How To Save Money On Recurring Expenses With The Cash Flow Cookbook
Posted on: February 5, 2020Posted in Financial Advice, Interviews, Videos | Comments Off on How To Save Money On Recurring Expenses With The Cash Flow Cookbook
How To Save Money On Recurring Expenses With The Cash Flow Cookbook
In this episode of The Glass Is Half Full, Richard Killen, a Licensed Insolvency Trustee interviews Gordon Stein, author of The Cash Flow Cookbook. Gordon is a keynote speaker and a writer with a passion for helping people build financial wellness.
In this episode, Gordon outlines how to save money on recurring expenses such as car expenses, pet services, alarms, transportation and more. Forget about budgeting and concentrate on building wealth and net worth, even if you are living paycheck to paycheck.
| Richard | So today we’re joined by Gordon Stein Gordon, and I’m going to read this to get it all right because there’s a lot here to talk about. Gordon is a keynote speaker and writer with a passion for helping people build financial success. Canadians are struggling with high levels of personal debt and higher levels of stress over money. In his book The Cash Flow Cookbook, he shares dozens of low effort and low sacrifice ideas that can free up cash for paying down debt, investments, savings. Applying these simple recipes can build millions of dollars worth of incremental wealth over a typical career, which I find pretty impressive. So, Gordon will share some of these strategies with us today. And I understand you should probably grab a pen and paper here so you could make notes. Welcome. |
| Gordon | Good to be here. Thanks so much, Richard. |
| Richard | In your in your book. It’s called Cash Flow Cookbook. I’ve got it right that you have 60 strategies, but like any other good book, you don’t call them strategies. You call them recipes, right? |
| Gordon | Right. |
| Richard | And they’re all designed to save money in one form or another. So I understand this was written after a conversation you had with a friend about a $13 car wash, and I think I’ve run into that same car wash. I’m intrigued to know how this led to your book. |
| Gordon | Well, I had no intention of writing a book until this incident happened. Like many things in life it sends in a very different path. And I was driving a friend home from a barbecue, and he spotted a $13 car wash receipt on the console of my car. And he, you know, berated me for it. So why would you spend $30 on a car wash? I said, Well, you know, I’m not going to wash my car with my suit on. I said you know, what do you recommend? Well, at the time he said why don’t you go get an Esso extra points card? And you put that on the pump before you put in your credit card. And then you track your points online, you fill in a form and you take it in and you get a free car wash. So I thanked him for the idea, dropped him off, and I made sure I was down the road. I thought to myself, This is the silliest idea I’ve ever heard of to go through all this for $13. And in a couple weeks later, someone had one of the little Esso speed past dongles. They touch it to the pump, easier than a credit card, automatically tracks their points and they get the free car wash. That is ok, that’s cool, because it’s actually easier to pay for the gas, so I haven’t actually paid for a car wash in four years. Not a huge thing, you know, $25 a month. I thought well I wanted to get one for my spouse. So now, it’s $50 a month. And then I heard the idea on a radio ad for one of these discounted home alarm monitoring systems. So I compared and it was $25 a month cheaper. So now I’m up $75 which isn’t a huge amount of money, but none of this took any effort. I started to wonder what else is there and, you know, my background in engineering and an MBA. You know, I got focused and made a spreadsheet. Before I knew it I had 120 Ideas. I set a minimum of $25 and in total there’s $13,000 of monthly savings. So that’s really how it got started. |
| Richard | That was an interesting car ride. |
| Gordon | It was for sure. |
| Richard | I have one of those speed passes too. I’ve never been that smart about it yet. I think I’m gonna learn a lot here today. The driving principle behind your book Gordon is that those, even those living paycheck to paycheck haven’t got what they think to be any spare money floating around can reduce their spending, but with minimal sacrifice. And they could use the money. Then, of course, to do like you just described. All of a sudden there’s a $50 free hasn’t gone out. It’s still in your pocket kind of thing, right? Can you give us any other examples and why this is possible? |
| Gordon | Well, I think the thing is really what I learned in the book and doing the research. It’s all about recurring monthly expenses, and these are things that are coming out of your chequing account every month, typically there on pre-authorized payments. You set something up. Maybe it’s a gym membership. It’s a storage locker, and these things just keep coming out. You sort of take that as your new normal. And if you’re in a situation where you’re in debt or you’re headed for insolvency, you need some help. Certainly go see a professional such as yourself, Richard, but what can you do in the meantime, to prune down that monthly spend to get out of this thing where your living paycheck to paycheck and you’re struggling, and most people are in that situation, but they really haven’t taken a good look at their expenses. So you know, some examples would be things like storage lockers. You drive typically in the suburbs, and people have their garage doors open and they’re filled with stuff. And the storage locker business as an example, is booming because people just won’t prune down the stuff that they’ve been saving. Their spending $100, $200 or $300 a month on a storage locker somewhere. So pretty obvious point here is let’s go through Marie Kondo style. Now let’s prune out all that get the stuff back in our houses and save on the storage locker. So whether it’s in the book, the recipes, everything from thoughts on dining out and how do you reduce those costs. Ideas on housing, ideas on transportation. So 60 in total. There’s actually a little anecdote of the beginning, adds another 60. So actually towards 120 ideas that go from about $25 a month to $200 to $400 a month. And the idea is anyone can start today and start to free up that cash and apply it to paying down debt. If debts your issue. Or if you’ve got some savings, you’ve got some net worth. Let’s apply more to investment to build and grow that well. Also, we don’t have to worry about money. |
| Richard | In your book. You very clearly don’t believe in budgeting, as such. Your approach is really, They can do rather can’t do approach. Budgeting tends to be restrictive. Somehow you cut back with budgeting. You have a tendency to think that way? What you’re doing really is talking about spending smarter. We’re getting a lot more for whatever it is that you are spending. So is it psychological? Is this the intent behind this? |
| Gordon | Yeah. Well, first of all, I’m amiss. I didn’t give you cash flow cookbook. So my apologies. |
| Richard | You came armed? |
| Gordon | So yeah, the budgeting is interesting. You know, if you think what you want to do, you’re driving your car. And you don’t want to go too fast, you look at the speedometer, you want to lose weight, you look at the scale. So if you want to build wealth and building wealth includes getting out of debt. You know, even if your goal is to get up to zero or to be less in debt. What are you trying to do? Well, you’re trying to increase your wealth. Maybe it’s been going from negative $200,000 to negative $50,000 maybe going from 0 to $100,000. But what do you want to look at? You want to track your wealth, not your budget. Because if you think about it, you could set a budget. You can follow your budget every month for your entire life and retire. And not have enough money. So far smarter, I think, is the whole core of Cash Flow Cookbook. And let’s get it out of the closet. Let’s dig out the bills. Where you at right now? What is your actual wealth position? Some people call it net worth position, so let’s take everything that we own. Let’s subtract everything that we owe, and let’s say, Hey, how much wealth do we have? And some people say well I can’t do that because it’s negative. I’ve got student loans, so whatever the number is, let’s actually understand that number. And I want to see how we do month after month. I think that is a critical step for people because then they can see. Am I better off in September than I was in August. And am I tracking better in October than I was in September? Are you increasing that wealth by $50. Increasing it by $500 or $5000? Is it moving in the right direction? So you’re building some wealth. I think with budgeting particularly in the case of a couple, It’s gonna lead to arguing. , Oh, you blew you’re a part of the budget. Why’d you spend so much? But then things happen. The kids need new hockey gear. Well, that wasn’t in the budget. I think it’s an artificial approach. When you track your wealth, you start making smarter decisions about everything that you do in your life. |
| Richard | Your way of understanding it is you’re focusing on the positive rather than a negative. Right? Coincidentally, Let’s see your book again? |
| Gordon | Yeah, sure. |
| Richard | I’m going to show you my book too. But I think that in it we talk about a very similar type of thing. I’m talking about an approach, the mindset if you want. In mine, it’s called, The Glass Is Half Full, the positive side of debt relief. And the person could say, Well, what’s the negative side of debt relief? And I’m not sure that anybody knows the answer to that one as such. But what I meant by it was very similar to what you’re talking about. That the people who get into trouble tend to allow the trouble to define them and it tends to constrict them and restrict them. My idea is that they should be taking with the right attitude, they can take that and turn it into that opportunity. Okay, that starts thinking forward. And what you’re describing seems to be all about forward steps rather than looking to see if there are negative steps. |
| Gordon | Well, I think that’s it exactly. I’ll give you a really basic example from the book. One of the simple recipes really makes the point you can start today. So the average Canadian or American they retire with about $200,000 of net worth. That’s the average, not a very big number, $200,000 a lot of money, but not if you have to live on it for 35 or 40 years with inflation. So here is a very simple example. If you went to Home Depot everybody can do this. You buy a 10 pack of led light bulbs. You replace the 10 most used lamps in your house. You’ll save about $20 or $25 a month on electricity. The side benefit of being a little bit more green. Now, over a 30-year career, you’ll end up with $25,000 more net worth. So it’s about 1000 times a monthly amount, compounded over the period of time by the through debt reduction of investment. So there’s $25,000. That’s more than a 10% increase in the Net worth you retire with for the average Canadian or American with a 15 minute trip to Home Depot. So there’s a very simple example.
And, yeah, you know, maybe, let’s say it’s 10 light bulbs, so very simple. But what are all those other things to do? So we literally in a day or two, you know, taking a look at your cell phone bill, you know, taking a look at different things. Clothing expenditures. The book is chock full of these ideas, and would everyone use all $13,000 worth of monthly savings? No, because people don’t typically spend that much. But could you get a handful of ideas to free up? Let’s say, $200 a month. If you could free up $200 a month and put that to good use. I.E. paying down debt or investing it wisely in blue-chip kinds of things. You’re gonna retire with another $200,000. You’re gonna double the average Canadian or American. So, you know, to me, that’s what it’s all about. These are simple, simple steps. |
| Richard | Over what period of time are you seeing this? |
| Gordon | I’m using the example of 30 years. People go for 30 years? Well, you know what, when you think about it. You know, I worked in the corporate world for 35 years. I still have lots of energy to go. Hopefully, statistically, I’ll live another 30 years. So I’ve got the same opportunity in the whole road ahead of me. Sometimes I have people who say, Well, I’m retired I’m 71. How does this help me? Well, it helps because they probably have a fixed amount of money that they’re working with. So now it’s not about producing debt. It’s probably not about building wealth. It’s about lowering that monthly burn rate, still beneficial for them to make them more comfortable about making ends meet. |
| Richard | You mentioned the age factor in all this. In my business, I see more and more I suppose, because my generation, the baby boom generation. There’s not a lot of people out there who have gone through the working period and now of course their in retirement. But things haven’t changed for them in the way they live their lifestyle. If you want and all that. So, if you take what you’re talking about, having these positive approaches is to doing something more efficient with this and more effective with that and so on. When you get into this period here now there, they find themselves in a position where there’s not that much leeway anymore. So they find themselves much more restrictive. What do you tell these people? |
| Gordon | Well, again, I think it’s just about being a little smarter and not giving up anything at all. So, I’ll give you an example. I needed a new pair of glasses, so I went to the optometrist in the neighbourhood and, you know, sized it all out in a few different pairs price range was about $600 to $800. For a pair of glasses. Progressives, you know, coated lense, whatever. It’s kind of a lot of money so, you know, I could have just bought them, not that big of a deal, but it’s a chunk of money. |
| Richard | That would’ve been the easy thing. |
| Gordon | There’s Bob’s optometrist, There just down the mall. I’ve driven by them 100 times. So I did a little bit of online research. How long did I spend? Maybe an hour. So then I looked at some of these online glasses places, so I already had my detailed prescription from my optometrist. So ended up with a great pair of glasses from one of the online providers. $109 I spent and there fabulous. The lenses are great. They’re exactly the prescription that came in the mail. I didn’t have to get leave my house. I didn’t get in the car, they delivered right to my door. So you might not have thought about that. I give you another one. Our dog needed to get spayed. A 15-pound dog. |
| Richard | Did you ask his opinion? |
| Gordon | No, I didn’t, hers. So anyway, you know, we looked at the neighbourhood veterinarian $1500, no problem they can spay the dog. And that’s great. So it’s the dog getting spayed, you know? And so I thought just before we do this for $1500, I called a friend. What did you pay for your dog’s spaying? He said about $800, and a different neighbourhood and in a way, I thought that’s pretty interesting. Half the price to get the dog spayed. Call the second friend. One more phone call, another 10 minutes and he says well, actually had mine, I spent about $800 but a friend of mine had it done at the Humane Society. I thought, Well, that’s interesting. So I called them up. Yep. We do the spaying. How much? $150. So you had to call in on the second Thursday of the month. It’s like a phone lottery. Um, and you know, you burn an hour on the phone call, but who makes $1500 an hour, right? $1350 or whatever. Anyway, the dog gets spayed. So just those two things. Nothing changed in the lifestyle, the dog still got spayed. Dogs perfectly healthy. He’s fine. Got a great pair of glasses, but the total of all that was, you know, $250 versus what would have been, you know, $2300. What was it? Half an hour’s worth of calling around. So just getting a little bit smarter for a retiree getting a little bit smarter on each thing they do. A little bit of calling around a little bit of research. |
| Richard | So when you speak to large groups. I don’t know why this is common to large groups, but when you do speak to large groups, the subject of clothing comes up when you’re talking about managing the household expenses. I’m intrigued by that, why clothing? |
| Gordon | Well, it’s been fascinating. It was one of the things I learned as I did the research on the book. I started with a few ideas of things I saw then really dug in to find out what the other ways of people can free up some cash flow for investing or debt repayment. And the clothing one is fascinating because the research shows over and over again. People only ever wear 20% of the clothing that they buy and when you serve that up to people they go, no no, that’s not the case at all. But I’ll tell you, when you go if you watch Marie Kondo with her tidying up show. And you see her on TV and she’s on Netflix pulling these huge garbage bags of stuff out of people’s homes to give away to charities and what have you. And the bulk of this is clothing. And what happens is, you know, people sort of tend to go shopping and they see a blue sweater. Oh, it’s on sale, and so they quickly grab it. And off they go when they get home and not realizing they have four other blue sweaters because they weren’t, you know, shopping mindfully, there were just shopping. So they found this. Please, let’s say the blue sweater is a little bit baggy, so, you know, you go in the closet when you’re gonna be on an interview, you’re gonna go have an important meeting. You don’t get the ugliest thing out of your closet. You don’t get the baggy sweater, you don’t get the pants that are too short or the one with the sleeves that are too long. You always put on your best stuff. This means the other 80% which we shop for not mindfully, tend to sit in the back of the closet. So if you combine that, you take a look at the average. Canadian expenditure on clothing tends to be around 6% of the gross income. So someone, let’s take someone making, say, $70,000 a year. 6% is $4200. Call it $4000 but they’re only gonna wear $800.
20%, $800 which means $3200 a year of after-tax income |
| Richard | Sits in the closet. |
| Gordon | It sits in the closet, and then it gets sold in the yard sale for about five cents on the dollar. If you’re lucky before the hagglers come. |
| Richard | Or given away to Value Village |
| Gordon | Or given away to Value Village, which is great from a charity perspective. But, you know, maybe you want to get a tax receipt for your $3200 contributions. If you think about that person, so let’s just change that up a little bit. Let’s shop a little bit more mindfully. You know, you’re brown belt buckle breaks. Maybe get it repaired. Maybe you want to go buy a new brown belt to replace the one that you lost. So that’s great. So now you’re shopping much more mindfully, but you could double you’re spending on the clothing that you’re actually gonna wear going from $800 to $1600. That now frees up your going to have $2400 a year freed up now. So twice as much clothes and $2400 freed up. What do you do with it? You pay down debt if you’ve got debt to pay down instead of paying interest on it or maybe getting invested in an exchange traded fund. |
| Richard | You’re not the first person who’s been on our show talking about paying down debt. Truth is, I do a lot of talking about that too with my customers. But, talk about that if you would please. The idea of paying down debt. Maybe you can quantify or make it a little bit more real to people. How much this really helps. What’s the advantage? |
| Gordon | Yeah, I think what happens is again. We’re not mindful. So we tend to just go when we buy and we go to restaurants and actually think about what’s happening. But if you’re in a situation where you owe some debt, I think the first thing is to get it out on the table. How much do you owe? And people tend to have 3, 4, 5 credit cards. They’ve got Banana Republic, Canadian Tire. This one has a discount on that. So they get talked into these things and they might have five of them. And some cards have a couple $1000 balance on each. And then there’s sort of insidious. They just keep creeping upon us. So if he owed that $10,000 that’s about $200 a month in interest. Easily, if not more so that $200 now is pushing us back. So we gotta make our payments on it, and they got this headwind of another $200 a month. It’s no value to you. In fact, it’s pulling you backwards, and so what happens that debt starts to grow? There’s something that you want and your adding more credit cards. So paying it down is the first step to really starting to get the money working for you. So instead of working for the money and you know, I always feel like you’re like this and which bills to pay, if you can just start by getting a little bit smarter? Get that debt paid down. Now, you don’t have this headwind hitting you. You get to a zero point and then you can actually start to build some wealth by building some of these great habits. Minimal effort, minimal sacrifice. But now, once you’ve got some money, that money can start growing for you and you start to get a nice portfolio built. |
| Richard | And you’ve described something that I certainly wouldn’t call it a sacrifice. Paying down debt is not a sacrifice. |
| Gordon | Not at all. |
| Richard | Not in itself yet. Now you may have to forego something else in order to do it this month. But then I suspect that for most people, but they would have to forego would be very, very low on the sacrifice totem pole. |
| Gordon | I think. |
| Richard | You’re not going to sacrifice important stuff, |
| Gordon | Right? I think initially when writing Cash Flow Cookbook, it was really focused on Hey, what’s the minimal effort? Minimal sacrifice, things that people can do. And if you think about that and there is, you know, $13,000 of ideas that I’ve built into the book. People can use some or maybe even all those. But all of the book and cash flow cookbook was written without actually giving up anything. But there’s this whole movement now about frugality and, you know, living with less. And I think what happens is that actually leads to more happiness. So if you saw the movie the Fight Club, they have a great quote in there and they say “the things you own end up owning you”. Which is very true because they think about a car, it needs maintenance and car washes. And you need new mats for it and so on. And you want to get a motorcycle as well. But it has the whole service schedule that goes along with it and a cottage. It needs work. |
| Richard | Or you could just start your own business. It ends up owning you. One example of that we’ve mentioned before off the air about an American fellow that I guess was responding to your blog or something like this, and you showed him how he could save something like $10,000. |
| Gordon | Well, it actually ended up to be a lot more than that. What happened was this gentleman from Kansas. He had sent me an email and it was one of my favourite ones. And he said, you know, I’ve read the book and he says, I’m really excited about all this and, you know, here’s my situation. He is 46 years old and he had zero wealth, was earning six figures a year. All of this hard work, gets to 46 years old, he actually has no wealth because he read about the concept of what your net wealth. And so he sent me a note and that led to a phone call, had a great chat, and so his situation was you know, what he owned, which was pretty modest, was effectively cancelled out, by what he owed on it and he hadn’t put much thought into money. This is not at all unusual with people. And so I said, well, what about your (he in the U. S.) 401k from your company? Which is like a company RRSP in Canada And I said, do you have one of those? He said, well, the company offers one. I said oh, great. What’s the balance? How much do you have in? And he says none. Well, what do you mean none? He says I don’t have any cash. It’s the usual problem he has no cash to invest in there. And I said, well, is the company contribute? He said they will contribute up to $5000, a $5000 a year matching plan. $5000 of free money, no strings attached. And I said, Well, why wouldn’t you put in it? He said because I don’t have the cash. So we did the math it was about $400 a month, which would give him $5000 a year. So if he could free up $400 a month, his company matches that with another roughly $400 a month, so they’d be $10,000 year contribution. And of course, that can grow over time. So we use some of the concepts in Cash Flow Cookbook somewhere in the book, and there’s others available at CashFlowCookbook .com. And we applied that to free up the $400 from simple changes to his lifestyle. He made those changes signed up for the full amount of the 401K, $400 a month. And then we did the math on it. Um, that retirement, I think you would have an incremental of about 350,000 or $400,000 of incremental wealth of retirement. It was things that he didn’t miss any way. So. That, I think, is the beauty of this cash flow cookbook approach. One of these simple things that you can free up. And then get that working for you. In particular, if you have something like a company matching deal, that’s way too good to give up, that’s free money. |
| Richard | And he was satisfied that he wasn’t making any serious sacrifices? |
| Gordon | No, they were simple things. We looked at things like his clothing. There were some things around storage lockers. We had a couple of changes in his transportation. Just generally getting smarter, more mindful about his money. He had the identical lifestyle he had before. But now he was going to retire and take that financial pressure off and stop worrying about living paycheck to paycheck. |
| Richard | Gordon, The question may be, and perhaps I assume it would be on the tip of most people’s tongues after watching this. I hope there’s somebody watching us. Would be, especially the ones who are living paycheck to paycheck and you know, are like you say, just barely nose out of the water. Any little wave that comes along and all of a sudden they have trouble breathing and things like that. But they’re gonna perhaps be skeptical about the whole idea of building wealth for themselves and wealth, whats that. We’re actually looking at from the other end of the telescope? But you disagree with that, and it’s quite obvious to disagree with that. That’s what your book is about. But just to be practical for these people, what would be the first step in changing direction moving that way? |
| Gordon | Yeah, I think it’s a great question. I really think it sounds a bit unusual. I think the first step is to calculate your current wealth, which I mentioned before could be negative. So you know, what do you own? And maybe all you own is a couch in your rented living area. That’s the only asset that you have. You’ve got student debts and credit card and everything else. But there’s still a number there. So what is that number right now and set up, you could do it on a cocktail napkin or a spreadsheet. What’s your net worth? You know, we sit here in September. What’s your net worth in September? You’ve got a couch and you’ve got all these student debts. And then can you free up some cash and start to focus on it? It may be hard to look at that number because it might be negative. And you can say we’ll I’ll never have any wealth because I’m strung into this debt. Well, I’ll disagree. I think there’s an opportunity here. So what can you free up using the ideas in Cash Flow Cookbook or other ideas? So you’re sitting there in this negative number, and then, you know, in October can you just increase that wealth from zero? Moving it up, here is the zero line. Just keep doing that, and I think you’d be surprised how quickly it goes. Because it tends to accelerate. As you get out of that, you don’t have those interests slowing you down. Now it can start to get more rapidly up to zero. Once you get to zero. Now you’ve got some things working for you. Maybe you have investments, paying out dividends, and then it also tends to accelerate. So there was a great piece that I’d read about a janitor, in the Eastern coast of the U. S. And he retired with it was about $5-6 million dollars. He was a janitor, a career janitor. He was just smart about his money. He didn’t even have to live that frugally. But he actually saved something, and then it just kept building and building. He donated the money in his retirement, right, So fabulous story. I think it really proves the point that anyone can get out of these financial handcuffs and enjoy a happier, more comfortable life. Go on the website as well, there are some other goodies. They’re all free, and you can subscribe, blog posts. There’s things called utensils, which are tools to help with your planning. There’s ingredients so ideas, little things that you could buy that actually save you money. And then the blog posts will give you some incremental ideas. The book itself, $25, I think is the first great investment you could make. Because it’s going to show you some ways to really start freeing up the money and its the sort of thing that you can actually start today. |
