If you think about it, your basic living expense budget is THE crucial factor affecting WHEN you can become financially independent, and HOW MUCH capital you need to become financially independent. The lower your basic living expenses are, the smaller your financial independence stash needs to be, and the sooner you will have it.

But how low a basic living expenses "nut" CAN YOU STAND living with? And for how many years would you have to stand it? How much rice and pasta can you stand to eat? How small a place can you stand to live in? How cold (or hot) can you stand the temperature to be in that place? How much of your income will an acceptable, LIVABLE basic lifestyle cost you? And how much would then be left over for you to apply to your financial independence plan?

My answer to all those questions is that a comfortable and secure lifestyle can very, very definitely be achieved without spending a fortune on it. My basic living expense budget is $15,048 a year, which is about one third of my income. And I am perfectly happy with the kind of daily lifestyle I get for less than $1255 a month (which, by the way, is a lot MORE than really frugal people find necessary to spend). My case is just one more testimonial to the power and joy of modest expense (I won't even call it frugal) living.

In fact, it is not my intent to show that I spend very little. It is, after all not that little. Instead, I want to document by one more example (mine) how much you can have and do -- how good a daily life you can have -- on less money than most (middle class?) people have coming in. To show that financial independence could be a lot closer than generally assumed.

My Basic Lifestyle
The context of my basic daily lifestyle includes owning a large house on 2.5 acres of land located 5 miles from a small town and 25 miles from "the big city"... eating a modified paleo diet heavy on meats and vegetables and low on starches... driving a well maintained older vehicle... being free of an obligatory job and commute... and spending a lot of my time hiking, blogging, reading, taking video courses, doing hobby carpentry, watching DVD movies, playing computer strategy games, and listening to classical music.

I live very comfortably. I enjoy my time on a daily basis free from an obligatory job. And I do it on less than one third of my income. Doing that does not feel to me like a big deal.

So why do so many people find this impossible (or unacceptable) to do?

My Budget Big Picture
That $15,048 a year basic living expense budget of mine works out to $1254 a month. Of that sum, $397 goes to housing expenses, $185 to vehicle costs, $378 to health coverage, $244 to household expenditures, and $50 to federal and state income taxes.

My budget big picture also takes into account that my wife pays for her share of our overall expenses. If I factored her out of my calculations, and I had to pay the entire cost of our indivisible shared expenses (like mortgage), my monthly nut would go up by a net $34 to $1288 a month (or $15,456 a year).

That my go-it-alone costs would go up so little is something that we have already tested out to be true.

We own a smaller rental home on one acre of land that I have lived in by myself before. If I were alone, I would live in that house. From prior experience, my solo housing costs (lower mortgage, lower real estate taxes, lower utilities costs, etc) would then go up a net $34 a month.

My vehicle and health coverage costs would remain unchanged because they are already calculated on a solo basis for me and my 1996 Dodge Dakota. And my household expenditures (food, etc) would not change either because their consumption would be proportional (half) to the number of people doing the consuming (1 instead of 2).

So, living with my wife or living alone, my basic living expenses would still be about $15,000 a year.

Given that, doesn't $15,000 a year (per person?!) sound like a more than generous basic living expenses budget benchmark that anyone could apply if they made up their minds to do so?

My Housing and What It Costs
I share with my wife an 1800-square-feet single-story brick house with 3 bedrooms, 2 baths, a full unfinished basement and an enclosed patio room that adds another 200 square feet to our living space. The house sits on two-and-a-half acres of land, along with a detached two-car garage, a large 400-square-foot metal outbuilding, and a humongous 1000-square-foot pole barn (that my wife has converted into her rabbit-geese-chicken raising place).

If I were living alone, then I would be living in what is currently our rental house. There I would have to myself 2 bedrooms, 1 bath, a living room and an eat-in kitchen in a 1000-square-foot single-story brick house. I would also have a full unfinished basement, an attached oversized one-car garage with enough room for a workshop, plus 2 standard-sized sheds -- all on an acre of land less than 1 mile from a river boat landing and less than 3 miles from a magnificent state park with a very large number of hiking trails.

Either way, this is living in an owned home with ample space for me, lots of privacy and no in-my-face neighbors. So, we are not talking about hovel living.

For either house, large down payments have made the monthly mortgage low. We keep the shared house at 78 degrees F in the summer and 70 degrees in the winter. At the shared house, we pay for 2 Ooma phone lines, have a trash pickup service, and have satellite as our only (and expensive) internet option. If I were alone at the smaller house, I would drop one phone line, do my own trash hauling to a nearby dump station, and enjoy better yet cheaper cable internet service.

So my monthly housing cost breaks down like this (shared house / solo house):
[] $25K mortgage ================>$114 shared ========>$112 solo
[] tax and insurance escrow ========>$ 56 shared ========>$121 solo
[] trash service ==================>$ 14 shared ========> 0 solo
[] home warranty ================>$ 50 shared ========>$ 50 solo
[] internet service ================>$ 45 shared ========>$48 solo
[] phone service ==================>$ 5 shared ========> 0 solo
[] utilities =======================>$113 shared =======>$100 solo

[] TOTAL =======================>$397 shared ========>$431 solo

So either way, it takes around 400 bucks a month (give-or-take) for me to live in a comfortable house on a good piece of ground.

With the right choice of location and a serious down payment, couldn't anyone do just as well or better?

My Vehicle and What It Costs
I think my most powerful budget-lowering tactic is my textbook Mustachian vehicle ownership strategy. In my book too, a vehicle is for safe, reliable and comfortable transportation of people and stuff. Social status preening through one's choice of vehicle is in no way a legitimate basic living expense. So my vehicle is a 1996 Dodge Dakota extended-cab pickup that I have driven since 2003. It is paid for, utterly reliable and totally practical. (I haul a lot of stuff.)

My monthly costs for that vehicle are as follows:
[] insurance (top-of-the-line) ======>$ 35
[] maintenance (and repair) =======>$ 100
[] fuel (for 300 basic miles) ========>$ 50

[] TOTAL ======================>$ 185

(My wife drives and pays for a similarly thrifty 1998 all-wheel-drive Subaru Forester.)

Opting out of a new, fancy-schmanzy vehicle has drastically reduced my monthly outlay for installment payments (I have none), insurance (much cheaper to insure a $4K vehicle) and maintenance (simple systems mean simpler work). AND my older non-status vehicle has reduced my magic FI stash number by about $150,000. (!!)

Ego stroking aside, what justification can there be for hardwiring the monthly costs of a late model status vehicle into one's basic expense budget? How can that be worth the many extra years it adds to reaching financial independence?

My Health Coverage's Big 30% Budget Bite
Even with Medicare, making sure I am covered in case I get seriously sick accounts for a mind-boggling 30% of my basic living expenses.

I have opted for an insurance strategy that is front-loaded with out-of-pocket costs to a maximum of $2435 a year, but then covers me 100% after that. Because those out-of-pocket expenses are sporadic, very variable, somewhat optional and mostly theoretical, I pay for them -- if and when they happen -- out of discretionary funds. So I don't consider them part of my basic living expenses.

That leaves my monthly health coverage "sub-nut" looking like this:
[] hospital and medical insurance ==========>$ 158
[] longterm care insurance ================>$ 188
[] dental insurance ======================>$ 17
[] medications insurance =================>$ 15

[] TOTAL ==============================>$ 378

On a budget percentage basis, this is still a big bite. But affordable (to me). Anyway, it is just about what the lease or installment payment would be on one of those late-model fancy-schmanzy vehicles I poke fun at.

And isn't being able to take care of one's health way more important than vehicular ego preening?

And Here Is The Rest
The remaining $294 per month of my basic living expenses go primarily to "feeding." Feeding myself a modified paleo diet that includes very few starches except for whole wheat bread for lunch sandwiches and rolled oats for breakfast oatmeal. Feeding one dog and 2 cats on mixes of brand name dry and wet foods. And feeding the kitchen, bathroom, laundry room, etc. with all the usual household consumables (paper towels, bath soap, cat litter, what have you). All this feeding eats up $225 a month. (I don't break it down any further because it all gets purchased on the same register receipts at either WalMart, Food Lion or Dollar General and it's not worth it to me to subcategorize the expenses.)

So the monthly basic expenses that I arbitrarily grouped as "household expenditures" earlier tally up like this:
[] food, pets and sundries ==========>$225
[] Sirius internet radio =============>$ 2
[] $1MM liability insurance ==========>$ 7
[] federal income tax ==============>$ 40*
[] state income tax ================>$ 10*

[] TOTAL ========================>$294

(* based on applying the standard deduction and exemption to the gross $15,500 required to meet my basic living expenses.)

I am well fed. My pets are well fed. And I never find myself lacking for anything.

It is all perfectly satisfactory basic living... wouldn't you say?

The Takeaway
I consider this detailing of my $15,500 annual basic living expenses as one more real-life testimonial to what is made possible by astute spending choices without making big sacrifices or a big effort. Without having to grow your own food, repair your own clothes, fix your own stuff, use solar for electric, keep the heat low in winter and high in summer, buy in bulk, ride your bicycle everywhere instead of driving, or any other unusual/special effort.

Take another look at my budget details. I live in a spacious, comfortable house that is kept at a comfortable temperature. I drive a comfortable, reliable and well-maintained vehicle. I drive around like a clown to do everything; I don't ram my bike through snowdrifts or use it to haul refrigerators. I eat great. I keep pets. I am insured up the wazoo against anything and everything. I lack for nothing.

The takeaway is NOT that $15,500 is very frugal (because it really isn't). The takeaway is that it doesn't have to take much more than that (for one adult person) to have a comfortable middleclass life. That it is not a big effort to get expenses down. And that you can then direct the balance of your income to wiping out your debt or building your (early?) retirement stash. You can apply your (newly found!) surplus income to reaching financial independence YEARS SOONER than you had thought possible!

I did that. Covered my basic living expenses with 32% of my gross paycheck. Paid off all the installment debts. And built up enough of a stash in 6 years to let me become financially independent with way more passive income than I need to cover those basic living expenses.

And, since I know I am not a financial genius, I know this IS DOABLE by almost anyone. Without making any big deal sacrifices.

And that is THE real take-away.



Retired To Win
making the most of my time and my money
I blog weekly on frugal living, personal finance & earlier retirement at:
retiredtowin.com

Children live in the present. At best they can project themselves into their short-term futures. But adults can hold the vision of a long-term reward in their mind's eye and control their present actions by being able to visualize and live mentally in that future.

Fiscally disciplined grown-ups choose meaningful long-term satisfaction over transitory instant gratification. Children cannot help themselves. They want that treat now. They must have that toy now. Future rewards for self-control hold no attraction for them. A frustrated desire in the present triggers emotional turmoil in a child that can easily lead to pouting, crying and tantrums.

Adults behave differently. They can keep their eyes focused on the more valuable goal ahead. They can keep their heads in the face of spur-of-the-moment temptations.

Imagining myself living in my house worked that way for me. And every debt-lowering payment and every savings account deposit reinforced that vision, making it easier and easier to stick to my financial plan. Until it just became second nature. No new shirt, gadget or night on the town could any longer compete with the emotional highs that came from each lowering of my credit card debt and each increase of my downpayment savings.

In effect, I was already happily living in my future through my fiscally disciplined actions in the present. Anticipated long-term satisfaction had won hands down over instant gratification, And I think that is the hallmark mindset of a fiscally disciplined adult.

The takeaway: The end-game reward for being fiscally disciplined now is to be in control of one's future. The reward, when all is said and done, IS the future.

It is long term goals that facilitate fiscal discipline. In my case, that first big goal was a house. Before that, I really lived financially day to day. I bought on credit and then made payments. I knew enough to keep my spending within my means (to make those payments). I had enough sense not to chase after extravagant whims of the moment. But otherwise I was just financially coasting.

Setting a strategic financial goal of buying a house changed all that. I would need to save for a down payment (which was a requirement back then). And I would need to keep my debt to income ratio low enough to be acceptable to banks. And those 2 tactical motivators kept me on a fiscal discipline course towards my goal.

A reason to save for later instead of spending it all now. Perhaps it is there, at the setting of that first financial goal, that we can find the real beginning of fiscal adulthood. Because the lessons learned from the setting -- and from the achieving -- of that goal have to be tremendously powerful. That we can aim at something better. That we can hold our course towards it. That we can reach it, under our own financial steam and control. Very powerful lessons. Very empowering lessons. IF one actually stays the course by not frittering away one's money on the whims of the moment.

The takeaway: When it comes to actually being fiscally disciplined over the long haul, financial goals are the name of the game.

Intellectually, I can see that being fiscally disciplined is in a way its own reward. Being in financial control of yourself is good in and of itself. But when you are embarking on a lifelong journey of fiscal discipline I think you need a destination. A goal. A reason to stay the course. A carrot. A heavy-duty carrot. Without that very strong long-term incentive, it could be too easy to dribble away money on shorter gratifications like lattes, a seventh pair of shoes, or the third vacation of the year.

For me, the first financial discipline goals were easy to define. Get my income to exceed my living expenses so I could stop living on borrowed money. Then build up an emergency reserve to backstop that income. Then save the money to buy for cash a car I could be happy with for a long time and dump the old wreck I was driving. Then move to a decent apartment I could afford and furnish it modestly but comfortably. At which point, about one year into my fiscal discipline journey, I had had the time to decide on my first truly heavy-duty carrot: buy a house and stop paying rent.

Setting those initial goals in sequence and keeping my money in my pocket so I could reach them was an adult thing to do. It required planning ahead and it required financial self-control in the present. And the carrot of those goals made the self-control much easier.

But just about everyone gets that far: job, car, reasonable housing, bills paid on time. Somehow, though, a lot of people seem to get stuck at that point. It just seems that they do not look beyond job, car, and a place to live. So, as their incomes improve, they just keep increasing the amounts they spend on car, housing, and an ever increasing load of consumer installment debt for recreational distractions needed to offset job stress and tedium.

They are living in the "now", not looking very far ahead. Like a child would. It is life caught in a consumerism hamster wheel.

The takeaway: It is terribly difficult to be fiscally disciplined in a vacuum. You need to give yourself a reason to be fiscally disciplined. You need to look ahead, use your imagination and set financial goals.

Fiscal discipline is about looking ahead. Because tomorrow does come. And a grown-up knows that more can be done than just sitting in the present waiting for whatever that tomorrow may bring.

A child may keep eating cookies until he or she gets a bellyache. But an adult sees the bellyache coming and knows to stop. Likewise, a grown-up sees the financial bellyache coming and does not just keep spending money until it is all gone. Or just keep charging on credit cards because there is still some available credit not yet used up. An adult looks ahead. Or, perhaps more realistically, an adult should look ahead. So why do so many people behave like children and not look beyond spending more and more in the present?

In my case, increasing income did not automatically result in increasing spending. It is hard to explain why. I loved my well-maintained, gorgeous-looking ten-year-old Thunderbird. I did not covet a newer car. One business suit for each day of the week, with a dozen ties and shirts to vary the look, was enough for me. I did not wish for more. And why would I ever want more than 4 pairs of dress shoes?

Instead of automatically and thoughtlessly continuing to bump up my consumption in the present, I asked myself what could that money do for me in the future. And in that future, I saw myself living in my own house.

I saw myself with no neighbors stomping on my ceiling or banging on my walls. With no daily rides in crowded cramped elevators. With no tedious weekly up-and-down-the-hall laundry trips. With no jogs across the parking lot in the rain to get to my car. With no inevitable rent raises every year. With the freedom to paint my walls, or install a built-in, or play loud music. In short, I saw myself living a much better life. And "all" I had to do to make that future a reality was to keep my wallet in my pocket in the present. To be fiscally disciplined now.

It was an offer I could not refuse. I had a future to look forward to. I had a reason to remain fiscally disciplined.

So why doesn't everyone look ahead? Why do so many people just choose to spend in the present with no thought of the future?

Fiscal discipline has to have a purpose. A goal. A heavy-duty carrot in the future to help staying on course today.

Fiscal grownups choose meaningful long-term satisfaction over transitory instant gratification. And it is goals that will keeping eyes and mind focused on that long-term satisfaction.

The takeaway: "Some" tomorrow is coming. Fiscal discipline can make it a tomorrow worth looking forward to.

An epiphany came to me in 1980, at the age of 33, after 10 years of short-term financial "thinking" that had left me sitting flat broke in a cramped one-room studio apartment with virtually no money, absolutely no credit and just a beat-up old car to my name. I looked around, I looked at the way I was living, and I just said "no." I did not like what I saw. I did not like the direction I was going. And I just rejected it all.

I resolved to have a good financial future, even though I did not yet know what I wanted that to look like. I resolved to use my own skills and energy to steer a course towards that future. And I resolved to get underway even though my eventual destination was not yet defined.

Fiscal discipline starts with assuming responsibility for your financial destiny. I realized that you must resolve to take control. That you have to acknowledge and accept that your financial destiny is up to you and no one else. That you are going to have a financial future -- good or bad -- whether you like it or not. That no one else has any obligation (or even inclination) to do anything for you or about that financial destiny of yours.

And you have to realize that, yes, you CAN do something about how your financial future turns out. That you are not a helpless, rudderless skiff doomed to just drift along out of control. No. You have to discover that you are instead a motor-sailor able to take advantage of favorable financial winds as well as capable of advancing even when you run into the occasional fiscal squall.

But why didn't I just throw my hands up in the air and play financial victim? Why didn't I just blame the economy, fate, or "the rich" for my situation and just keep wallowing in it? Why do some other people do that? Why don't they realize the future is coming? What makes the difference?

Fiscal discipline is about looking ahead. Because tomorrow is coming. Beginning to look to the future will make a difference.

Fiscal discipline has to have a purpose. A goal. A heavy-duty carrot. Setting financial goals will make a difference.

It is those goals / carrots that will facilitate fiscal discipline. And staying on course will make a difference.

Fiscal grownups choose meaningful long-term satisfaction over transitory instant gratification. Keeping eyes and mind focused on the more valuable goals ahead will make a difference.

The takeaway: Fiscal discipline has to be hands-on. And it is some basic but vital actions that make the difference to make fiscal discipline happen.

Fiscal discipline is all about perspective and behavior. More specifically, it is about the difference between the perspective of an adult and that of a child. And about the very different behaviors that come from those perspectives. Acceptance of the reality of personal responsibility and effort versus the unfounded longing for financial windfalls that require neither. Long-term thinking versus short-term thinking. Planned goal setting versus vague wishing. Holding out for long-term satisfaction versus giving in to instant gratification.

And all those factors are connected. Either as steps in a ladder taking you up or as dominoes in a row pushing you off a cliff. How does a person standing at that cliff edge step back and get on the ladder?

Fiscal discipline starts with assuming responsibility for one's financial destiny. So that person must resolve to take control.

Fiscal discipline is about looking ahead. So that person must begin to look to tomorrow because tomorrow is coming.

Fiscal discipline has to have a purpose. A goal. A heavy-duty carrot. So that person must think things through and set financial goals.

It is those goals / carrots that will facilitate fiscal discipline. Goals will help to keep that person on course.

Fiscal grownups choose meaningful long-term satisfaction over transitory instant gratification. So that person must keep eyes and mind focused on the more valuable goals ahead.

The takeaway: Fiscal discipline doesn't just happen. To make it happen, a person must put out the effort and do the thinking to make crucially important informed adult choices.

Eliminating old debt. Staying out of new debt. Keeping living expenses well below income. Following guidelines on what is affordable. Choosing lower cost alternatives. Building up reserve funds. Growing an investment portfolio. Those are all parts of the strategy to reach financial independence. None of it is rocket science and theoretically anyone could do it.

So why do loads and loads of people do the exact opposites? And then bemoan and resent their financial situation and complain about it as if they were the victims of someone else's actions? Here is what I think.

Fiscal discipline is all about perspective and behavior. More specifically, it is about the difference between the perspective of an adult and that of a child.

Fiscal discipline starts with taking control of and assuming responsibility for one's financial destiny. It is up to you and no one else.

Fiscal discipline is about looking ahead. Because tomorrow does come.

Fiscal discipline has to have a purpose. A goal. A heavy-duty carrot.

It is that goal / carrot that facilitates fiscal discipline. It keeps you on course.

Fiscal grownups choose meaningful long-term satisfaction over transitory instant gratification. They keep their eyes and minds focused on the more valuable goal ahead.

The takeaway: Fiscal discipline doesn't just happen. It is the result of informed adult choices.

I retired in January of 2013. Once I had made my final decision and plans the previous October, I could hardly wait and I was all excited to embark on a new free-from-a-job life. And I was excited enough to write the article that follows to let the world know that I was shaking free. Here is how that felt.



This is really great. I finally have got my spending, income and investing ducks all set up for financial independence. Hey, folks! I am FREE!

The last piece of the puzzle just fell into place. With the help of cash I just got from selling some vacant land, I have eliminated my mortgage payment. This in turn has dropped my gross annual living expenses to a mere $18,000(1*). And, since my gross "passive" income is $53,000 a year, I've got a whopping $28,000 after taxes available to spend for fun(2*). Whoppee!

Before we start getting into details about the kind of living I (or you) can do on $18 thou a year gross, and the specifics of my income stream, I think it would be a good idea to give you some context about my situation.

I am a 65-year-old guy living in Virginia. (I know, I know, 65 is not early retirement by any means. BUT I only started hands-on planning for retirement 4 years ago. So I think that's still pretty good.) My working career included jobs in chemistry, marine science, sports diving, marketing, advertising, management, and non-profit administration. And now I spend my fun time hiking(3*), biking, reading history(4*), exploring civil war battlefields and national parks(5*), blogging(6*), watching movies and playing computer war strategy games(7*).

I am married and my wife still works. Due to business circumstances, she and I are living in separate houses 100 miles apart, and each of us individually covers his/her housing, auto and other basic living costs(8*). So the numbers you are going to see here are for me, the house I live in and my individual basic expenses.

Now, where's that $53,000 a year income coming from? Here's the breakdown: $20,600 from Social Security, $27,500 from stock dividends and bond interest(9*), $1500 interest from peer-to-peer lending, and $4200 from a little consulting side hustle.

Now, what's that $18,000 gross a year ($15,000 a year after taxes) getting me for a basic lifestyle? Well, let's see.

I live in an 1100-square-foot house on 1.25 acres, with a nice big attached garage and workshop. I eat just fine, thank you, with lots of meats and vegetables, and no keeping-the-cost-down reliance on pasta, or rice-and-beans.

I am insured up the wazoo (or so it feels). Okay, I do have Medicare, (which I have been paying for through paycheck deductions over my entire working career) but I have also made sure to have supplemental coverage to keep my retirement stash safe from hospital-cost-threat(10*). Same goes for insurance to cover long term care, personal liability, the house, and my pick-up truck(11*). (Nope, no life insurance; my wife and I agreed we no longer need it. And yes, my wife carries her own auto insurance on her own vehicle.)

I drive a 1996 Dodge Dakota extended cab pickup truck in super good shape -- and no loan payment(12*). And I've got all the hiking, biking, computer, photography, workshop and what-not toys I could want.

Oh, yes. That $15,000 a year net includes reserves for auto maintenance and repairs, home repairs, and pet care.

And here's the typical "basic" day I get for my $41 (times 365 days = $15,000). Get up when I want (usually just after first light) in a paid-for house, enjoy my breakfast without any time-pressure while listening to classical music, surf blogs a little, then spend an hour or so managing my stocks and bonds. After that, go do something physical (in the workshop or on the grounds) until lunch. Then I've got 4 hours of totally open time to have fun hiking, biking, computering, netflixing, taking an online history course, blogging, etcetera. (And none of that costs me anything over and above what's already included in my $41 a day basic living cost.) Right around 5pm I get back to my "work" desk to do some home administration paperwork until it's time to cook up and enjoy a steak/ chops/ ham/ chicken/ fish dinner. After that, it's hang-out time with the dogs and the cats -- while doing some more reading or netflixing or pc game playing. Not a bad deal, I think, for $41!

Of course, I've also got another $2300-plus available each month in discretionary income to spend on anything I please. But most times I really have to work at finding something to spend that money on(13*).

What does it take to keep those basic living costs at less than $1250 a month? I've always been a thrifty guy. (My wife sometimes thinks I cross the line into skinflint territory.) But I have to give a big, big thank you to Mr. Money Mustache and his blog for really opening my eyes to just how much you can lower your living costs by pursuing a strategy of what I would call no-sacrifice frugality(14*).

Inspired by Mr. Money Mustache, in the last few months before actually retiring I lowered my annual costs for stock trading by $1000... for phone/internet/tv utilities by $750... for debt interest costs by $2700... for electricity/propane/fuel oil by $750... and for a stack of other miscellaneous budget line items by $850. That's over $6000 a year sliced off what used to be my living costs before I pulled the retirement trigger! Without giving up any comfort, convenience, or capability.

And so now here I sit, expectantly planning what adventures I am going to have with my annual $28,000 spend-for-fun discretionary money pot.


That is how it felt back then to be looking forward to financial freedom. Now, I am having those adventures. And still feeling the same great way.

1* My $18K Annual Baseline Budget:
http://retired-to-win.savingadvice.com/2013/12/29/my-18k-ann...

2* A Discretionary Fund, Not a Discretionary Budget:
http://retired-to-win.savingadvice.com/2014/03/29/a-discreti...

3* My Love Affair With Hiking:
http://retired-to-win.savingadvice.com/2013/12/23/my-love-af...

4* Time Traveling With History Books:
http://retired-to-win.savingadvice.com/2014/04/03/time-trave...

5* Frugal Fun: Hiking Civil War Trails:
http://retired-to-win.savingadvice.com/2014/04/16/frugal-fun...

6* 200 Words A Day That (Hopefully) Matter:
http://retired-to-win.savingadvice.com/2014/05/07/200-words-...

7* My Strategy Games Rainy Day Passion:
http://retired-to-win.savingadvice.com/2014/01/07/strategy-g...

8* Marital Finances Our Way:
http://retired-to-win.savingadvice.com/2014/04/11/marital-fi...

9* Why I Only Buy Dividend Stocks:
http://retired-to-win.savingadvice.com/2014/01/01/why-i-only...

10* Taming My Health Care Costs:
http://retired-to-win.savingadvice.com/2014/01/18/how-i-tame...

11* My Stash-Shielding Insurance:
http://retired-to-win.savingadvice.com/2014/04/10/my-stash-s...

12* My Oldie-Goldie Thrifty-Nifty Truck:
http://retired-to-win.savingadvice.com/2014/03/25/my-oldie-g...

13* Making Sure I Spend That Money!:
http://retired-to-win.savingadvice.com/2014/04/08/making-sur...

14* How I Do Frugality Without Sacrifice:
http://retired-to-win.savingadvice.com/2014/04/12/how-i-do-f...

Tending my stock portfolio can take over "too much" of my time if I let it. And up to recently I have let it do that. Managing my investments had grown into a substantial part-time job eating around 16 hours a week of my supposed financially free retirement. And that just did not feel right.

Putting in the time was necessary to maximize the income from my investments(1*). But I have recently realized that maximizing that income is not really necessary(2*). So I have revised my approach to my investment management. Now I put "enough time" into it to generate "enough money." Here is what that means and how I figured it out.

The key was to find a balance point between enough free time and enough money. But what does that actually mean? I had to define how much money IS enough and to set up a system that would keep my stock portfolio generating that much income without getting sucked into devoting more time than was necessary to get that done.

My baseline living expenses do not factor into the "enough money" calculation. That is because I have gotten those costs down to less than $18,000 a year(3*) -- and that is more than covered by my earned Social Security "annuity" payments. So I actually do not have to work at investing at all to enjoy my baseline satisfying lifestyle(4*).

Money to build up back-up funds does not factor in either. That is because I have already set up my financial reserves(5*), and because my baseline budget already includes premium payments for a comprehensive suite of insurance coverages(6*). So I do not have to work at investing for this either.

I just need to work for fun money. Since I do not need my investment income to cover basic living or to build up reserves, all that money can go directly into my discretionary fund(7*). To a point then, all my investing work time is optional, it produces optional income, and it funds optional expenditures. So how much optional discretionary income is "enough" for me?

An extra $20,000 a year is enough fun money for me. From experience, I know I will be hard pressed to actually spend that much on discretionary purchases and activities(8*). And that much investment income will give me a nice security blanket to backstop my Social Security payouts(9*). So there was my answer to the enough-money part of the balance point question. Twenty thousand bucks a year.

Now that just left the second part of the balance point question: how much time do I need to work at investing to generate $20,000 a year?

Stay tuned!

1* Profiting From Working My Stocks:
http://retired-to-win.savingadvice.com/2014/04/28/profiting-...

2* Letting Enough Money Be Enough:
http://retired-to-win.savingadvice.com/2014/07/06/letting-en...

3* My $18K Annual Baseline Budget:
http://retired-to-win.savingadvice.com/2013/12/29/my-18k-ann...

4* My Financial Independence Key:
http://retired-to-win.savingadvice.com/2013/12/17/my-financi...

5* Making Over My Reserves Plan:
http://retired-to-win.savingadvice.com/2014/01/04/making-ove...

6* My Stash-Shielding Insurance:
http://retired-to-win.savingadvice.com/2014/04/10/my-stash-s...

7* A Discretionary Fund, Not a Discretionary Budget:
http://retired-to-win.savingadvice.com/2014/03/29/a-discreti...

8* Making Sure I Spend That Money!:
http://retired-to-win.savingadvice.com/2014/04/08/making-sur...

9* My Six Lines of Financial Defense:
http://retired-to-win.savingadvice.com/2014/04/29/my-six-lin...

Having more money is always better. It has to be and I cannot argue with that. But having more free fun time is also better -- and I hope no one is going to argue with me about that. The problem is that those two very desirable goals work against each other. Time is money and money is time(1*), so to have more of one you have to accept having less of the other. The trick to solving this dilemma is to find a balance point between money and free time that is personally acceptable. I am still groping for that balance point, but I am getting closer to an answer that works for me. Here is where I am at so far.

Declaring money victory has been hard for me. I reached the point of having and passively making more money than I need a good while ago(2*). But I kept on trying to make more money. I then reached the point of making double the passive income that I need to cover my baseline living expenses. But I still kept trying to make more money. Then I finally found myself with a steadily growing pile of discretionary money(3*) and not enough want-to-buys to spend the money as fast as it comes in(4*). And that is what has made me pause and think. What in the hell would even more money be for?

More security from more money would be marginal. I have already laid in ample financial reserves(5*). I have arranged insurance to cover just about any eventuality(6*). And I have a multilayered financial defense plan in place(7*). So, if increasing my cash flow further will not result in a significant boost to my financial security, what in the hell would even more money be for?

Money to buy more free time is already there. I could use money to hire out chores and projects that I could do myself but that I either have no time to do (what?!) or that I find bothersome to do. Chores like cleaning house. Or projects like replacing all the door framing on our garage. But the fact is that I already have surplus cash to contract out those things(3*). If I am not hiring out such tasks it is because of some mental block, not because I need more money. In which case, what in the hell would the extra money be for?

So... if more money will not give me more meaningful security or buy me more free time, is it a smart use of my limited life time to spend it making even more money for which I do not have a purpose? Why not just use the time to have more fun or relax more? To take another hike(8*). To read another book(9*). To play another pc game(10*). Why not let enough money be enough?

The takeaway (so far): Money costs time out of one's life. And life time is limited and precious. As much as possible of that life time should be spent living, not laboring for money that will not add anything meaningful to one's life.

(1*) My Unrecoverable Cost of One-More-Year:
http://retired-to-win.savingadvice.com/2014/04/05/my-unrecov...

(2*) My Financial Independence Key:
http://retired-to-win.savingadvice.com/2013/12/17/my-financi...

(3*) A Discretionary Fund, Not a Discretionary Budget:
http://retired-to-win.savingadvice.com/2014/03/29/a-discreti...

(4*) Making Sure I Spend That Money!:
http://retired-to-win.savingadvice.com/2014/04/08/making-sur...

(5*) Making Over My Reserves Plan:
http://retired-to-win.savingadvice.com/2014/01/04/making-ove...

(6*) My Stash-Shielding Insurance:
http://retired-to-win.savingadvice.com/2014/04/10/my-stash-s...

(7*) My Six Lines of Financial Defense:
http://retired-to-win.savingadvice.com/2014/04/29/my-six-lin...

(8*) My Love Affair With Hiking:
http://retired-to-win.savingadvice.com/2013/12/23/my-love-af...

(9*) Time Traveling With History Books:
http://retired-to-win.savingadvice.com/2014/04/03/time-trave...

(10*) My Strategy Games Rainy Day Passion:
http://retired-to-win.savingadvice.com/2014/01/07/strategy-g...

I have maintained a long term care (LTC) insurance policy since I was in my mid-50s. I do not like paying out the $176 premium every month, but I have done so now for about 10 years. About a year ago, the insurance company got approval from state regulators to change my benefits duration from lifetime to a maximum of 10 years. I most certainly did not like that. But I have kept the policy and continued paying the premiums. Am I a glutton for punishment? No. Not at all. I am convinced that having an LTC insurance policy is the lesser -- and necessary -- evil. Here is why I think that.

Once you need LTC, having it is not optional. You go into long term care when you cannot take care of yourself. You cannot dress yourself. Or you cannot feed yourself. Or you cannot literally wipe your own butt. If and when the time for LTC comes, you cannot say no. You are going to get long term care or die in the street. So the only questions will be (1) who will provide you with long term care, (2) what kind of care will you get, and (3) how will it be paid for.

Long term care could bankrupt me. Or, at least, totally wreck my carefully crafted financial plan.* At a minimum $150 a day for a decent facility, LTC will suck up $4500 every month. That is $54,000 every year. And that is at today's prices. If I had to pay that out of my own pocket, my income would no longer stay ahead of my expenses. And my asset base would shrink -- and shrink -- year after year. To avoid that, an LTC insurance policy is the lesser -- and necessary -- evil.

I am not rich NOW, so self-insurance is no solution. LTC insurance is not just for if/when one might need care at 85 years old. Something could happen to me today to make me need LTC right now. I could have a crippling accident today. I could have a stroke today. And I would need LTC right now. So there is no time to build up a self-insurance stash by investing the insurance premium money instead of handing it over to the insurance company. To self-fund long term care at a minimum cost of $50,000 a year I -- and anyone else -- would need an extra half-million to 1.25 million dollars. Since I do not have that extra fortune today, I am covered by an LTC insurance policy as the lesser -- and necessary -- evil.

Long term care by family is a wrong solution. I cannot justify pressing a family member into who-knows-how-many years of forced LTC service just so I can spend the monthly premium money on something else. If I care for a person, I do not see how I can rationalize turning that person into my 24/7 servant -- never again being master of his or her life -- until I am dead and gone. To me, that seems the perfect way to turn that person's love for me into something else entirely. To avoid all that, an LTC insurance policy is the lesser -- and necessary -- evil.

Government-provided LTC is a poor and impoverishing "solution." Health insurance does not cover long term care. Neither does Medicare. The one way to receive government-provided LTC is through a Medicaid program. But Medicaid is specifically for people with no means. So, to qualify for Medicaid LTC, one has to become a person with no means. That boils down to not being able to qualify for Medicaid LTC until after virtually all of one's assets have been consumed by LTC costs. Nothing left for a legacy. Damn little left for your spouse. It is a financially hellish way to go. And the tradeoff is not good.

Government-provided LTC is minimal LTC. Budget limitations force it to be. With my LTC insurance, I can at least approach my choice of an LTC facility as a paying client with some expectations. As a Medicaid recipient, I would have to accept wherever I was placed and whatever care I was given. I do not want my living conditions -- and possibly even my life -- to depend on the good graces of a bureaucratic, non-performance-based government program. I will take the lesser -- and necessary -- evil of LTC insurance instead.

LTC insurance is a necessary expense. That is why it is a part of my $18,000 annual baseline living budget.** To me, LTC insurance is a need, not an optional want. And at less than $180 a month, it costs me much less than other people's frivolous new car payments.*** Even less than some people's cable television monthly bill. And the peace of mind I get from having LTC insurance is worth much more to me.

The takeaway: Long term care insurance is not just for when you become old and decrepit. A stroke, an accident, or some other health misfortune could make you need long term care now. So you have to protect yourself now. Otherwise you face the loss of all your financial assets. Or face the prospect of forcing your most loved family members into an unchosen life of servitude and limitations. Or both.

* My Six Lines of Financial Defense:
http://retired-to-win.savingadvice.com/2014/04/29/my-six-lin...

** My $18K Annual Baseline Budget:
http://retired-to-win.savingadvice.com/2013/12/29/my-18k-ann...

*** My Oldie-Goldie Thrifty-Nifty Truck:
http://retired-to-win.savingadvice.com/2014/03/25/my-oldie-g...

I am financially planned "up the ying yang." It is for financial reasons, of course. But that planning gives me more than just financial benefits. I get more from being insured against this, that and the other* than just the protection of my financial assets. I get more from having several backup layers to my income** than just the provision of secure cash flow. I get more from keeping my baseline expenses well below my income*** than just the creation of a large surplus for discretionary spending.**** What all this planning gives me that cannot be measured in dollars is peace of mind. What I call the chuckle benefit of financial planning. Here is what I mean.

Last week, I took my old blind dog Little Bit (of Trouble!) to the vet for her wellness exam. The doc found a mammary gland tumor that requires surgical removal. So just to know what to expect, I asked about how much. About $700, the vet said. Okay, I said. No sticker shock. No stress. The chuckle benefit at play.

We are having 16 new windows installed at the house. I brought in my handyman guy for an estimate on the installation itself. Between $800 and $1000, he said. I looked at him and nodded. He started to defend his price. I stopped him. You do not see me freaking out, I said. It is okay, I said. No stress, no worries. The chuckle benefit in action.

Last December, I had one of those LifeLine screenings done for no money out of pocket (which is another story). When I showed the results to my doctor, he advised getting a carotid ultrasound test at the hospital. Even though I would be on the hook for 20% of whatever the test costs, I did not even ask how much. Moneywise, when I get the bill that will be just another chuckle.

The financial planning I have set in place shields me from any sort of unexpected expense stress. My discretionary fund will cover Little Bit's surgery. Our home repair fund*** will pay for the window installation. My health expense reserve***** will defray any medical out-of-pocket costs I might have. It has all been covered in advance so that when an unexpected expense crops up all that is left for me to do is to chuckle at yet another curve ball thrown at me by life.

My financial planning makes it possible for me to enjoy one of the great benefits of being wealthy without actually having to be rich. It is not about being able to afford anything I might wish for -- because I cannot. It is about not having to worry about money -- which I do not. And that, as they say, is priceless.

The takeaway: The peace of mind that comes from being in financial balance is well worth striving for. Every new (or even current) major expense or payment commitment needs to be screened through that mental filter. Will I still be in financial balance if I go ahead? Or am I robbing myself of my chance for financial freedom?

* My Stash-Shielding Insurance:
http://retired-to-win.savingadvice.com/2014/04/10/my-stash-s...

** My Six Lines of Financial Defense:
http://retired-to-win.savingadvice.com/2014/04/29/my-six-lin...

*** My $18K Annual Baseline Budget:
http://retired-to-win.savingadvice.com/2013/12/29/my-18k-ann...

**** A Discretionary Fund, Not a Discretionary Budget:
http://retired-to-win.savingadvice.com/2014/03/29/a-discreti...

***** Taming My Health Care Costs Monster:
http://retired-to-win.savingadvice.com/2014/01/18/how-i-tame...

I would hate having to look for a job because my retirement income has crapped out on me. Or because some huge unforeseen expense has totally ruined my financial plans and left me in need of immediate extra income. So I've done something about it.

I have reduced my basic living expenses down to $15,000 a year.

I have set up emergency cash reserves to cover one year of my living expenses.

I am maintaining several types of insurance to make sure some catastrophe doesn't wipe me out financially.

I have structured my investing to throw off dividend income to cover my living expenses without having to dip into my principal. So it can be held back as another last-ditch reserve.

And more.

All this I discuss in much greater detail on my RetiredToWin.com main blog in a post entitled "My Six Lines of Financial Defense."

Enjoy.


* My Financial Independence Key:
http://retired-to-win.savingadvice.com/2013/12/17/my-financi...

*** How I Do Frugality Without Sacrifice:
http://retired-to-win.savingadvice.com/2014/04/12/how-i-do-f...

**** A Discretionary Fund, Not a Discretionary Budget:
http://retired-to-win.savingadvice.com/2014/03/29/a-discreti...

***** My High Yield, High Risk Investing:
http://retired-to-win.savingadvice.com/2013/12/20/my-high-yi...

****** My Unrecoverable Cost of One-More-Year:
http://retired-to-win.savingadvice.com/2014/04/05/my-unrecov...

******* My Stash-Shielding Insurance:
http://retired-to-win.savingadvice.com/2014/04/10/my-stash-s...

******** Making Over My Reserves Plan:
http://retired-to-win.savingadvice.com/2014/01/04/making-ove...

The key to retirement -- early or otherwise -- is to have enough passive income (social security, pension, investments) to cover living expenses. The higher those expenses are, the larger your retirement fund has to be. And the longer the wait to reach retirement. One can either work longer or reduce one's expenses to reach freedom sooner. Here is how I approached that reality.

When I took a look at my spending 5 years ago, I saw that every expense was not a baseline living expense (money I needed to spend to have an acceptably comfortable life). Many expenses were discretionary (money I wanted to spend). I saw that separating baseline from discretionary expenses could show me the way to a much earlier retirement -- and many added years of job-free life*. But where would I draw the line between what is necessary and what is optional? On what basis would I make a choice between what to include in my retirement budget and the additional job years it would cost me the more I included in that budget?

The real cost is time. I started looking seriously at the time cost of these choices when I learned about the 4% Safe Withdrawal Rate (SWR). I realized that following the SWR meant that I needed to have $25 saved for each and every dollar that I included in my retirement budget. So I analyzed and revised my budget with that 25 to 1 ratio firmly in mind. That did wonders to clarify my thinking.

Calculating the time cost of my budget choices opened my eyes. A $300 monthly car payment was no longer just that; it also was $90,000 more that I would need to save to be able to retire**. ($300/month x 12 months x 25 years). One month's snowbirding in Florida*** was not just $2000; it also was another $50,000 I would have to stash away before I could reach freedom. Even something as "trivial" as a $60 monthly cable bill morphed into an extra $18,000 I would need to squirrel away before I could pull the retirement trigger.

It was not the money that troubled me. My real problem was with the on-the-job time it would take to save up that money. Even at a respectable 20% savings rate, I would have to stay at my job another 2 years just to fund the cable bill! And having a $300 a month car payment in retirement meant that I would have to work TEN MORE YEARS before I could reach freedom.

Our supply of time is limited. None of us lives forever. Every year spent working is one year less of free life left. It is a zero-sum game. So, for me, every extra $100 a month that I would put into my budget would require me to give up 3 years and 4 months of free life! ($100/mo x 12 mo x 25 yrs =$30,000/$9000 saved per year = 3.33 years).

It was with that awakened perspective that I then approached the question of what was a baseline necessity and what was a discretionary option for me. How much more time at work was that budget item worth to me? How much of my remaining life was I willing to give up to keep that item in my budget?

* My Financial Independence Key:
http://retired-to-win.savingadvice.com/2013/12/17/my-financi...

** My Oldie-Goldie Thrifty-Nifty Truck:
http://retired-to-win.savingadvice.com/2014/03/25/my-oldie-g...

*** Florida Snowbirding the Affordable Way:
http://retired-to-win.savingadvice.com/2014/03/17/florida-sn...

I just received a preapproved cash rewards Visa from Kroger Supermarkets and U.S. Bank. It is my 27th active credit card*. I surely do not need another credit card. But this one came with a sign-up bonus too easy to get, and no way for Kroger and U.S. Bank to make any money off my use of the card. So I have taken them up on their challenge and have no doubt I will beat them at their cashback card game. This one is going to be way too easy; but I can beat any credit card's cashback game. Here is what I mean.

Kroger hopes to hook me with a $75 bonus. I will get that signup reward if I charge $200 on their credit card in the first 30 days after it was issued. That amounts to 37.5% cash back on those $200. That charge requirement is just way too easy to meet and the payout is way too high. Kroger is throwing that money at me. But since it is not in business to throw money away, Kroger must certainly be working an angle to make money off me.

Kroger may expect to make money charging me interest. That is what every one of these cards hopes for: get their initial offer to hook you into using their card instead of any other, get you to carry and grow a balance on the card, and then to get their money back -- and then some -- by collecting a high interest rate. Of course, that is very easy for me to beat. I simply will not carry a balance on the Kroger card, just like I would not on any other card hoping to suck me in that way. But the Kroger card particularly has no hope here.

For Kroger to recover that $75 initial bonus at their card's base 14% interest rate, I would have to carry a $535 balance on the card for a year. But wait; this card comes with a zero percent interest rate for the first 15 months. So I would have to carry at least a $535 balance on the card for 27 months before Kroger could break even. That is really wishful thinking. And it is not going to happen.

Kroger may hope to make money on merchant fees. But at the average 1% fee that merchants pay on card transactions, Kroger will not recover its $75 until I have run $7500 in charges through its credit card. For me to do that, I would have to leave that Kroger Visa in my wallet as my preferred credit card for up to a year. That is not going to happen either.

Every 3 months, I load my wallet with the 2 or 3 rewards credit cards that are offering me the best cashback promotions for that quarter.** I make it a point not to be loyal to any card beyond the 3-month period when it is giving me the best cashback deal. After that period is over, the card comes out of my wallet. I do that with all my credit cards. So I will certainly do it with Kroger's.

Kroger may expect to make money selling me groceries. This angle is over and above what most other cashback cards can hope for. Overwhelmingly, cash reward cards have no direct connection to any brand of goods or chain of stores. The Kroger card does. But to earn that $75 initial bonus, I am not required to do any shopping at all at Kroger stores. I can meet the $200 charge requirement shopping anywhere Visa is accepted.

Kroger can count on pulling me into one of its grocery stores just one or two times. Because that $75 initial bonus comes in the form of a credit only usable at Kroger stores. That is fine with me. I drive by a Kroger store every week. And I will not mind doing my grocery shopping there the one or two times it will take for me to burn through the $75 bonus. But there is no chance that I will develop loyalty to Kroger stores and keep going back there unless that is where I can get my best deal on groceries. That happening is a long shot at best.

Any credit card can be beat at its cashback game. Just pay off its balance every month while you are working to meet its initial charge amount requirement, collect your signup bonus once you have met that requirement, and then take the card out of your wallet. That is what I will be doing with the Kroger Visa. And then maybe I will repeat the process with another credit card hoping to beat me at the cashback game.

* A Double Fistful of Credit Cards:
http://retired-to-win.savingadvice.com/2014/03/30/a-double-f...

** Raking In Credit Card Cashback:
http://retired-to-win.savingadvice.com/2014/03/11/raking-in-...

I may not have any debt now, but I've gone into debt before and I would not hesitate to do so again for the right reasons.

Going into debt can make it possible for a person to handle financial emergencies if there's no emergency cash reserve available, apply financial leverage to enter major transactions like the purchase of a house, and capture opportunities such as the bargain buying of an automobile that may come up unexpectedly.

Going into debt can be the right solution in any of the situations I've described above. Going into debt for the right reason can be tremendously beneficial. It's not debt we need to be afraid of; it's debt incurred for consumer-sucker whim purchases that we need to watch out for and avoid.

My wife and I fight too much. But it is almost never about money. We do not argue about our money because in our approach to marital finances there is no such thing as "our" money. We have chosen a different way. A way that for 20 years has kept each of us free of financial domination by the other. A way that has allowed each of us to remain king or queen of our respective monetary castles while still delivering to both of us tremendous financial progress. Here is how we have managed our marital finances for the past 2 decades.

My money, her money. My income goes into my bank accounts. My wife's income goes into her bank accounts. We each have signature authorization over the other's accounts, but in practice each of us has total control over his or her money. That means no complaining by her about the $500 I may spend on a telescope. No head shaking by me about the $700 she just spent on little houses for her pet rabbits. And no having to ask permission of the other to buy what we want to (which we do using our own individual credit cards).

Our expenses. We share equally all of our household expenses. We each carry our own weight by contributing 50% of all costs associated with housing, food, home maintenance and repair, entertainment and vacations. We do this through a joint bill paying checking account into which we each deposit a set amount of money each month. We have parity.

Our joint assets. We own together our home and other real estate. We have also owned boats and vehicles together. In every case, we have made the buying (and selling) decisions on an equal partner basis, never proceeding without complete and voluntary agreement by both of us. Sometimes I have not liked that. Sometimes she hasn't. But because we both carry equal financial weight and have equal financial control, there has never been a question of one of us steamrolling the other.

Resolving financial disagreements. What new refrigerator do we buy? Do we repair the roof or replace it? Do we remodel the kitchen? These are all real life examples of joint spending decisions we have had to make -- and initially disagreed on. She convinced me on the refrigerator she wanted. We brought in a professional inspector to decide which of us was right about the roof. (She was.) And we resolved the kitchen remodeling issue by I paying for what I wanted done (the counters) and she paying for the additional changes (the cabinets) that she wanted but I did not.

Resolving nonfinancial disputes. Sometimes our approach to marital finances has helped even here. Like the time I caught hell for letting one of our cats scratch a library table she had purchased. I got out of that trouble by offering to buy her out of the table, which she agreed to. Like the time she wanted to keep a construction scaffold I knew we would never use again. She got me to go along with keeping the scaffold by buying me out of it. (We've never used that scaffold since, by the way.)

My wife and I both realize that ours is not the accepted "all for one and one for all" approach to marital finances. But we also are very aware of the fact that too many failed marriages fail due to financial control issues. That, at least, is not likely to happen to us.

I wish I did not have to maintain insurance policies or pay the premiums. But I'd rather do that than run the risk of having my retirement stash hit hard by some unforeseen financial catastrophe. So I've made sure to have enough insurance coverage to protect me in case I'm in an auto accident, have a big medical issue, suffer major damage to my home, need to go to a nursing home or get sued over anything.

I am paying $5474 a year in premiums for 8 policies: home, health (a 4-policy cocktail), auto, long term care and personal umbrella liability. That $5474 amounts to 41% of my annual basic living expenses!

Steep? Sure! But better than risking my retirement, don't you know?!

(For the full story of my stash-shielding insurance, feel free to visit my main blog at retiredtowin.com.)

I have set up my personal finances with a baseline budget* to cover my core needs and a Discretionary Fund** that acts as a money pot that collects all my income above what is needed to cover that baseline budget. Theoretically, any and all monies in that Discretionary Fund are available for fun spending. But my Discretionary Fund keeps growing because I have had a problem (a block?) with spending it. Here is the story and what I am doing about it.

Separate from my Discretionary Fund, I have TWO cash reserves***. One is equal to one year's baseline budget and the other is equal to my health insurance's out-of-pocket maximum (just in case). So my Discretionary Fund really is free and clear. But I obviously have not bought into that. So I have made a deal with myself to make it "okay" for me to spend substantial amounts on fun.

I find that I can emotionally accept earmarking half my Discretionary Fund for fun spending and holding the other half back in a sort of financial limbo. So this is what I am doing based on that realization. At the end of every month, I am taking the balance in my Discretionary Fund and dividing it by half to establish my "emotionally okay to spend" limit. Then I am dividing that figure by 3 to calculate how much I am giving myself permission to spend on fun each month for the next 3 months. And then I am committing to that spending right away by filling in my free time slots**** for those upcoming 3 months with specific planned and budgeted outings, trips and activities.

Is this working? Yes, as long as I follow the planning process. But if I fail to plan my fun out, the time fritters away and the money does not get spent. So this is a work in progress for me. And what I will do to make myself accountable for spending on having fun (which, I know, is weird) is going to be to put up a My Plan For Fun page on my blog and update it on a weekly basis to track what I have planned for fun and what fun I have actually had.

*My $18K Annual Baseline Budget:
http://retired-to-win.savingadvice.com/2013/12/29/my-18k-ann...

**A Discretionary Fund, Not a Discretionary Budget:
http://retired-to-win.savingadvice.com/2014/03/29/a-discreti...

***Making Over My Reserves Plan:
http://retired-to-win.savingadvice.com/2014/01/04/making-ove...

****Making Time For Fun:
http://retired-to-win.savingadvice.com/2014/04/08/making-tim...

I retired at 65. I could have retired a lot sooner. I should have. Trading one's remaining time on Earth for more money (than is necessary) is not a good bargain. Particularly when you don't know how much time you have left but you do know that you have enough money. Here is how I went wrong.

OMY. One More Year. It is so common an issue that it has its own acronym. The notion -- the pull -- of deciding to work "one more year" in a job one wants to leave in order to pad one's retirement stash just a little bit more. To make just a little surer that the stash will last, that it will not run out. OMY.

I've got news for you. What is definitely running out, one day at a time, is your time stash. There's lots of things one can do to stretch out a caught-short money stash. But there isn't a damn thing anyone can do to stretch out one's time stash. Each and every day is unrecoverable. Use it or lose it, as they say.

All morosely true, but what about the "enough money" part? Let's look at my case and see.

How Much Is Enough?
First, let's have some facts for context. At 62, I had $130,000 in cash assets... an IRA with a book value of $213,000 and a yearly 8% income yield of $17,000... an available Social Security benefit of $16,500 a year... a mortgaged house with about $125,000 in equity... and basic living expenses of $28,000 a year including income taxes. And I wanted my 40-plus job related hours a week back in my control to use as I saw fit -- without the job stress, deadline pressure and person-to-person tensions that came with my position as a small working group manager.

Did I have enough cash flow to award myself the priceless gift of freedom right there and then? Yes.

Before we even look at the income side of the ledger, let's talk about my living expenses. At 62, I could have easily done what I did at 65: apply the concept of frugality without sacrifice* to reduce my living expenses. By doing that -- and eliminating my mortgage*** -- those expenses went from $24,000 to less than $18,000 a year including income taxes. How I did that is the topic of another post**, but there you have it: I could have achieved a 36% reduction in my living expenses at any time.

I Could Have Pulled The Trigger At 62
So where would that have left me, if I had taken those expense-cutting steps when I was 62? I would have been living in a paid-for house, with $100,000 cash assets, a Social Security pension of $16,500 a year, a passive investment income of $17,000 a year and annual core living costs of $18,000. That means that at 62 I would have had Social Security payments that almost covered my core living expenses, a cash reserve equal to more than 5 years of those expenses, and more than $15,000 in surplus passive income a year to spend on anything else I liked (after paying my income taxes, of course).

So why in hell would I wait 3 more years to retire? Why in hell did I? One word: OMY -- combined with stuck-in-the-box thinking about my living expenses. I am glad I broke out of that box by redefining my residence location and applying frugality without sacrifice to my budget. I just wish I had done it 3 years sooner. Had I done so, I would have seen the true rosiness of my situation.

I would have seen that at 62 I already had total income to cover my living expenses more than 2 times over -- without having to work and without drawing down my investment fund. Plus I would have had a 5-year cash reserve and a paid-for house available for a reverse mortgage if it ever came to that. I would have seen that I was covered.

And I would have had three more years free to do whatever I liked.

*My Financial Independence Key:
http://retired-to-win.savingadvice.com/2013/12/17/my-financi...

**My $18K Annual Baseline Budget:
http://retired-to-win.savingadvice.com/2013/12/29/my-18k-ann...

***Let me clarify that "eliminating my mortgage" step I threw off so cavalierly. It's not that much of a mystery, really. I just sold the house, took my profits from the sale to a less expensive real estate market (in a milder climate, too) and bought back essentially the same house and property for half of my previous home's selling price. And I bought that new house outright, using the real estate profits plus $30,000 from my cash assets.

Frugality without sacrifice is my spending motto*. But does the "without sacrifice" part sometimes push me over the edge into unfrugality? I took a close look at where my money goes and found quite a few items I could spend less on. So here is the rundown on what those items are, how much extra they are costing me, and what (if anything) I am going to do about it.

Baseline Spending**: An Extra $1430 a Year for Unfrugality
Groceries. Because it helps me control my weight and maintain good blood numbers, I pay an extra $20 a week to eat a meat-and-veggies diet without rice, pasta or potatoes. That is an extra $1000 a year.

Medical Checkups. Because I want to stay on top of my health, I get quarterly checkups instead of the standard annual one. That is an extra $60 a year in co-pays. (Thank goodness for insurance.)

Dental Cleanings. Because I hate having dental work done, I get quarterly cleanings instead of the standard semi-annual ones. That is an extra $170 a year.

Vehicle Maintenance. Because of their servicing system and convenience, I pay more to take my truck to Jiffy Lube instead of a local service station. That is an extra $200 a year.

What will I do about that extra $1430 a year in baseline spending? Nothing. All of it keeps either me or my truck in top running condition. And that, as they say, is priceless.

Discretionary Spending***: An Extra $1020 a Year for Unfrugality
Coffee. Because I like the taste so much, I pay an extra $10 a pound (!) to drink Tully's French Roast Keurig K-cups instead of drip coffee. That is an extra $180 a year.

Books. Because I love collecting them, I pay an average $5 a book instead of borrowing at the library. That is an extra $120 a year.

Motel Stays. Because I want the amenities it offers, I pay an extra $20 per night to stay at Best Western instead of Knight's Inn or Motel Six. That is an extra $480 a year.

Scotch Whiskey. Because I want the smoothness and the taste, I pay an extra $15 a bottle for Chivas Regal over a common brand. That is an extra $150 a year.

Beer. For the same reasons as for Scotch, I pay an extra $5 a six-pack to drink Beck's instead of Bud (or Old Milwaukee!). That is an extra $90 a year.

What will I do about that extra $1020 a year in discretionary spending? Nothing. All of that money comes out of my discretionary fund*** which is there precisely for guiltless spending on whatever I want.

All told, my unfrugal side is costing me $2450 a year. But that is less than 10% of the annual surplus cash I have after covering my $18,000 annual baseline budget**. So I think I will give myself a break and let it be.

*My Financial Independence Key:
http://retired-to-win.savingadvice.com/2013/12/17/my-financi...

**My $18K Annual Baseline Budget:
http://retired-to-win.savingadvice.com/2013/12/29/my-18k-ann...

***A Discretionary Fund, Not a Discretionary Budget:
http://retired-to-win.savingadvice.com/2014/03/29/a-discreti...

When you own your own home, you have to be ready for unexpected repair costs at any time. And sometimes that can get expensive. But home warranties have kept my repair costs way down and made it easier to get things fixed.* Here is my 14-year experience.

I learned about home warranties when I bought my second house in 2000. That house came with a home warranty provided by the seller. If any appliance or operating system (plumbing, electrical, etc) in the house failed, the warranty would cover its repair or replacement minus a set $100 deductible. "Nice," I thought, "an extra little peace of mind." And then I promptly pushed the warranty to the back of my mind -- until the gas furnace failed to start up a couple of months later.

Getting a home system fixed isn't just costly; it is also a stressful hassle -- especially when you are new in town, as I was. Who do you call? How do you know they will do a good job? How do you know you are paying a fair price? Getting those questions answered takes time and trouble. And sometimes you have to learn by trial and error. But having the home warranty changed all that for me.

I got my hands on the home warranty booklet, verified that furnace repairs were covered (hurray!), and phoned the repair request number in the booklet. And... presto! In just a couple of minutes, the claims agent gave me a repair approval code number and the contact info for an approved furnace repair company. So I did not have to search for one myself. And the warranty company would guarantee the service outfit's work. I did not have to worry about that problem, either.

So I contacted the service company, gave them my repair approval code number, their technician came and replaced some expensive gizmo in the furnace, and I just paid a $100 deductible. Problem solved. Case closed. And I was sold on home warranty policies.

Since then, I have had home warranty policies on 3 different houses in 3 different towns. I have had many electrical, plumbing and heating problems solved under those warranties. Twice I have had to ask the warranty company to rework a problem, and both times this has been done without argument. And I have had several items replaced outright: a well pump, a large refrigerator, a clothes dryer, an entire set of incoming water lines. In my experience, having a home warranty policy has been a complete success.

Financially I am also satisfied. My annual cost for a home warranty policy has averaged around $500 and fit with no trouble into my $18,000 annual baseline budget**. Aside from the $100 per call deductible, I have been totally shielded from large repair or replacement bills. I have contained my home repair costs and avoided nasty cost surprises.

In short, having a home warranty policy has given me much more control over my expenses. And it has reduced my level of homeowner stress. Home warranty policies have certainly worked for me.

*Repair It or Replace It?:
http://retired-to-win.savingadvice.com/2014/03/31/repair-it-...
**My $18K Annual Baseline Budget:
http://retired-to-win.savingadvice.com/2013/12/29/my-18k-ann...

This index consists of a title link list to all my posts in this category. I will edit/update this post each time I publish a new post on a financial planning topic. And I will set/update the order of that list so that it has as much thematic continuity as possible, regardless of when each post was published.

I hope this makes it easy for visitors to my blog to browse and access all my posts in an organized manner. And here is the list.

Index to All My Financial Planning Posts
(Updated October 29, 2014)

When My Financial Freedom Ducks All Fell In a Row:

http://retired-to-win.savingadvice.com/2014/07/15/when-my-fi...

My Financial Independence Key:
http://retired-to-win.savingadvice.com/2013/12/17/my-financi...

Fiscal Discipline -- It Is For Grownups:
http://retired-to-win.savingadvice.com/2014/07/31/fiscal-dis...

Fiscal Discipline -- It Is About Perspective:
http://retired-to-win.savingadvice.com/2014/08/03/fiscal-dis...

Fiscal Discipline -- It Has to Be Hands-On:
http://retired-to-win.savingadvice.com/2014/08/05/fiscal-dis...

Fiscal Discipline -- It Is About Looking Ahead:
http://retired-to-win.savingadvice.com/2014/08/08/financial-...

Fiscal Discipline -- It Has to Have a Purpose:
http://retired-to-win.savingadvice.com/2014/08/12/fiscal-dis...

Fiscal Discipline -- Goals Facilitate It:
http://retired-to-win.savingadvice.com/2014/08/19/fiscal-dis...

Fiscal Discipline -- It Means a Better Future:
http://retired-to-win.savingadvice.com/2014/08/23/fiscal-dis...

My $15,000 Middle Class Budget:
http://retired-to-win.savingadvice.com/2014/10/29/my-15000-m...

Budgeting to Reach Freedom:
http://retired-to-win.savingadvice.com/2014/04/27/budgeting-...

Enough Money From Enough Time:
http://retired-to-win.savingadvice.com/2014/07/08/enough-mon...

The Chuckle Benefit of Financial Planning:
http://retired-to-win.savingadvice.com/2014/05/21/the-chuckl...

My Six Lines of Financial Defense:
http://retired-to-win.savingadvice.com/2014/04/29/my-six-lin...

My Unrecoverable Cost of One-More-Year:
http://retired-to-win.savingadvice.com/2014/04/05/my-unrecov...

Letting Enough Money Be Enough:
http://retired-to-win.savingadvice.com/2014/07/06/letting-en...

Is That Expense Essential or Discretionary?:
http://retired-to-win.savingadvice.com/2014/06/01/is-that-ex...

Marital Finances Our Way:
http://retired-to-win.savingadvice.com/2014/04/11/marital-fi...

Budgeting By Exception:
http://retired-to-win.savingadvice.com/2014/03/28/budgeting-...

Making Over My Reserves Plan:
http://retired-to-win.savingadvice.com/2014/01/04/making-ove...

My Stash-Shielding Insurance:
http://retired-to-win.savingadvice.com/2014/04/10/my-stash-s...

LTC Insurance -- A Lesser and Necessary Evil:
http://retired-to-win.savingadvice.com/2014/05/25/ltc-insura...

A Discretionary Fund, Not a Discretionary Budget:
http://retired-to-win.savingadvice.com/2014/03/29/a-discreti...

Debt Can Be A Very Good Thing:
http://retired-to-win.savingadvice.com/2014/04/24/debt-can-b...

Taming My Health Care Costs Monster:
http://retired-to-win.savingadvice.com/2014/01/18/how-i-tame...

Big Job Estimates Save Me Big Money:
http://retired-to-win.savingadvice.com/2014/03/20/big-job-es...

Home Warranties Work For Me:
http://retired-to-win.savingadvice.com/2014/04/02/home-warra...

My Oldie-Goldie Thrifty-Nifty Truck:
http://retired-to-win.savingadvice.com/2014/03/25/my-oldie-g...

My Frugal 1996 Dakota Keeps On Trucking:
http://retired-to-win.savingadvice.com/2014/03/26/my-frugal-...

A Double Fistful of Credit Cards:
http://retired-to-win.savingadvice.com/2014/03/30/a-double-f...

Beating The Cashback Card Game:
http://retired-to-win.savingadvice.com/2014/04/26/beating-th...

My $50-a-Week Food Expense:
http://retired-to-win.savingadvice.com/2014/03/23/my-50-a-we...

What My Unfrugal Side Costs Me:
http://retired-to-win.savingadvice.com/2014/04/04/what-my-un...

Making Sure I Spend That Money!:
http://retired-to-win.savingadvice.com/2014/04/08/making-sur...

I just counted and I have 26 active credit cards. Adding the card credit limits, I have a total of $319,900 in available revolving credit. But I pay off my balances every month and don't use credit cards to finance anything. So what is the point of having all those credit cards? Here are six reasons.

Credit cards give me financial flexibility. Like the time I bought a Subaru Forester with a credit card check because my own funds would not become liquid and available for a few days.

Credit cards give me bonus discounts on major purchases. Like the $135 I got last Fall as cashback rewards on a $9000 roofing job.

Credit cards give me a higher FICO credit score (currently 831, according to DiscoverCard). Because having more credit cards showing on-time payment records means getting a higher credit score. And because having higher aggregate available credit compared to your combined owed balances means getting an even higher credit score.

Credit cards give me an additional level of financial reserves.* So that all my reserves do not need to be in cash.* And that frees up more of my cash for investment.

Credit cards give me lower "street risk". Because having them means I carry just $50 in my wallet.

Credit cards give me a last resort "get-out-of-Dodge" option. Because with or without cash, having credit cards means I can go anywhere and do anything at a moment's notice.

Credit cards are not the enemy. Misusing credit cards is the enemy. And I reap a lot of benefits from having credit cards as my friends.

*Making Over My Emergency Reserves Plan:
http://retired-to-win.savingadvice.com/2014/01/04/making-ove...

I separate my retirement spending, practically -- and even more importantly psychologically -- into a baseline budget and optional disbursements from a discretionary fund. My baseline budget* covers what I have decided is the minimum lifestyle acceptable to me. The discretionary fund functions as a super flexible pot of money -- distinct from my baseline reserve** -- from which I can pay for goodies, fun, extras, whatever without having to worry about what that spending will do to my budget. Here is how that actually works.

The Baseline Budget
My baseline budget defines my baseline lifestyle. I have chosen to include in that baseline budget living in and up-keeping a country house (instead of a cheaper apartment), having internet access and basic drive-around gas money, eating a meat-and-vegetables diet (instead of a rice and pasta diet), drinking Chivas Regal instead of a cheaper brand, as well as a few other items that distinguish my baseline budget from the minimum budget I could probably survive on. My baseline budget raises my retirement lifestyle from minimal survival to my own personal level of baseline living comfort.

My annual baseline budget* ($18,000) is what I had to have as passive income before I could stop working and retire. I had to keep working until I had crossed that passive income threshold. This is an important point, given that my key financial objective has been to retire as soon as possible in order to free up as much of my remaining life as possible. Life is a zero-sum game, after all. I -- like you and everyone else -- have a set and finite number of days to live. One more day working is inevitably one less day free.

I have taken one more step before turning loose my discretionary spending. Even though my entire baseline budget is covered by my Social Security payments, I sleep better knowing that I have a baseline budget reserve** "just in case." So I have one year's baseline expenses set aside in a savings account. With that in place, I have become very comfortable with my discretionary fund spending.

And here is how a discretionary fund works for me.

My Discretionary Fund
My passive income over and above my $18,000 annual (or $1500 a month) baseline budget gets moved over once a month into a separate discretionary fund bank account. Those discretionary funds accrue there. Whenever I want to do something optional -- book a trip, buy a gadget, hire out something I could otherwise do myself -- I check my discretionary fund balance. If I am comfortable withdrawing from that balance the cost of whatever it is I am considering doing or buying, I go ahead. And I never have to question whether "my budget" can afford the extra cost. Because that is all off budget.

And what if an unexpected unavoidable expense comes up? What if my truck dies... or the well pump goes bad... of I have to travel to see ailing family? Well, my uncommitted discretionary fund stands there ready to bail me out.

This way of handling my finances has had a lot of benefits for me.

Benefits of a Fund Approach
To My Discretionary Spending
First and foremost, separating my wants from my baseline needs*** made it clear to me that I could stop working much sooner than I had thought. So this budgetary approach allowed me to retire years earlier to what I knew I would consider a comfortable baseline lifestyle (for me).

Second, keeping a discretionary fund -- essentially an uncommitted pot of money -- has given me maximum flexibility as to what I can do with that money. If, instead, I had developed a discretionary budget the result could have been becoming committed to recurring expenses just because I could afford them. Expenses such as car payments, time-share payments, club memberships, obligatory annual trips to destination X, and so on. And an expense one becomes committed to can no longer be considered discretionary.

The flip side of this is that keeping my discretionary funds uncommitted allows me to pounce on and take advantage of unexpected opportunities for fun when they present themselves (like grabbing a super bargain of a boat on Craigs List.)

Thirdly, this financial planning method gives me a very solid psychological safety net regarding my financial future. It is a lot less worrisome to think about -- and plan for -- an unexpected drop in passive income when I only have to consider how to continue to cover my baseline budget. On that basis, it would be extremely unlikely that I would have to make any adjustments at all to that budget. Anything else would be, after all, just discretionary.

*My $18K Annual Baseline Budget:
http://retired-to-win.savingadvice.com/2013/12/29/my-18k-ann...
**Making Over My Emergency Reserves:
http://retired-to-win.savingadvice.com/2014/01/04/making-ove...
***My Financial Independence Key:
http://retired-to-win.savingadvice.com/2013/12/17/my-financi...

I have said that I have a budget. I have even set it out in detail on a blog post.* But the truth is I do not budget at all! What I do is to keep track of my spending and continuously optimize that spending. That is how I cut my baseline spending down by a third over a period of less than a year. And here is how that works.

Like everyone else, I have fixed expenses and variable expenses. Big expenses and small expenses. Planned expenses and unexpected expenses. And on a rolling basis, I keep reviewing each one of those costs and testing to see if I can reduce it without diminishing my life satisfaction or comfort level. It is what I call budgeting by exception. So to speak, I listen for the squeaky cost wheel and then apply some frugality grease to it. And by continuing to do this, I continue to trim down my spending run rate.

But I do not really have a budget. I think that in itself moderates my spending. I do not go to the grocery store with a limit on how much money I can spend there**. I do not go to the gas station thinking I can only put so much fuel in the tank, or set a limit on how much I can drive my truck***. What I do is to approach every spending decision with a firmly internalized mindset to optimize that spending. Not in order to get the biggest bang I can get for my buck -- but rather to get the bang I will be happy with for the fewest of my bucks.****

*My $18K Annual Baseline Budget:
http://retired-to-win.savingadvice.com/2013/12/29/my-18k-ann...
**My $50-a-Week Food Expense:
http://retired-to-win.savingadvice.com/2014/03/23/my-50-a-we...
***The Frugal Game -- Errand Bundling:
http://retired-to-win.savingadvice.com/2013/12/26/the-frugal...
****My Financial Independence Key:
http://retired-to-win.savingadvice.com/2013/12/17/my-financi...

Covering my basic living expenses with $18,000 a year* leaves me a lot of surplus discretionary money. First, I paid off my debts with it. Next, I bulked up my reserves with it. Then, I built up my retirement stash with it. But now I have no debts. My reserves are covered**. And I have all the retirement funds I think I will need. Still the surplus money keeps coming in and piling up. So I think it is time for a no-guilt spending spree. Here is how I am going to do it.

I actually have to "work" at spending money because I have a strong frugal mindset and a very satisfying basic lifestyle***. I just will not go throwing money around spur-of-the-moment or on whims. That is part of why my discretionary fund is now well over $28,000. I have to plan to spend at least some of that. So I am targeting $5000 for a planned spending spree. Here are the details.

$5000 Spending Spree
[] $750 for a spring break hiking trip because I love hiking****.
[] $1000 for a winter comfort to-do list because I hate winter.
[] $500 to kickstart a local trail improvement volunteer program.
[] $500 to test run astronomy as a new hobby.
[] $1000 to have a blog professionally set up because I am so frustrated at trying to do it myself
[] $500 to have built-in bookcases done because I collect books (and I am feeling too lazy)
[] $750 for big-boy toys: a microscope and a little lake rowboat from Craig's List, plus a new rifle.

Finally, I need to set a deadline for this spending and make myself accountable to meet it. So I am setting June 30 as the deadline for the spending to be done. And I will be putting up a Page on my SavingAdvice blog to make public my progress -- or lack of it -- on this spending.

This is a happy problem, I know. And I think anyone (almost anyone?) can have this happy problem if that person adopts a frugality-without-sacrifice*** living mindset and resolves NOT to deficit-finance an otherwise unaffordable lifestyle.

*My $18,000 A Year Basic Living Budget:
http://retired-to-win.savingadvice.com/2013/12/29/my-18k-ann...
**Rethinking My Reserves:
http://retired-to-win.savingadvice.com/2014/01/04/making-ove...
***Playing the Frugal Game is Fun:
http://retired-to-win.savingadvice.com/2013/12/14/playing-th...
****I Love Hiking:
http://retired-to-win.savingadvice.com/2013/12/23/my-love-af...

As I was coming close to turning 65, I knew I had to make some important decisions regarding my health care coverage. For the previous 20 years, I had been riding the coattails of my wife's employment, and paying sometimes nothing and sometimes a token amount for soup-to-nuts health insurance coverage. But no more. The minute I turned 65, I would be dropped like a hot potato from my wife's employer-provided health insurance policy. Goodbye, free ride. Hello, Medicare.

There are plenty of health care cost horror stories on the blogosphere and, like most of you, I had read my share. Health care costs: the bottomless pit... the destroyer of retirement stashes... the car crash waiting to ruin my carefully laid plans for financial independence. What to do?

While all these happy thoughts were progressively rising to my mind's surface more and more often, my mailbox started spewing forth more and more direct (junk) mail packets from insurance companies eager to take my money in exchange for... what? I figured I had better start digging in and find out.

Asking the Right Question
Yes, Medicare would cover a very large part of the front end, but not everything and not without limit. And it would actually cost me?! (Surprise, surprise, I thought all that money deducted from my paychecks for over 40 years would take care of that.) And so, to cover what Medicare would not, I would need a Medicare supplement policy. Or not (!) since I could also opt for a "Medicare Advantage" policy to combine the core Medicare coverage and the supplemental coverage under one insurance roof. Boy, oh boy.

I started making lists and evaluating policies, tabulating who gave what for how much and up to what limit, and yaddy yaddy -- and then it came to me. Too many possible answers. But... what was my question? What problem was I trying to solve? Without nailing that down, no way would I recognize the right answer when I saw it.

The first thing I realized, before even formulating that all-important question, was that I had begun my policy search implicitly trying to replace what I was losing: soup-to-nuts coverage. But did I really need that? Sure, it had been great "fun" to go to doctors and be able to walk out having to co-pay a whole ten bucks (!) for a consultation or an annual physical or anything. Blood tests? Sure! An x-ray? Bring it on! A colonoscopy? Well, if I really had to. What did I care; I wasn't paying for any of it.

But did that mean I could NOT pay for it? Did I really need health insurance to cover that? What did I REALLY need the health insurance to do? And so I had my question. And I also had my answer. I needed a Medicare supplement policy that would keep me from suffering a catastrophic loss of retirement assets as the result of treating an illness or accident.

Coming Up With the Right Answer
So, what would a "catastrophic loss of retirement assets" look like? How much loss would be catastrophic? That number is (of course) different for everybody. But since this is my story, this is my catastrophic loss number: anything above $25,000. What I needed was a policy that would LIMIT MY RISK to that $25,000. And I should search for and select a policy based on how well it would limit my risk, and not on what I could get for my premiums along the way.

By now, you are probably starting to see where I ended up going. To arrive at what I would consider the best overall deal for me, I looked at 2 factors: annual premium and annual out-of-pocket risk. And lo and behold, a High Deductible Plan F Medicare Supplement policy was right up my alley. My premium is $636 a year. My deductible (and therefore my out-of-pocket risk) is $2110 a year. Add to that $1260 in annual Medicare premiums, $180 a year for my prescription plan, and $325 for my annual prescriptions deductible and it all adds up to $4511 a year.

Throw in another $489 in theoretical prescription co-pays a year and we get a worst case scenario of $5000 a year -- which is one hell of a lot less than my $25,000 tolerance limit.

Every year, I'll pay the premiums (which, I realize, will creep up every year). Then I'll be on the hook for the first $2110 of medical expenses -- over and above what Medicare will pay -- plus the first $325 of prescriptions. And after that... ZERO cost for up to 15 months of hospitalization... ZERO cost for 100 days at a nursing facility... ZERO cost for all physicians services... ZERO cost for all laboratory diagnostic services... plus a bunch of prescription medicines thrown in. (Hey! If I'm still racking up medical costs after 15 straight months of this stuff, it's going to be time to pull the plug anyway.)

So I put those policies in place. Then the last piece of the puzzle for me was to set aside $5000 in a savings account specifically intended to cover two years' worth of the $2435 in annual worst-case medical and prescription out-of-pocket annual medical expenses. Case closed! I could stop worrying about my health care coverage, and get on with my financially independent living.

The big epiphany here? I focused on overall worst case scenario risk to come up with a maximum expense number ($5000 a year) I could most certainly live with. And the best news of all? Even if you're under 65 and without Medicare, you could make this work too (like Mr. Money Mustache has done).

What about you? How have you approached health care cost coverage and its costs so that it won't swallow up your stash?

Two years of living expenses in a savings account: that's what my cash reserves plan amounted to a few months ago. Then I started planning to write a blog post on the how and why of that plan. And in so doing, completely changed my thinking.

I've gone from a cash reserves plan to an emergency reserves plan -- and that has made a huge difference. Before, my cash reserves consisted of sums in checking, savings and CD accounts amounting to (as I said) 2 years of living expenses. Now, my emergency reserves consist of a 6-month food supply, $2000 cash on hand, gold and silver coins on hand, a year's worth of living expenses in cash deposit accounts, and $270,000 in personal credit lines from 13 different financial institutions. This madeover emergency reserves plan is much much broader in scope than my old cash reserves plan -- yet ties up less money. And the freed money can now be invested for extra income.

This emergency reserves plan works for me thanks to my own individual income and insurance framework. The plan's specifics are not going to be applicable to someone else's financial situation. But the thinking behind the plan may very well open some mental doors worth opening. You decide.

What are my reserves supposed to do?
My reserves are there to give me liquidity and solvency. I don't want to be forced to sell a chunk of my investments (at the wrong time!) because I need the ready cash (liquidity). I don't want to have to do without something I need (such as a car repair or a medical prescription) because I just don't have the money (solvency). I don't want my credit score to plunge because I don't have enough money in my checking accounts to pay my bills when they come due (liquidity and solvency). And I don't want to miss out on an investment/savings/great deal opportunity because I don't have the necessary funds when the opportunity presents itself.

BUT! In the first place, I don't need money in a checking or savings account to deal with some of those situations. And in the second place, there are plenty of situations where money in a checking or savings account (or available balance on a credit card) would not do me one bit of good.

To give myself true (or truer) liquidity and solvency, I've had to revise the elements of my reserve so that I will be covered in a much wider range of possible emergency situations.

What I learned about ready cash from Hurricane Andrew
There are a lot of things I'm never going to forget about the aftermath of Hurricane Andrew in Miami. And one of those things is the little convenience store that reopened up for business a few blocks from me just 2 days after the hurricane hit. There was no electrical power in that entire section of the city, so: no electronic cash registers, no credit card terminals, and no ATMs. Cash was King and prices were inflated. Almost 2 weeks passed before that little store had its electrical power restored. Same thing for the home improvement store half-a-mile in the other direction. If you were out of cash, you were out of luck. And that in a situation where you even had to buy your water because there was nothing coming out of the faucets!

So, Reserves Lesson #1 for me: have a ready cash reserve at home.

But for some people in the areas south of Miami, it was actually worse than that. There were no stores in good enough shape to open and NOTHING to buy. We all saw similar images repeat themselves a few years later in New Orleans. People standing in line for food-and-water handouts from the back of trucks. People completely at the mercy of... whatever.

Something like that can happen anywhere, anytime. Hurricane... earthquake... forest fire... tornado... snow storm... civil disturbance... security lockdown (think Boston)... you name it. The day could come when you have no open stores to go to. For days. If it's really, really bad maybe for weeks. All you'll have is what's in your pantry. (Best to go right through the stuff in your refrigerator the first day, before it all spoils.)

So, Reserves Lesson #2 for me: have a food reserve at home.

What I hope I never learn first hand about the fragility of fiat money
Emergency is the key operating premise in my approach to reserves. And what could be more of a financial emergency than your money becoming worthless, or just disappearing overnight from your accounts?

Last year, Cyprus tried to simply confiscate bank deposits above a certain amount. My Cuban friend lived through a day when -- overnight -- the paper currency was changed and no one was allowed to exchange more than a certain limited amount of the old no-longer-legal-tender money (or bank deposits) for the new paper. That scenario has been played many times in many different countries. And how do I know it won't happen here?

I hope it does not happen. More than that, I don't think it will happen. But even though I don't expect my house to burn down, I have homeowner's insurance in case the unthinkable happens. Even though I don't expect my vehicle to get totaled on the highway by some tipsy driver, I have automobile insurance in case the unthinkable happens. And, even though I don't expect some currency-collapsing crisis to happen here, I think I better have at least a little insurance in case the unthinkable happens.

So, Reserves Lesson #3 for me: have a modest stash of gold and silver coins at home. (And if nothing happens, it will just have been another investment.)

The rest is just a matter of hedging my cash flow
As I mentioned earlier, this emergency reserves plan works for me thanks to my own individual income and insurance framework. And that framework makes it very unlikely that I could get caught in a longterm cash flow crunch.

My Social Security income covers 110% of my basic living expenses. Dividends and interest income from my investment portfolio covers 180% of my basic living expenses. That means that my retirement income could collapse by 60% and I still would not have to fight Sassy, Scampy and Bear for their canned cat food. I cannot see a solvency issue in my horizon; just the possibility of a liquidity one.

And that is where my credit lines come in as a component of my emergency reserves plan. Except for taxes, electricity, and insurance, all my expenses could be paid by credit card if necessary. Having credit lines from 13 different banks gives me a way to bridge any short term lack of liquidity for more than half of my living expenses without having to be dependent on just one or two lenders. I can always pay off any borrowed sums with future cash flow from my Social Security and/or my investment income.

The other "cash only" half of my basic living expenses needs to be covered by, well, cash. So I have hedged that with a year's worth of those expenses in a checking and a savings account.

So, Reserves Lessons #4 and #5 for me: keep a diversified mix of credit lines open, and keep enough money in bank deposits to cover your non-chargeable expenses for a reasonably long while.

The only possible fly that could still be left in the ointment here would be unexpected medical expenses. But I think I have covered that too. I've focused on overall worst case medical expense risk to come up with a maximum possible expense number ($5000 a year) that I could most certainly handle under my emergency reserves plan.

So, more emergency coverage and more money in my pocket
With this emergency reserves plan in place, I have reduced my need for cash reserves by a lot. As a result of investing the freed funds, I have boosted my annual passive income by a goodly amount. And I have hedged against just about every kind of emergency I can think of.

What about you? What do your emergency reserves look like?