Today’s guest post is by Bradd, who’s come up with an ingenious way to save a lot of money.

Like many people, I’ve been trying over the past year to cut unnecessary expenses as much as possible.  Switching off lights when they’re not needed.  Replacing incandescent lights with compact fluorescents (bought on sale 2 for the price of 1).  And cooking on the coalstove or in the fireplace, rather than the electric range.  Through all my efforts I’ve managed to cut my monthly electric bill from about $100 down to about $90.

The Lightbulb Moment
Thanks to the power of exponential growth, I know that every little bit helps.  That extra $120 a year will add up to a significant sum over the course of many years.  But it occurred to me as I’ve been making these efforts that, if I want to achieve financial independence, I’ve been going about all wrong.  I shouldn’t be scrimping to cut an expense by 10% – on the contrary, I should double my expenses.  Rather than spend $100 a month, I should be spending $200 instead.

The moment of clarity came when I checked the stock price and financial summary of my local electric company and realized that they are paying about a 7% dividend.  I moved out of my parents house 15 years ago and have since lived in a dorm room for a year, a series of apartments, a tent and, more recently, my own house.  In that time, my electric bills have been anywhere from $200 a month to $0, averaging perhaps $100.

So, over the past 15 years I’d estimate I’ve given various electric companies about $1,200 per year, for a total of about $18,000.  Unfortunately I didn’t actually do this, but imagine that over those past 15 years, every time I paid my electric bill I had put aside an equal amount of money in a big envelope.  $100 electric bill?  $100 into the envelope.  $200 bill?  $200 to the envelope.  Had I done that, right now I’d have an envelope with $18,000 dollars in it.

Increase Your Money Further with Good Investments
What could I do with that money?  Replace my fridge, water heater, clothes washer and dryer and cut my electric bill by another $10 perhaps.  Or send it all in a lump sum to the electric company with a note that says “Don’t send me another bill until 2025, thank you very much”.

Or, here’s another idea: Buy $18,000 in electric company stock.  Paying a 7% annual dividend, this much stock would generate about $1200 per year – about the same amount I’m currently sending the electric company.  In other words, if I had doubled my expenses every month for the past 15 years, sending half to the electric company and buying an equal amount in electric company stock, right now I’d be receiving enough in dividends to pay my electric bill every month into the future…forever.

Now I know what many people might be thinking: I was barely scraping by most of those months as a college student, working stiff, grad student and so forth.  How in the world could I possibly have set aside an extra $100 or $200 month?  Well, maybe I couldn’t have, but all I can say now is, Try it for a month.  Each time you see a price tag, just mentally double it.  Imagine that $5 beer with dinner costs $10.  That $15 pizza costs $30.  $3 a gallon for gas is now $6 a gallon.  That new or used car costs twice as much.

I used to live in Norway, where $10 beers, $30 (personal-sized!) pizzas and $6 a gallon for gas would be considered cheap, and where they actually do have a 100% sales tax on cars.

How to Start the Strategy
Try it for a few months for just one expense, like electricity, phone, or food.  Every time you put $40 in gas into the tank, put $40 into a jar or envelope.  At the end of 3 months, buy that much value in a dividend-paying stock.

Lots of $1B+ market cap energy and utility companies are paying healthy dividends: Verizon and AT&T are paying over 6%.  Shell and BP over 5%.  Same with Duke Energy and ConEd.  Even Altria Group and Diageo.

I’ve found it’s far easier to stick to this plan than you might think.  First of all, it’s much easier to double an expense than to cut one by even 10%.  And second, it’s much more effective.  If you’re like me, you’ll think twice when ordering off a menu, or bring a lunch an extra few days a month.  You’ll buy cheaper products,  drive less, opt for a meat-free dish once a week if you tell yourself that prices are twice as high as they used to be.

Do this every month for 15 years for your electric bill and then get free electricity for the rest of your life after that.  Do it for about 20 years for gasoline and get free gas forever after that.  I admit, some expenses are a doozy to double – the mortgage payment, for example.  So you don’t have to do that one – you’ll only be paying it for 30 years anyhow, so no need to have mortgage payments available forever.  Same with taxes.  Or childrens’ needs. (Hopefully, the kids will have moved out 30 years from now).  For basic recurring expenses – starting with just one expense, but building up to as many as possible – try doubling your expenses and you might be pleasantly surprised to find yourself on the path to financial independence.

Bradd sells traditional-style birth announcement cards at OMGbabycards.com.

Comments

5 Responses to “Double Your Expenses and Gain Financial Independence”

  1. yas on November 3rd, 2009 8:58 am

    Wow!! do you really do that. this is really interesting to do, will have to try it.

  2. Aryn on November 3rd, 2009 10:29 am

    I agree, Yas. I haven’t tried Bradd’s strategy yet, but I’m thinking of trying it. I’ll probably start with something small like the gas bill.

  3. Jackie on November 3rd, 2009 5:00 pm

    It could also be good to try this with something you’re trying to cut back on. (Like eating out, for example, in my case.) It might cause you to think more about your spending when you know you have to spend twice as much.

  4. Aryn on November 4th, 2009 11:12 am

    Good idea, Jackie. I wonder how I could get my husband to start doubling the mental cost of his lunches out.

  5. Brittany on November 6th, 2009 2:38 pm

    Seems like this is a way to “trick” yourself into making saving a priority. Personally, I think I have enough discipline to save a certain % of my income and invest it in high-yield CDs and a money-market account. Very interesting concept though. Thanks.

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