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ChooseFI | Financial Independence Podcast
592 | Value Matrix Case Study Series: Part 1 — Leaky Budget
00:51:05
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- [00:00]
A
Hello, everyone. We're back and we're proceeding through the financial independence table of contents. And this episode builds on episodes 586 and 589. You did the expense audit. You know where the money goes. But here's the question nobody ask. Does it go where it matters? Today we're introducing the value matrix. We've been talking around it. Today we're going to talk through it. A tool that maps every dollar you spend to one of four quadrants based on two things. How much joy does it bring you? And how much does it cost? We're going to run four real spending profiles through it. One family has leaks everywhere. $2,200 a month they didn't even know they were losing. Another family is disciplined, frugal, does everything right, and their phi number is higher. A third gets told by the matrix, you're done. Stop optimizing. Go live your life. And the fourth? The fourth will make you rethink what financial independence even means. Same tool, four completely different answers. And every single one of them changes the math. And with that. Welcome to Choose Fi.
- [01:12]
B
Before we get started, I keep this podcast entirely ad free for two reasons. First, this is a five podcast and I don't want to promote products that I don't want you to buy in the first place. And second, I really like the clean listening experience of a show where you don't have to fast forward ads to keep it ad free. All I ask of you as a listener is the next time you open a travel rewards credit card, go to choosefi.com cards and with that, onto the show.
- [01:41]
A
Okay, everyone, as you can tell by that intro, I'm really excited about today's episode. And to help me with this, I have my co host Brad here with me today. How you doing, buddy?
- [01:49]
B
Hey, Jonathan. I'm doing quite well. I could not tell at all that you're enthused about this episode from that amazing intro. You definitely prepared on this one.
- [01:57]
A
Oh, my goodness. I was so excited about it. And episodes where we get a chance to kind of move the. Move down the. What do you say? Move down the playing field. I'm trying to merge multiple examples here, but you know what? You know, I'm trying to say we're moving the ball forward. This is one that I think changes the framework for you and I personally, I think it's going to be that impactful for our community. I think it's one that will be referenced in local groups and in individual kind of personal finance type settings for years and years to Come. And. And while I think it's been talked around, I think the execution and implementation that we're going to talk about today, when individuals encounter or experience it, they're going to say, yeah, that makes sense. Yeah, that locks it in. And I think what I was going with that, Brad, is it's not just about what we do on this podcast. It's how does it translate into action, into an individual's life that's listening to this. And also as a tool that local groups can use when they're trying to introduce this concept to friends and family members who the why hasn't been strong enough.
- [03:01]
B
Yeah, I totally agree. And as you know, Choose a Phi is and always has been about taking action. We don't want you listening to this podcast and just listening to it and nodding along even and saying, oh, that's great. We need you to get up off the couch and take action to make your life better. Otherwise, don't waste your time listening to it. And that's what, what we're here to do today is like Jonathan said, it's to move the ball down the field, or however he wants to refer to it. And we built something really cool, or Jonathan built something really cool, I should say. Do you want to get started with the value matrix or where do we start?
- [03:33]
A
Almost. You know what? I think, you know, you and I, it's been a few weeks since we've been able to do this type of episode together. And I think you've got a pretty extended travel session coming up as well. So before I get a chance to do this again, I'd like to squeeze in a fire spreading segment with you if you'll allow me that transition. In the last. Yeah, last three weeks alone, 194 events across 99 local groups. Now I think there's approaching 400 local groups right now around the world, some at various levels of activity. But in terms of sparks and events and things happening, 194 events across 99 local groups. That's more than nine events every single day. 5,100 new group memberships in the last 21 days, and nine brand new groups launched in the last three weeks. And the international aspect of this right now, Brad, is crazy. I mean, it's totally wild. Germany. Three German cities launched groups within 18 days of each other. Stuttgart, Munchen and. Oh man, why didn't I let you take these on? Needed more prep. All right. Stuttgart, Munchen and Karlsruhe. I'm just going for it, okay? You can't tell me I'm wrong, but no, munchen already has 10 members, three weeks. Right. This is organic. And the fire is spreading across southern Germany right now. And people are saying, you know, there's no one in my area that's talking about this or knowing about that. Well, there can be. There absolutely can be. And there's a benefit to being to have tools that scale along with you, just to make it a little bit easier because everyone wants this. What? They just may not realize it yet. It may not have been packaged the right way, it may not have been presented the right way. It may have been through a lens of deprivation or what you got to give up or whatever else. But it's about choosing what it is that you value. Hence why we're going to get into it today. But we're seeing this Germany. I already talked about New Zealand. It's continuing there. Right. I've seen three or four new regional groups in that area. Wellington, Auckland, Giesborne and North Island. FI has reached Giesborne. And I will be inspecting all of these, all of my pronunciation of all of these locations later on and kicking myself at my inability to do better with that. Where I was going with this is the events, as the events are starting to happen. Brad, the coolest thing, the absolutely most incredible thing is when these events are talking about what we're talking about on this show, whether it's as an extension or a companion or even going in a slightly different direction, that the fact that this is translating from a podcast to community based conversation is the most powerful thing that you could imagine.
- [06:17]
B
Yeah, I totally agree. And I think that's the beauty of the local groups and the app and community that you built on our platform. At choose a vet.com anyone can sign up or sign in choose a vet.com login. And it's amazing. Just in the last couple of weeks, I know the Atlanta group had an expense audit and social meetup which they turned this audit into a group activity with the description if you're willing to share, bring your spreadsheet app or expense details and we'll see how we can make it interactive. The Bay Area group had a choose a PHI 101 session. And I know Tampa Bay had financial independence 101, of course, St. Louis, where Alan and Kristen have created this for. And actually they just updated their slides and such and we need to get that uploaded. We'll have that uploaded on our website very, very soon. So it's just, it's really neat to see this spreading. Jonathan. Yeah, I mean, this value matrix that you've created, I Think we're going to see that all across these local groups. So, yeah, if you're in a local group and you want to see one of these events, you can always make it happen. You can either create the event yourself, you can talk to one of the admins of your local group, but just make it happen. They're happening all over. We just had recently here in Richmond, we had someone present. We had my friend Adam present on the projection lab software and we had a couple dozen people show up. I see all sorts of events show up. I just said economy. Recently, I saw five different pictures easily of, hey, we had our local northeast Ohio meetup and there's a dozen people sitting around the table. And it's just. Jay, it's just so cool to see, really. The fire is spreading.
- [07:57]
A
Fire is spreading. And we're turning conversation into action. That's what it looks like. All right. So, Brad, I had, I had. Have aspire really ambitious goals for this episode. We're going to tackle four case studies. Now, I've been looking at aggregate data, trying to come up with some various realistic scenarios and map them to kind of highlight different ways that a value matrix perfectly complements and in fact shows that an expense audit by itself is really only half of the picture. As I've had the chance to start to think about this and iterate this, my idea has kind of morphed over time. You and I were struggling to figure out, you know, with this idea of talking about joy and cost, what's on the Y axis, what's on the X axis. Well, as the person that built the tool, I can confirm we're going to go joy is Y axis and cost is X axis and we'll see how it lands. But really, one of the things that became very clear to me is when you have an expense audit, you're going to first need to differentiate required versus debt versus discretionary. But then it gets a little bit tricky because just because it's required does not mean that it shouldn't be evaluated or analyzed. But it also isn't really appropriate to put it into a value matrix. A required expense has nothing to do with whether you value is almost entirely about whether or not you need it. And so yes, we need it, but that doesn't mean that you're optimized. It doesn't mean that it shouldn't be inspected. So really, the value matrix ended up morphing as a way to map what our expense audit was into. Where do we want our income to go? Where do we want our Expenses to go. What is it that we value in this life? But we have to handle some work first. So we're going to work through a couple cases here and I could tell you them ahead of time, but we'll just do them one at a time. This first one, we're going to call this, Brad, we're going to call it the leaky budget. This is the leaky budget case. Brad and I are working on a tool. If you are a part of the community and you've done the expense audit, you have access to this. So you can access this. It's now available for you as the time that I'm announcing this out loud, you can go to local.choose a5.com and you'll be able to see it in your tools and resources section. It's free to use. Give it a shot. But a value matrix only works with an expense audit. So you'll need to have done the expense audit in order to be able to test this. But if you want to map yours along to what we're doing, you, you can kind of hear what we're talking about and you can see what it looks like for you. But with that, Brad, let's just talk about the expenses real quick that we're going to put into this value matrix.
- [10:33]
B
Okay, Just real quick. Anybody can log in@local Dutch.com, they can go to Tools and Resources and go to that expense audit first. Once they do that, that's a, a pretty quick exercise, but a very important one as we've talked about. Then they'll have access to this value matrix. So it's not like something you had to do in the month of February or March. This is there.
- [10:52]
A
Yes, yes, you're absolutely right. There was a point in time where I was thinking about it'll only be available for this month and whatever. And that's silly and I'm throwing it all out the window. It's available for you. Just go in there and do it. But the thing that's interesting is with an expense audit it would make sense, maybe you would want to go back and you would want to record expenses for years past 20, 25, 20, 24 and you want to see how did your expenses change over time. That's a perfect. I had one person, a couple people ask for that actually, and that's a perfectly reasonable request. But for the value matrix, that's a present decision making tool. So we're not going to go back and apply a value matrix to years past. We're only going to do it for the present year. So Brad, you and I have are looking at the same information and we've loaded this case study that we're looking at here. And you know, maybe some things will actually pop out to us. But let's just go through a couple of the line items. I'll do the housing just as an analysis and then you can kind of take a look at transportation. We'll go through it really quickly and then we'll import it or we'll go through the decision tree into the value matrix. So this couple is spending, let's see here, $9805 a month. So their annual cost of living is 117k. Where does the money go? Well, when they did the expense audit, they've got $2,300 a month that's going to housing and that's broken down by a mortgage. By property taxes, home insurance, maintenance and repairs. The mortgage is at 1800amonth and then 350 for property taxes, 140 for home insurance. So Brad, do you want to tackle transportation and we can just kind of go back and forth?
- [12:22]
B
Sure. So it looks like between the two of them, they have car payments totaling 420amonth. They actually spend 280amonth on gas and fuel, 180amonth on car insurance, and then some various things including actually ride shares, 140amonth. That's interesting that they have car payments and then another almost seventeen hundred dollars a year on rideshare, parking and maintenance. Total about one hundred and fifty a month. Yeah.
- [12:50]
A
And then for food and dining, they have down here actually only $700 a month for groceries, but 870amonth for dining out and then 180amonth for coffee and snacks. Now what's interesting, and this is actually a nice little fine tuning point when it comes to the expense audit. We had a lot of people basically saying, and again, think about it through the lens of an experienced expense auditor saying, hey, simplicity is preferred. I like to collapse everything into as few categories as possible. That definitely makes sense for the person that is already on top of everything. But I'm actually appreciating the level of detail from this case study in that when we start thinking about discretionary and we start thinking about what's going into the value matrix, the more detail we have gives us the more opportunities to make choices about individual items versus guessing about larger aggregate ones. So that's just a thought with them breaking out coffee and snacks and including it under food and dining. So for utilities, they're paying $670 a month and that's $150 a month in electric, $70 for gas, 55 water and sewer. I could keep going through these. $190 though, Brad. On their cell phone, $90 for Internet and $85 a month for cable and streaming.
- [14:05]
B
Hmm, that certainly seems high. I don't know if we're diving into these now, but yeah, there's certainly room for optimization there. Health insurance, I guess insurance comes next. So they only have two line items on insurance, $65 a month for life insurance. So that's about $800 a year. And then health insurance looks to be a little less than $600 a month. So, yeah, I have to assume those are health insurance premiums for about. Yeah, that's $7,000 a year.
- [14:36]
A
Okay. Health care, we got medical, dental, vision, $80 a month, prescriptions, 35, HSA, FSA. Now, what's interesting about HSA, FSA is we have to think about what that means. Like, is this savings or is it an expense or just something just to think about there? But it is included. FSA is different than hsa. So FSA is, you know, if you don't use it, you lose it. So if it is fsa, then we really do. Yeah, I mean, it's technically an expense. You're putting in there to use it for the current year. Then down at personal, they have another $600 a month that's going towards personal, and that includes clothing, haircuts, personal care, subscriptions, and some sort of educational accounts. And then now what's interesting is now in entertainment, in addition to the things that we had above cable, streaming, tv, phone and Internet, now in entertainment, they've got streaming services of $75 a month, hobbies at $180 a month, fitness and gym at 160, movies, concerts, events at 150, books and audiobooks at $40 a month. Then they've got travel cost, Brad.
- [15:43]
B
Yeah, travel, they have split up amongst three different categories. So flights, $300 a month, hotels, lodging, $250 a month. Then various vacation spending for $200 a month. So that looks to be, what is that, $750 a month. So yeah, that's $9,000 a year on travel in actual cash costs.
- [16:05]
A
Yeah, probably what they're doing is they're thinking, hey, we have a big family trip that we do once or whatever a year. And then they kind of cash flow, average it out to say we set aside $200 a month for that versus $200 every month for vacations.
- [16:18]
B
Yep.
- [16:18]
A
With debt payments. They just have one debt listed here of credit cards and then no kids. And then they have $215 a month under pets and they have separated out pet food. It's not just listed under groceries. Makes sense to me. Vet care, grooming, pet insurance, $215 a month. And then they've kind of done a catch all for miscellaneous. $495 a month to capture things like gifts, donations, charity, bank fees, unexpected expenses. So all of that together is how we got to our total. $9,805 a month, $117,000 a year total.
- [16:56]
B
Yeah, it's amazing when you go through the budget and obviously there is significant room for optimization, but at its essence, Jonathan, it's interesting because it doesn't look that out of hand when you go through each individual item, but I suspect you and I are going to really dive into, okay, there is some stuff they can do here that's going to really align their value with their spending.
- [17:16]
A
I think so. I mean, I think the real point here is the money slips away from you unless you make a choice to not let it slip away. There's so many reasonable things that you can do that life can get expensive fast unless you decide, hey, we're going to spend money on what we value. Now the question here is with all the line items, do they value everything here to the degree that they're spending on it? That's what we don't know yet. And this is a fantastic expense audit. They did a wonderful job of capturing all the details, but we don't know in any degree what it is that they value based on this. So we really couldn't say, you know, if everything was just absolute. We get so much joy for this, you know, every single thing down the line. All we know is this is what is. And so we're going to do that extra step and we're going to create a way for, you know, this individual to be able to see does their spending align with their values. And so, Brad, we're going to save the results of this. We've got our summary. Now, Brad, I think in the past you've kind of talked about the big three of expenses and so maybe you could just refresh us and just see if that kind of maps up with what we're seeing here.
- [18:27]
B
Yeah, I think for the vast majority of people, somewhere in the vicinity of 60 plus percent of your annual budget is going to come from three main categories. So it's housing, which could be mortgage, could be rent, etc. But your housing payment in totality, then your transportation. So for most people, that looks like car payments, insurance, gas, those kind of things. But transportation generally, whatever that looks like for you and your life. And then the third leg of that stool is actually food. That could mean eating in. It could mean, in this case of the leaky budget people, also a significant amount of dining out, et cetera, those three main categories. So it's housing, car or transportation, and food generally.
- [19:15]
A
Yeah. So if we were to take a look at their life and we compare that to it, we have 24.4% is going to housing, we have 17.8% is going to food, and then we have 11.9% is going to transportation. So they're at 54.1% of their aggregate spending is going to those three categories. Now, what's interesting to point out is we're going to very quickly get into looking at, well, what is a required expense? What does that mean? And what are our options? And very quickly we're going to come to the conclusion that at least in the short term, next month, next two months, whatever, some things are just fixed. They're not going to change. That's completely fine. But I just want to point out for some individuals that start noticing that things are fixed, you don't have to win everywhere. But if you can't win anywhere, it puts you at a little bit of a disadvantage. One thing that you might look at in general, just noticing, all right, well, we have XYZ of circumstances, and because of that, this is fixed for us. Okay, is there another place that you could capture the win that you don't value as much? Something along those lines can allow individuals that maybe don't have this exact same scenario to kind of think through, okay, this is fixed, but that isn't. And maybe I'm willing to, you know, make a cut over here where someone else wouldn't be. Does that open an opportunity? So, Brad, you and I are going to take what we found from this expense audit and we are going to now import that data into our value matrix. And so this is effectively step two. But as I was hinting at a second ago, when you're ready to build your value at matrix, your expense audit needs to be complete. The point of an expense audit was not for your information to to be perfect was not for it to impress anybody else. It was for it to reflect reality. And while you might make changes based on what you find, you're not going to change your expense Audit to have those changes. Instead you want to capture the diff, you want to set a goal against it and see what the difference is. And so you need to, whether you're doing this separately or you know, somehow or you're doing using this tool, you need to lock your expense audit and say, okay, that's a decently accurate projection, a snapshot in time. Let's go ahead and move forward. So we're going to lock our audit and we're going to start. And what I've done and the tool that Brad and I are using for this case study is I've tried to go ahead and just save you some time in terms of thinking about what is likely a required expense. Housing, food, that sort of thing, Some utilities, most utilities versus what might be variable. Now you may disagree with the presets that I've chosen and you can just do it all yourself. But, but in our case it'll save us some time in this exerc if we can go ahead and do that. So we're going to go ahead and categorize. We're going to take a look at our required expenses and inside our required expenses, Brad, we're going to put all of those inside of three categories fixed. Meaning this isn't going to change. It's not worth spending our time looking at it because it's not going anywhere. The things that we might want to review now, they are a fixed payment. You've signed up from some service, it's a required service. You're always going to have to have a version of it, but you're not convinced that you have the most optimized plan. The perfect example might be the home insurance you've had for 10 years. The car insurance you haven't inspected since. You know, it's just the one that you were on when you were on your parents plan and then you took it over on your own. Any number of those things, they have not been inspected. And then the final category inside of required, again, we haven't made it to the value matrix yet. We're still in required expenses. The final category inside of required expenses is variable. They are required, they're not going anywhere. But you have a direct impact every single month on what's going to happen. You decided you want to leave the little gas burning fireplace on all day every day because it gives you good positive vibes. And your kids like having it on in the morning before school. But then it never gets turned off. That's a choice. Everybody likes to have the thermostat Set at the exact number every single time. That's a choice. All these types of things are variable expenses.
- [23:20]
B
Yeah. Another example is the phone. They talked about their cell phones being $190 per month for the two of them. And while that might sound like a. A required expense, it is required in the sense that we have it here in this day and age. It is required, but obviously that is very variable. That is quite variable. And that is a choice because we know there are low cost carriers, something like a mint mobile, that you can get unlimited service for 30 or $40 a month per line. So that is a perfect example of. There's clearly some optimization here. This is just looking at that one line item suggests to me they haven't really dove into, hey, what are all these things we're spending money on? Because, yeah, like you said, there are a couple items in review that they could have that are just, hey, you should go back and not only look at getting other quotes for things like home insurance and car insurance, etc. But life insurance is another one, Jay, that you had there. That's something that you might not only get a different quote for, but you might make a decision, hey, we're at this point in our file, life, yeah, maybe we don't need life insurance anymore.
- [24:29]
A
Yeah, that is a whole other episode. But this idea of whole life insurance for someone that's pursuing financial independence, you do realize that if you're five, you are also wholly insured, right?
- [24:40]
B
Whole life insurance we could have, we could rail on that. Hopefully nobody in our community still has whole life insurance. Please run as far and as fast as you can from that. But yeah, even term. Jay, I'm in a scenario where I'm financially independent. My daughters will be well cared for. In the event if I had an untimely death, do I really need life insurance anymore? That's. That's an open question.
- [25:02]
A
Yeah. I think your energy would be far more served at your point, focusing on the transition, the legacy binder, the planning, the communication tools, the transition, what's going to happen, you know, for your heirs if you were to pass away, then they would be by the extra lump of coal cash at this point. Okay, that is another episode. And we will put it on back on the table of contents and we will talk about.
- [25:25]
B
This is where we add value, my friend. Come on.
- [25:27]
A
Oh, I agree with you, man. I agree with you. Talk about a sidebar though, that's. That one will be a while. Meal planning too. Right. I think one of the things that we're going to talk about is it's one thing to say these are variables, right? But a lot of times people are anchored to a belief about what a normal thing to spend is on something and it is actually being exposed to this community and people that have anchored to a different basis, a different idea, different whether you're talking about groceries, you're talking about health and fitness, you're talking about what you spend on phone and it's very eye opening and kind of like, yeah, I know I use, you know, I use Mint Mobile instead of, I use Republic Wireless instead of, you know, Verizon, I use whatever. These sorts of things change your framework pretty dramatically. What we're going to do now, Brad, is we are going to go ahead and apply to our required expenses. We are going to collectively go ahead and update these numbers after we've reviewed it with this individual and they've actually come and they've said, you know what, here's what I want to shop, here's what I want to keep, here's what I want to whatever. We're going to go ahead and do this. This way we can move forward into the value matrix. Brad, we've taken all the things and we've put mortgage, property tax and car payments into this fixed category. They're not going anywhere in the short term. When you take a look at items to review, these are like the insurance type products. Home insurance, car insurance, health insurance, life insurance. These are ones that potentially in various scenarios, individuals might want to do a check, especially if the number is kind of standing out to them as oh wow, I didn't realize I paid that much for this. I wonder what else is out there. But when you get to variable because yeah, these vary, that feels very cheap to say that. But even more than that, you have so much more control. What you really then want to look at in terms of how much time do I spend looking at this is red flags based against some sort of anchor.
- [27:15]
B
Jay the anchor is actually an interesting. I suspect that's where us aggregating all this data is going to really help our community significantly over the months and years to come. I think that's actually one of the unknown things for a lot of people is what's normal, right? Like when you're living in your own little silo, sometimes you simply don't know what's normal. It might seem perfectly normal to spend $90 a month on cell phones until you learn that one little thing that oh hey, you could find whatever it is, Project Fi or whatever Google is and Mint Mobile exists and they're very inexpensive. That's a piece of knowledge that you just simply didn't have. Or frankly one of the biggest ones is food. Most of us just spend on food and we don't have anything to anchor ourselves to. But what if you just took some dollar figure per meal? We famously have talked about $2 per person per meal. I think that probably was accurate in 2017, 2018. It's probably you probably realistically, most people can eat for three to five dollars per meal home cooked, I would think really quite easily. So Jonathan, I think that's probably a simple back of the envelope as like a reasonableness test as I'd put my accountant's hat on and say, okay, $5 per person per meal. So $15 a day times 30 days, that's about $450 per person per month. So if you had a couple, you'd be at about $900 using that $5. Is that a reasonable back of the envelope way to start? Yeah, I think so. I suspect there's still a lot of optimization if you're at 900, but that's a great way to know just off the bat, like, hey, are we spending 1700 for the two of us? Yeah, there's something probably awry. Are we spending 600, 700, 800? Are we in line? Yeah, probably. It doesn't mean there's no optimization, but I think that's the starting point.
- [29:13]
A
Yeah. Now in this particular case, what's so interesting, and it's a little bit misleading is that what they're spending on groceries is only $700 a month. Now this is for two people, like there's no kids involved. Right. So, you know, at first glance what I see is that's $350, you know, a month per person per meal. That's just a hair over $3 per person per meal. I mean they're really, that's pretty impressive. But then you got to immediately anchor yourself, oh wait, they split out what they're spending on food and they are spending, you know, double that or more significantly more than that on the dining out etc on the other thing. So a big portion of their food expenses are just being allocated in a different way. And so we need to be honest with ourselves because you can lie with statistics very easily with this sort of thing. You want to. This is, this is for you. This is for you. It's not for us, it's for you. The thing is, food is required for most of us disproportionately. The food should be in the form of groceries. Now I realize as I'm saying this, someone has their hand raised with like a reason why it's not. And it's very compelling and I will agree with you if you give me the whole story. But in general, most of us would say that if we were to purchase groceries every single time we make the choice to eat food that we prepare at home, it will be less than half the cost of the food that we purchase dining out. So boom, right there. Now beyond that there's many other like decision trees to make. The thing that's really cool about this is that when we're looking at these variable expenses inside of this tool that we're looking at right now, we can make the decision after we've decided that it's variable to set a target for ourselves if we feel confident about it what could happen and we have to come back to this very, you know, later. It might be that we end up deciding through the value matrix that we're actually going to cut a lot of the dining out or trim it back which then could actually increase our grocery budget to some degree because some of that is getting allocated over. You have to think that through a little bit. But my first thing is just when I see a groceries of $700 a month for two people, that's not a red flag. I'm not immediately thinking how can I trim that? How could I cut anything from that? You're going to make decisions in your own way and it's personalized for individuals. But what we're looking for here before we get to discretionary stuff is red flags or at least red flag might be the wrong turn. More like opportunities. Brad, is there anything else that stood out to you as an opportunity before we move on?
- [31:41]
B
Yeah, there's not a whole lot here, Jonathan. I mean I think the phone that is low hanging fruit. Of course there are little things and we're going to get into the bigger things like that, that eating out. Of course you could always go down line items. This is not to absolve people of saying like don't price check because I really think you should get quotes on insurance. I think their Internet for $90 a month. That doesn't sound outrageous but that is a potential small opportunity. That sounds like the going rate. We've been with this company for four years. We were paying that with Verizon and it was $95 a month and I moved to Comcast and it cost me 40 or $50 a month for the same service. Is that a Massive move the needle kind of thing. No, but it's 40, 50 bucks a month, which is not insignificant. So there's opportunity, but I think we got the big ones.
- [32:30]
A
And you know, Brad, I haven't thought of these in a while, but it used to be that there were several services that have popped up where different companies, for a fee, right. A percentage of whatever it is that we saved, you would actually go and negotiate on your behalf. I do not have an up to date latest and greatest list for that ready to go for this episode. But to our community, if you have used one with success within the last year and you feel strongly about it, definitely we could feature that as a life hack or a frugal win of the week on an upcoming episode. So keep that in mind for those of you that really do want the deal but don't want to negotiate. There's precedent for having companies actually do it for you. And certainly for all the easy things, just going to press the cancel button online will often give you an offer to get a better deal. It could be that simple. Let's move into the value matrix. So what I went ahead and did, Brad, is I took the liberty of working to go ahead and assign these things by the value matrix, by the quadrants that we talked about and to catch people up who didn't listen to episode 589 where we introduced the concept. We have a square box. The box has four quadrants in it. And at the top right it's all about joy and cost. Right. That's all. It's very simple. At the top right we have high joy, high cost. On the bottom right we have low joy, high cost. On the top left we have high joy, low cost. And on the bottom left we have low joy, low cost. Four boxes making a large square representing quadrants representing the intersection of joy and cost. And now you have all of these discretionary expenses. Everything else that wasn't covered inside of required that we want to without the burden of knowing what we're going to do about it, whether we're going to cut it, because that's. That gets in your way. That's not the point. What you're going to do about it gets in the way. All we want to do is as we interact with these line items is to think about it through the lens of objective things like cost and subjective things like joy.
- [34:29]
B
I like that. Okay, so somebody who is going through this value matrix, they would take all of these items in this, in their particular case through 24 line items and. And they would put them into these four quadrants and then they would look at each one and they can make an adjustment for, hey, I'm going to keep this or I'm going to trim it, which means I have a different target expense or I'm going to cut it. And now just because something is in the best category, high joy, low cost, which that's in my estimation the best category, it doesn't mean they can't also trim it potentially. But more likely than not, somebody putting something in that quadrant would. Would keep the amount. But yeah, I mean, that's generally speaking, Jonathan, how somebody would approach this.
- [35:14]
A
Yeah. And you know, it should be kind of a happy experience. You really don't want to get burdened down on what you're going to do, whether you're going to keep it, whether you're going to trim it, whether you're going to cut it. You don't want to have to think about that right away. All you want to do is you want to deal with one item at a time that represents a category of spending in your life and you want to just quickly assert the joy and cost intersection, drag it where it feels good. Kind of like the whole trello experience. Right. So we did this. And Brad, why don't you go ahead and talk about the high joy, low cost items for this individual?
- [35:47]
B
Yeah. So they have education for $50 a month. They're keeping books and audiobooks for $40 a month, gifts for 120amonth and donations charity for a hundred dollars a month.
- [35:59]
A
Cool.
- [36:00]
B
Those amounts all stay the same. Those are their high joy and in their estimation, low cost. And they're perfectly content with those four.
- [36:07]
A
So they're not questioning it. They're not thinking about it. Doesn't preclude them from going back to it. But they're moving on their first reaction when they saw those line items are love, that doesn't cost that much. Great. Put it over there. Now the next one that we'll talk about because we're dealing with joy first. Right. These are the ones that made them happy. Now the reality is as you go through these items, they're not, you're not going to always interact with your high joy stuff first or whatever, but we're going to go through the quadrants just to stay organized in that way. Let's talk about what made it into their high joy, high cost. Brad.
- [36:35]
B
Sure thing. So yeah, they have four here also. They have hobbies, they have fitness and gym. They have then movies, concerts, events as another category and vacation spent this Is really interesting. They kept the hobbies the same amount. Okay, so that isn't moving, but they actually chose. Even though these are all high joy, by seeing it laid out in this matrix, they were able to say, okay, look, this is really high joy. We're not cutting these things certainly, but I think we want to trim the other three. So fitness and gym. They actually are now targeting $40 per month between the two of them. So for me, like in my neck of the woods, that looks like a Crunch Fitness or Planet Fitness. Those are great gyms. Are they Equinox? Are they even the ACAC gym that I go to here in Richmond? No, they're not. But they're fantastic gyms and they're looking to save, it looks like fourteen forty dollars per year over their existing gym. They're still getting joy, but they're just saving significantly by trimming. And yeah, it looks like they have some vacation spending. They also are dropping. It looks like $80 a month. They were spending 200 previously. Now they're going to spend 120. So this is miscellaneous vacation spending. So that doesn't mean they're not going to go on vacation because they still. And we're going to talk about this later, but flights and hotels and lodging, of course, people in the FI community think travel rewards points. So I know they had a significant amount of expense on that. But vacation spending might just mean just random knickknacks or souvenirs you buy or whatever. Like, okay, is that something when you see it in the light of day that, oh, wow, we're spending 200amonth on this? $2,400 a year. Is that something we can cut a little bit? Trim it a little bit? Yeah. Okay. It's pretty neat to see the laid out like this.
- [38:31]
A
Even as we go through this, we're talking a little bit about what they made the choice to keep or to trim. And maybe some things became obvious to them right away. But really, as you're doing this, if you were doing this yourself, don't feel constrained to know what you're going to do about the thing right. Right away, you are not accountable for the answer. All you're doing is mapping cost and joy. So we've talked about high joy. This is discretionary spending. That for them, they attribute as high joy. And most of these, even if the numbers don't totally map up with our own lives, we could certainly understand or put ourselves in a position to appreciate why they would value those. So let's go ahead and take a look at low joy, low cost, and just think about those line items and what it was and, and we can then see what decisions they made. So for them, they put parking. And yeah, is anybody going to put that in high joy? Personal care, subscriptions, streaming services, grooming, pet insurance, bank fees, these are things that have happened. These are incidentals. They showed up on their expense, they're accountable for putting it somewhere and they recognize it's not necessarily a required expense. Parking. Why are we paying for parking if it's not required? If it is required, that's one thing. But also it's not necessarily the end of the world that it's showing up. It's not necessarily a problem. But it does give us a chance to think about why parking is showing up as a recurring expense or a budget and what does that mean for us?
- [39:53]
B
And what I like about this, so even though they put these seven items into low cost, and of course they are low joy, I think by seeing them laid out like this, they're able to say like, okay, even if these are quote, unquote, low cost, are we getting any value or the value we want even out of that low cost? For instance, bank fees and pet insurance, they actually chose to cut those entirely. That's going to save them $40 a month on the pet insurance and $25 on the bank fees. Something like bank fees sounds like laziness in most cases. Or you signed up for an account that you're not using or you don't need or you don't meet the requirements of anymore. But in this day and age, there's almost no excuse to be paying any kind of bank fees. That's a perfect example of, hey, we see it clear as day. Let's cut that. Pet insurance is another one. It's okay. Is that a junk kind of insurance that you're really not getting a lot of value out of? Maybe like, I could even put my dental insurance in that. Dental insurance is really expensive. It's not to say we're not going to the dentist. I just probably would cut the dental insurance and pay for it out of pocket. So am I saving a ton? No, but that's something to at least dive into. So I think that's what's cool about this, is it lets you see it clearly. And yeah, in their case, they're having their parking expense. I guess parking is not required, or it would have been in the required tab. But they still have $30 a month in parking. But they're cutting $30 a month in parking. So that's an interesting one that's very specific to them. But little things like, okay, it looks like they trim some subscriptions and streaming services. Maybe just in the course of life, these built up like it does for all of us. And they decided, all right, look, we're not using all of them. Maybe we'll cut these couple for now, and then when my show comes back in the fall, we'll binge it for a month. Like, you can do that.
- [41:41]
A
You're allowed to do that. You are not. You are not required to show loyalty to your streaming provider. It's not a thing.
- [41:48]
B
No, you definitively should not. So, yeah, that's. It's kind of cool to see that. And then they basically had 15 items that are across these low joy. We said there were seven in the low joy, low cost. There's another eight in the low joy, high cost. Now, this would seem to be the quadrant that would have the most room for trimming or cutting. And yeah, interestingly, they cut two pretty significant line items. It looks like they had $180 a month for coffee and snacks. When you break it down to per person per day, it's not a ton, but I guess they looked at that and said, all right, look, this is low joy. Maybe we just have our coffee at home and save the over $2,000 a year. $2,160 a year. All right, that's an interesting one. They cut unexpected expenses of 250amonth. Now that I wonder, because as we always say, life is lumpy. Sometimes things come up and you can't account for unexpected expenses. But depending on what their particular case is, maybe this is something that they looked at the last couple of years of what they dumped into unexpected. And they're like, oh, maybe they were expected and maybe we're just. This was just silly or something.
- [42:59]
A
Yeah, I mean, sometimes you have a catch all. Like, you know, what if you haven't been tracking anything, you know, sometimes you just have a catch all for these things. And as you actually get better at these, you don't really have as many unexpected expenses because planned expenses and planned, you know, spending covers it all. It's not unexpected anymore if it happens every year at this time. Hey, little Zachary's got a birthday coming up that's not unexpected. It's coming Christmas, it's coming gifts, they're coming, you know, and so these sorts of things. And for the person that wants us to send us an email, talk about how pet insurance is actually one of the most essential insurance that you hadn't considered. Personal finance is personal. They made a personal the choice to cut the insurance. They are just cash flowing it. Okay, great, great. Focusing on higher quality fruits and veggies and raw foods and all these types of things and topical oils and all that. You're just going to cash flow pet insurance expenses. Personal finance is personal is the point here. Your value matrix does not need to look like someone else's, but hopefully what we're really doing is we're taking data and we're turning it into something that we can make decisions around. And one thing I think is pretty cool about this idea is that you can add notes as you're using this tool, Brad, and you got the little drop down. You can add the note about what it was and why you made the choice here, what it is that you're doing. You could provide yourself historical context when you do this again next year. Because it's not a one and done thing, it's a next year. But regardless, here, here's the key we want to basically take a look at. Did it matter? Did all of this even do anything? So Brad, let's go ahead and go to the results and let's see what happened with this individual. So we did a lot of work, right? This individual did a lot of work and now they have completed it and they're looking at the results. Maybe they print it off as a report to store it. That way they can actually execute and follow the plan. But for us and our purposes, when we started, they had a current annual spend of $117,660. After going through this matrix, their new target annual spend is $88,725. I mean that's Brad, that's. I can do math with a calculator, but that's over $28,000. That's almost $29,000 in savings. By looking at things through this matrix.
- [45:14]
B
That is amazing when you apply this to your FI number, their current FI number based on their current annual expenses of 117,000 and change, it was $2.94 million. So $2,941,500. And now after applying these savings just by going through this value matrix, line by line, box by box, that $28,680 of annual savings we multiply by 25. Their fine number has been reduced by $717,000. I mean, that's nearly a quarter of their annual expenses. And therefore a quarter of their fine number has just been reduced. So their fine number went from 2.9 million to 2.2 million. Jonathan, that's really incredible. What's so neat is you can see item by item how they did this and it adds up to something extraordinary.
- [46:09]
A
And I think also hopefully, you know, some individuals, maybe that amount of money to be spent each year just doesn't really resonate with them. But with others it absolutely does. I'm even thinking about Tom from last episode when we were talking about in 589, you know, 25k was gone. He found half of it had to do with the fence, but he had no idea where the other 12.5k was. And that's completely separate from applying a value matrix that's just like missing. That's unexpected expenses. And that was Tom. He had this much amount was in unexpected expenses. We got to take a look at these. You know, Charlotte, she was sharing on the last episode. She's targeting, you know, $800 a month going into groceries. She's trying to figure out, is this realistic for me, here's what I do. And maybe there's an emphasis on organic or something like Trader Joe's or whatever else you need to have something to anchor it to in the community. Inside our community, they're coaching her through it in real time and providing feedback. All of these things offer opportunities to develop a skill because it's easy to just spend. But the problem is it comes at a cost. Nailed that one. No, but on the other counterpoint is, you know, Westy. Westy had 3 months, 6 month and 12 month food trends in 15 seconds he was making the case for Ynab says literally everyone should be using budgeting software because it requires something to simplify things. Now I think the budgeting software is an advantage. It still requires a value matrix, especially if the numbers aren't giving you the results that you're happy with. You still need to go from expense audit, which is what budgeting software is really good at, right. To some sort of analysis based on joy and cost. The intersection. Julie, by the way, I can say that on episode 589, disproportionately probably 60, 70% of the comments was emphasis on the need for us to do a deep dive on meal planning and meal planning tactics. And our listeners and contributors had lots of thoughts on ways to really dial that in.
- [48:08]
B
Yeah. What's neat is you can now leave comments in the Choose a 5 community app and website for each individual episode. Just really simply for any episode that you're listening to, you'll see the episode number in the title. So this one is 5 92. So just go to choose the vi.com 592 and it'll take you directly to the show notes page. Right there you'll see an area for discussion and you can leave your comments on this specific episode. And as you've heard from us talking about it, this is a crowdsourced personal finance show. We read every single one of these. We have our guests jumping in there to leave comments and answer questions, et cetera. And we bring this back and we respond to what you talked about. I mean, Jay, this really is just an incredible circle of everybody being involved and rising tide lifts all boats.
- [49:02]
A
Yeah, I just realized we're like 57 minutes, man. And I set up that intro. I already committed to that intro about four case studies. How many case studies have we done so far?
- [49:13]
B
1. And this is after. When you came back, you had five people send you nasty grams of. Oh, we promised we would talk about a hundred things and you got to 14. So I think we need to dial down the expectations next time. But. But yeah, we're going to do another episode on the other three case studies that'll be coming up in the next couple weeks.
- [49:34]
A
But what am I going to do for an intro for it? I did the intro. Can I, can I just reuse the intro?
- [49:39]
B
Yeah. Listen to 592 Heroes Case Stud 2, 3, 4.
- [49:42]
A
Keep going. Here's the other three.
- [49:46]
B
You're welcome.
- [49:46]
A
But I do think, Brad, really, when we do these types of episodes with the community, the crowdsourcing aspect, the comments have the potential to be the best part of this show. So Like Julie on 589, she shared a full family meal planning breakdown, got the most likes BY FAR. And WMW, 42, 66 year old retired scientist, lets us know that he's been listening since episode 10. Shared his total credit card spending method for catching leaks. And that's not us teaching, that's the community teaching itself. And it creates that feedback loop where we all get better together. It informs the show and informs the future direction of the show. And when we create these episodes, you know, irrespective. Is that a word, Brad? Irrespective. I feel good about it.
- [50:31]
B
But regardless of how it's irregardless, then you'll get yelled at.
- [50:35]
A
Irrespective of how much progress we made against my stated intro, my stated goal, what should be absolutely, absolutely evident to anyone listening to this is that the fire is spreading.
- [50:50]
B
Okay, that's a great call to action.
- [50:52]
A
We'll see you next time. As we continue to go down the road less traveled.