an important point is that if you are using a Backdoor Roth, those converted funds ARE locked up for 5 years. Normal contributions to a Roth aren’t (but we are not eligible to make those).

      As to the 401k money, assuming no major changes in tax law we should be able to convert that into (eventually) spendable roth funds over the next 10-15 years using a Roth conversion pipeline.

      The key to making all of this possible is having extremely low income in retirement. Low income -> low tax rates -> low-cost options for moving pre-tax money to post-tax accounts.

      1. Yes, it is true = a ROTH conversion – for the principal- incurs the 5 yr hold rule, vs a ROTH contribution (you can pull the principal out immediately). The pro rata rule, is also a bit of a hurdle if you have other deductible IRAs (like ones you have rolled over from a 401k from a prev employer).

        So, if you invested 10k into a backdoor ROTH today, and ER’d in 3 years, you would have access to those converted principal funds in 2 years and the interest would grow tax free for another 40 🙂 I see the upside, esp considering your frugal spending, as monumental with the (no) tax treatment on the interest. It also exposes some of your after-tax funds to another sheltering opportunity, beyond the first 35k for you and your husband’s 401ks. I look at it as a layering of funding for ER – kinda like laddering CDs, as some people do – but either way, sounds like you already have a plan for all of your taxable leftovers, so I wish you luck!

      2. That’s what I used to think too. It turns out that only the taxable portion of the conversion is locked up for 5 years. Since you’re doing the conversion right away with the “Backdoor Roth”, you don’t have to wait to be able to withdraw that money. I’ve been doing it this way basically since I graduated from college and I’ve accumulated a decent chunk in my Roth IRA now (almost $50k!).

  32. Great write up and great job ! Question – we also hold index funds and over the past year I have become increasingly uncomfortable proffting , in part, from cigarete and other wares I consider questionable – any thought on that aspect of it? Social index funds are interesting but arre more expensive and historically under perform index funds.

    1. I think it’s a very personal choice, and I don’t think anyone can make a wrong decision on the issue.

      For me, I consider my very small investment to be an insignificant boost in the realm of influences on corporations that I disagree with.

      On the other hand, low fee index investing is a major driver of my own Financial Independence. This will allow me to be more active in causes i believe in.

      I also think that the rabbit hole goes much deeper than the social investors would like to think about. For example, cigarettes. So you build a portfolio without Lorillard. But what about the paper that wraps the tobacco? It’s supplied by a paper manufacturer… and not always the same one based upon market conditions. Do you blacklist all paper companies? How about the ink used? The marketing firms that make the ads? The media companies that distribute the ads? How about John Deere, who makes farm machinery specifically for harvesting tobacco?

      I personally wouldn’t know where to draw the line. So, I throw up my hands and plead ignorance 🙂

      And yeah, the “socially conscious” funds always seem to be ridiculously larded with fees and poor growth.

  33. Hope it’s not too late to ask a question on this post. Just discovered you guys.

    You mention the Amazon Rewards Card. When I read the reviews, there’s a core group who complain that Chase now charges interest as soon as the purchase was made: http://tinyw.in/qGF5 Looks like the change was made in 2013. Maybe too many frugal people were paying off their debt before interest kicked in and they were losing money?

    I love the idea of this rewards card, but from your experience. Does the card charge you interest right away?

    1. Never too late!

      Just checked our statement, and we are not being charged any interest.

      Reading through the fine print, it looks like you are charged interest from the time of purchase *only* if you don’t pay off the balance in full by the due date. Maybe that person was confused, or the CSR at Chase was confused, but at least for us… I can confirm no interest is being charged.

      1. Ah, this is a good confirmation. Usually we avoid these rewards cards (no churning for us), but we do buy stuff on Amazon. Mainly bulk stuff we use often. Might as well get some rewards.

  34. My workplace’s 401K is also with Fidelity. Do you mind sharing what funds in your 401k you invested in? Thanks! Love the blog!

    1. In the 401k, with it’s limited options, we use the Spartan Extended Market Index (FSEMX) and the Fidelity total bond fund (FTBFX). Your 401k likely has different funds available than ours, so just look for a equities index fund and a bond index fund… and pay attention to the fees!

  35. Hello! Love your blog and Frugalhound! I follow a pretty “Dave Ramsey” financial way right now, I’m curious what your plan is regarding your mortgage? Will it be paid off by your early retirement? I was debating on throwing all my extra money to pay my mortgage off super early versus heavy investing, then invest after that? What’s your opinion

  36. Re the credit cards. I once worked with a guy who somehow managed to get everything on his rewards card, including most utilities and his mortgage. He never carried a balance..ever. And he and his family flew to Hawaii once a year and stayed at a hotel for free…every year!!!

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