Episode 035 - The Frugal Millionaire, Part 2 - The Home
We continue on with the theme of frugality. In this episode, I dig into home costs and how I have reduced them way down. These techniques may seem atypical for many, but the results are outstanding.
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I’ve lived in different countries in the world and in different climates. Pretty much all the time I’ve lived in urban cities, from Adelaide to Los Angeles to Seattle to Phoenix. In every place I’ve lived, I’ve owned my own home. Therefore I’ve invested in how to keep the homes economical so that it meets our frugal goals. That doesn’t mean sacrificing living quality at all. I’m someone who enjoys creature comforts, but I’ve made it a life mission to have those things without having an ongoing costs to keep them. These are some of the tricks I’ve used to have my cake & eat it to, so to speak. Some parts of this are really basic and simple and other parts may require you to either get a little technical and learn things or reach out to others that are technical to help. My hope is that you don’t have to pay so called “experts” here to help you with your home. You need to be 100% in control of everything so that if something breaks, there’s a 80% chance YOU can fix it without having to pay others for this.
Whereas many will tell you to live a minimalistic life, I won’t. You do you. You live the life you want to live. It is more important to me that you have your freedom to do what you want to do, but not be dragged down by the financial chains that will try and tax you to have that freedom. Therefore we must all share what we learn that will not only save money, but increase the yield on our life quality. That’s what these episodes are about. You can definitely “have your cake & eat it too” if you know what you are doing.
There may be a chance that you are out of work right now, or furloughed, or have reduced hours, etc. And that the economy may take a while to stabilize. This is the time that you can take stock of your expenses and start to reduce them. Most important is that what you do today pays you back for the next 10+ years though.
If you are faced with having to move due to job loss, it can be a very anxious time. I’ve been there before. But you may find that you can turn this around to your advantage. For example if you are living in high taxed states, there are options to find places that are more willing to embrace personal freedom and lower taxes. I was recently asked about property taxes and the risk of govts raising them after the pandemic has cleared. Yes, govts want money to exist. And in 2020, the costs of running services has been stressed out beyond normal levels. They will want their money back in the form of increased taxes. But if you find yourself in a state that is rife with high taxation, there are plenty of alternative places to move to.
For example, in 2002 following the Dot Com Crash, I found myself without income and living in an expensive part of the Southern California. That’s what drove me to sell our home and rent a massive truck and drive my family to Scottsdale, Arizona. We purchased a beautiful home here for about 50% of the price of our place in California, and we’ve lived here ever since. At the time I had a mortgage, and the cost of my mortgage payments in Arizona were equal to the cost of my property tax payments in California. And with the move the price of food, restaurants, gas, sales taxes, etc. all dropped dramatically. But I also discovered a state that was more welcoming of investment and business, didn’t have a lot of regulatory hurdles to do anything and just had a much better Libertarian approach than where I came from. It took a bit of adjusting, but the fact we are still here and not likely to leave anytime soon means that it obviously works for my family. Now everyone is different and you might just find that if you are forced to move because of job loss and you have to go where costs are lower, that it could be the best thing you could ever do for your future. I’m not married to living in one place either - we spend 50% of our time traveling all over the world these days, but I can do it from the airport in Phoenix a heck of a lot easier than from LAX. The traffic is manageable and every day they seem to increase direct flights out of here. Last year I flew from Phoenix to Frankfurt, Germany direct. I can do the same to London Heathrow too. Same is true of Mexico City, Guadalajara, Puerto Vallarta, etc.
So if you do find yourself having to make a hard decision due to income loss, it might be a good time to see the advantages to cheaper places. I’ve been recently interviewed on other shows about this topic, and one of the things that I discovered in my travels is how retirees that can’t make it on social security in the USA move to Mexico and find a new life with other expats there and love it. Having seen this first hand, I am a huge fan of the idea and yet it is a bridge too far for many - not because it is logistically difficult but because they mentally are not prepared for it. Yet our neighbor to the south welcomes US and Canadian expats with open arms, has great and affordable healthcare, has a simple temporary or permanent VISA program and is super cheap to live there. Thinking out of the box may work for many here.
But let’s focus on local US costs of running a home. This is where my definition of “frugal” may differ to most. I’m not talking about living in squalor or some minimalism experiment. I’m talking quality and LOW COST. It is about being smart and frugal - not just frugal to the point where it goes against your life goals.
The biggest mistake I see people making when it comes to keeping expenses low in the home is that they forget about time. The greatest risk we have is when expenses continue over time - you might think you got that great bargain on a purchase, but if you have to buy something 5x over because of low quality or you just went too cheap, it won’t be a frugal decision.
So quality matters - not only because it is more enjoyable and stress free to have nice things, but those nice things will likely last you far longer than things that are not nice.
If you find yourself in desperation, then a lot of what I’m going to share might seem like “Well that’s great for someone who did that years ago, but I gotta get through the month here and I don’t have the time to do these things now”. Bad mistake right there. The enemy of your financial freedom is making quick and rash decisions to get you out of danger. This is where the PayDay lenders and other vultures live. They want to sell you cheap crap that they will get massive profit levels on, rather than quality that will last. It is better to do without than to buy crap that is low quality just to get through the moment. Say NO rather than saying “I’ll take the lowest price one”. Remember the best savings come from NOT spending money as opposed to spending the lowest amount of money.
Also when it comes to frugality, there are no shortcuts. One of the biggest mistakes I see people making is to rely on third parties too much to cover you in case of some problems. Home warranties, for example, are the biggest scam in history. They will sell you some program (often bundling it into the purchase price of your home so you don’t “feel it” so much) but when you go to collect on it, it won’t be honored. Sure, little appliance repair expenses here or there *might* be accepted, but try using it to fix or replace large AC units. You will get some scamming so-called technician into your home to look at your AC unit, give you a $15,000 quote to replace it and then be told by the home warranty people that they have some loophole to weasel out of it. Then you start realizing you got scammed. So don’t fall for this.
It is also better to invest in regular maintenance of the things you have that will extend their life. This not only covers HVAC in the home, but also irrigation systems, plumbing but also your car.
Your knowledge here matters. If you have time right now, this is when you start to take on the projects around the house that not only were you deferring but were likely costing you a ton of money to avoid. If that means watching a ton of YouTube DIY videos, now is the time to learn skills. You can learn basic plumbing & electrical skills that won’t get you killed but avoid a $150 an hour tradesperson having to visit your home. Look, you will probably get things wrong the first couple of times you do it. If you are doing something you’ve never done before, you will make a balls up of it for the first couple of times. But that’s because you haven’t left the gate and started the journey. Do something 3 or 4 times, and all of a sudden your work quality starts to look semi-professional and maybe even professional. But the confidence you will generate and the knowledge you have gained may save you thousands in the future.
Knowledge is generally available for free these days. The Internet is full of free information that empowers you to take back control. So seek it out. Invest time in you, so that you can then invest your time in your domain. There is so much to learn out there that we don’t know and this is what makes us interesting.
I’m going to cover things that we have done in our home that save us enormous amounts of money. The first thing I had to do is consult our profit & loss statement to know where the money was leaking. What I discovered was interesting, but sometimes it didn’t really tell the whole story. In Phoenix, where we currently live, we are in a hostile environment. The desert was never meant to sustain human life, and certainly not a city of 5 million people. But because of human technological achievements, we bring water to the city from the snow run off of the Rocky Mountains via rivers and channels, and our power is provided by nuclear technology. This means that our summers which are severe incur the greatest costs in terms of homes - both in power consumption when rates are high and air conditioners run 24/7 to combat the 120 F temperatures for months on months, but also the high cost of water usage since it is a critical resource for us. We have to keep a close watch on power consumption as well as water costs, and that reflects in our P&Ls.
In your region, look to your climate and what impact it has on your costs of living over the seasons. This means that being prepared for the highest cost season (whether that be winter in the north or summer in the south), should be job #1. You don’t want your HVAC system dying in the middle of the extreme temperatures. It means learning all about them and ensuring they are regularly maintained (at least once a year prior to the harsh season) is key in keeping the quality of life. Also be aware that these units have a physical lifespan. 10 years for an A/C unit is pretty good, and if you get more that’s a bonus. But the cost of a $15,000 A/C unit over 10 years is $1,500 a year, so if you can extend that out to 15 years, that is $7,500 in your pocket for what might only be a $1,000 investment in HVAC service techs over that time. Think about things in terms of long term costs rather than looking for short term bargains all the time. They are often short lived. Quality matters here and the Internet is your friend when it comes to reviews and MTBF statistics.
So the basic methodology I use here is to find the answers to these two questions:
1. What delivers the greatest benefits and Quality of Life increase over the longest time for the lowest *per year* cost?
2. What provides the lowest level of maintenance and therefore allows us to travel the world for at least half of the time, without the burden of high costs on return?
It is of no use to have a super frugal low cost, but to be a slave to your home. That goes against the unconstrained mantra. You need both. Low cost + Low maintenance/risk. When you find something that ticks both of the boxes, then you have a winner to invest in.
The first thing you need to get a handle on is information. Information is power here. I’ve mentioned to first understand where your highest expense line items are. If power is not cheap in your region, start with that. The first thing you need to find out from your power company is what they charge. This is often clouded in mystery. They might make it hard to understand how your bill is structured, but typically they have different programs and rate structures. Most of the time they will have an on-peak and off-peak rate system. How they do that could be time of the day or day of the week or month of the year. For example, in Phoenix the main power company here (APS) charge $0.07 per KwH of power for off-peak usage. They charge, however about $0.25 per KwH for on-peak usage. That is almost 4x the cost of power. It doesn’t matter if you understand what a KwH is or not. Just focus on that as a unit of measure for now.
Off peak means anytime between November and May (winter months) and on peak is between the months of May thru end of October (summer months). However the time of the day matters. In on peak times, the switch in rates occur so that between about 10AM through 3PM, but everything else is on peak rates. During off peak months, that changes to off peak from 10PM through 3PM and weekends are off peak. So timing matters. If you move scheduled events around to match these calendar periods, you could save $200 a month. Pool pumps, for example, need to be scheduled accordingly and you adjust the schedule as the seasonality moves.
It also helps if you can use any machinery or device like pool pumps and A/C units that have the highest level of efficiency particularly if they have to run in on peak times. That means that buying a new A/C unit which, on the surface, could be a $15K expense, could save you $200 a month in power usage due to a higher SEER level, not to mention reduced maintenance costs, which could be as much as $2K per year. It only takes 7 years to cover that, and if your goal is to have the A/C unit for 15 years, it is the gift that keeps on giving.
We changed out our pool pump for a variable speed high-end one to reduce power consumption and immediately saw a $75 a month savings on power. The $1800 it cost for the pool pump therefore has a 2 year ROI, and we’ve had it now for at least 5. So it paid for itself and now we get the power bill down.
Another thing that can be done which is pretty easy is to understand how the natural elements will affect your home. Newer homes are often built with more energy efficient windows, insulation, etc. but even older homes can be made to be close to that spec. We changed all the windows in our home with Low-E windows. This was not only needed because the summer will destroy windows in Phoenix, but reduced the ambient temperature in the house meaning the A/C units don’t have to run as hard. This directly reflects in a power savings there. Now window replacements are expensive, but if you are looking to control the internal temperature and you are looking to get 20 years out of windows, the cost of replacement is easily amortized over time, and often can be offset against power savings so the end result is that it costs nothing.
Here’s a hack that I learned also. Look to how the sun tracks over your home. Our home is typically north/south facing, and the sun tracks east/west. That means that in the morning the east side of the property is heated up, but the bulk of the heat comes on the west side of the house. Therefore we have grown leafy trees to shield the house from the sun on the west side, installed car ports and awnings to reduce heat on windows. But one of the most interesting things I did was to discover exterior paint that was InfraRed reflecting. This is not offered over the counter or through most retail outlets, but we found that Sherman Williams sell it. It is not cheap - about $300 for 3 gallons of it. But we painted this on the west side of the house and it reflects away heat from the house. The $300 cost of paint was quickly amortized because the west side temperature dropped about 10 degrees which represents a huge savings in A/C costs for the house. Just because of $300 of “magic paint”.
You can use inexpensive technology here as well. You have probably seen those Infrared cameras from companies like FLIR that they use in military applications, etc. Well they are a great way to find out where the “hot spots” are in your home. Using them allows you to target specifically to reduce temperature where you can’t see it. Companies like Seek Thermal offer camera attachments to smart phones for about $200 that let’s you see temperature so that you can target challenging areas to find natural ways to reduce temperature on your home and consequently power costs to run the home.
Another thing we recently did was to change out water heaters for high end Bosch tankless systems. They have an expected 20+ year life, but more importantly I’m not holding gallons of water in a device that when it breaks, will leak that water throughout the house destroying flooring & drywalls. We’ve had that happen before, and it turned a $1000 water heater into a $25K floor remodel. Water is a challenge in a house - never underestimate the cost and repair expense of water. The additional $1000 you might pay to go tankless will not only save you in fuel costs since it doesn’t need to be always on, but it reduces the risk of water damage.
Last year we suffered major damage to the flooring of part of our home due to a water heater burst, which drove me towards tankless. This is standard practice in most countries outside of the USA, but harder to find here. However we did go down this path, but at the same time and armed with some money from the insurance claim on it, we decided to spend additional funds and re-tiled the entire house end to end. We removed all carpet from the house, all wood flooring and went with Spanish tile (not like the typical Mexican tile that you see, but more Travertine looking tile that was imported from Spain), throughout the home, new baseboards and repainted the entire house. Massive job. But one thing I’ve immediately discovered is how much cooler having tiled floor throughout has made the house. I’m hopeful that this will contribute to reduced power consumption because there is less to cool down now that we have more reflective flooring. Plus the home value went way up with the remodeling so although I’m not looking to sell, at least I feel that the money didn’t go to waste and increased the quality of our life as well.
One thing we invested in about 10 years ago was home automation. This allows me to ensure that lights are turned off when not needed and with that came with the obvious replacement of all lighting with LED systems. Again, a cost up front that was high but the ongoing cost of running the home is reduced. Being someone who has a long history in cyber security, I won’t allow any form of device into the home that is permanently attached to it, that relies on an Internet connection or outside service. I use the ISY home automation devices that I can install and control inside our home network, and all lighting systems are running either ZWave or Insteon. The ISY system allows a simple “If/Then/Else” programming approach to things like bathroom fans, lighting, outside water fountains and garden lighting, motion detection, etc. so that it can be programmed with simple statements like “If the time is after 7AM, turn off the garden lights” or “If the bathroom fan is turned on, turn it off in 10 minutes”. This is one of the greatest ways I can reduce power because I don’t need to worry anymore. Things just get turned off automatically. You can even have it detect movement and turn on things if you want, but you take this stuff to a level you want to go. Anything that covers you by turning off unnecessary items, will save you hundreds of dollars each year. The cost of acquisition of this stuff has a typical ROI of about 12 months for us. So it is a no-brainer.
I have recently extended this to include water flow valve monitoring and an automated shut off valve. The water flow valve can be measured so that I can see patterns of usage and look for abnormalities. If I see more water being consumed over a 1 hour period, I can shut off the water. This not only saves immensely on water bills, but also reduces the risk of water damage if there is a leak somewhere. There are numerous software systems that you can use that will help you track water usage over time, and integrate with shutoff valves for protection.
Additionally I use a product called “Open Sprinkler” that is an open source water & irrigation system for our property. Open Sprinkler is about $150 and it allows me to completely program and control our irrigation system in the same way as the ISY does the home automation unit, but integrates with weather & rain detection so that you are not watering plants if it is going to rain anyway. Living here in the desert we are laser focused on water consumption, and devices like this help in making sure that you are not using more water than necessary.
On the subject of gardens, one thing we did a few years back was to replace aesthetic plants for fruit trees and vegetable yielding plants that also look good. Simple idea - if you are going to go to the trouble to water a plant, you may as well get food from it. That has been fantastic as replacing some native plants with orange, lemon and other fruit trees gives us regular food from the garden for no more effort than it would have been to grown native trees. I like to have a nice garden, but I would like something back other than it just looking nice. This extended a few years back to dedicating part of our backyard to vegetable gardening, which we rotate through crops for summer & winter yields. Right now I just planted 24 tomato plants that will deliver in about 4 weeks. Additionally crops like herbs such as Rosemary, Cilantro and Basil are staples for us so we grow all of that ourselves. The watering is (again) done with Open Sprinkler to conserve water and I can fine tune this to change with the seasons as well.
You have probably noticed that I haven’t mentioned solar power yet. This is because it is a very costly and technically challenging thing to purchase for a home and assumes that you are going to be living in the same home for 20+ years. In 2017 I spent an enormous amount of time with solar power engineers to work out the costs of doing this, and my goal was to be 100% off-grid in the home so that I could generate all of my own power organically. I mean you’d think that in Phoenix with the summer desert and massive amount of solar exposure, that we could do this. However if I went with general solar contractors and company offerings, it wasn’t cost effective.
Most of the reasons were not due to the costs of technology, etc. but regulatory costs. You start to realize just how much of a scam this whole thing is. For example, based on the size of our home, I needed to generate 30KwH of power. We have adequate roof space to install solar on the side of the home that doesn’t face the street and wouldn’t be an eye-sore. But we have to store that power, which requires lots of battery capacity. And those batteries have to be stored in temperature controlled environments to maintain their longevity. That means building or refabricating a garden shed into a temperature controlled environment. Still not a deal breaker for me - we can do that, but here’s the thing that really irked me.
The power company have made some deal with the city that won’t allow you to generate more than 15KwH of power without having to trench in high capacity power cables, and this requires under the street trenching. So I contacted the city to see what this would require and I have to spend about $30K just to get that done. Still not willing to give up, I factored all of that in and by the time we had priced out panels, batteries, labor and trenching, it was over $100K to do it. Nope, that isn’t going to happen.
So I put that project aside and went back to optimizing the house to be as low in power consumption as possible. I learned that this is where you get the immediate benefits. Investing in upgrading refrigerators, pool pumps, windows, A/C units, etc. is the best immediate solution. I mean you can go crazy with this - I bought a KillAWatt device that you can plug items into and measured power consumption. I discovered that old computers I had that were drawing 200 watts of power could be replaced with smaller, fanless units that drew 30 watts of power, so I went through and swapped all of that out. TVs that were drawing 100 watts could be replaced with newer TVs that not only gave better quality 4K images, but drew 50 watts of power. So we did that. We looked for anything that was “always on” and replaced it with something that drew far less power. How could we know that? Well the KillAWatt device to the rescue. Look at power consumption and note it and then find any unit out there that has a substantially lower consumption, and replace it. Even if the unit you are replacing has not reached the end of its natural life. Sell the thing on Craigslist because someone out there wants it, and doesn’t care about their power consumption. That’s what we did.
Eventually our power footprint was minimal. Then I started to look for information solutions that could give me that data over time, and I found this company in South Carolina who produce a product called a “TED” (The Energy Detective). You attach it to your electrical panel and it has a thing called a Spyder that will connect to each circuit on your panel, and it provides a local webserver to your wifi or home network that you can connect to with a web browser and it will tell you over time what is using up power in your home. This allows you to laser focus on how to reduce power consumption. Total cost of one of these units is about $450 all in for what I bought. But now I have a complete power consumption picture. If I can reduce my power bill by $50 by targeting what is actually costing me power, I’ve paid for this unit in 10 months and the information continues to flow from there for years to come. I have a friend who is an electrician so the install cost won’t be anymore than a few beers.
So rather than trying to find a massive solar solution, I returned to consumption and got it optimal. Now I can probably find a solution that is less expensive for solar, but I also discovered something that just makes commonsense.
Why do I want to go 100% off-grid? In many states in the USA, the power company will charge a mandatory fee to “connect you to the grid” and you can’t avoid it. And since the power rates are pretty cheap at certain times, maybe it makes sense to use those and just generate my own power for what it is not expensive. Sure, I can sell power back to the grid, but the laws of the free market don’t play in my advantage here. Cost to buy my power is set by the customer, not me. There is 1 customer - that’s why. I can’t put my prices up if it costs me more in batteries, or whatever. So I get what I get. Using it as a way to offset power costs isn’t a good or safe idea.
But what if you could segment your property into separate “zones” and run separate circuits and panels so that part of the home is 100% solar and other parts are grid tied? Now this is something I’m thinking makes sense. Target the items that are very expensive to run for power and use solar for those, particularly the items that are needed in the hottest times of the day (ie. A/C units) and use the grid to fall back when power is cheaper. I’m in the process of starting a project with some electrical engineers to work out how to do this, and I’ll keep you informed how I go.
Just to give you some perspective here, in the most expensive months in Phoenix, it is not unusual to see a $750 a month power bill. But with some targeted strategy, it can be brought down to 50% of that price. My goal is to get a sub $100 power bill in the worst months, but it has to be done smart so that the costs are properly amortized out over time.
And the technology is constantly changing and getting cheaper. The battery technology alone dropped about 30% in the 2-3 years since I originally went out for quotes, so timing matters here. They have a shelf-life so that has to be factored into the overall picture.
Anyway if anyone listening is doing some really creative solar solutions for their place, please comment in the podcast episode show notes at www.beunconstrained.com as I would really like to pick your brains on this.
So that’s a bit about minimizing costs in the home. These savings are the gift that keeps on giving for the next 20 years to come. For me, this stuff is fun. I like the concept of being in control of my environment. I like that I’m carefully watching out for those that are trying to extort us with taxes, rates, fees, interest, etc.
On the next episode, I’m going to move up the Maslow’s hierachy of needs from these physiological needs of home & shelter to more utilitarian needs such as cars, communications & phones, Internet, etc. These things cost so much these days and yet are easily able to be optimized to get the best quality for the cheapest price.
Following on from that, we are going to talk about health care and health insurance options and how you may be able to bring back the free market to 90% of your health care costs if you are alert and see things clearly. This is something that I know many who have lost jobs will be facing, as with the job loss they may have lost health insurance, but using our techniques you may find that you don’t want employer provided health insurance anyway and maybe for your current or next job, you can negotiate with your employer that they pay you the money and let you take care of yourself and your family rather than embracing the shackles of their employment.
See you on the next episode.