Friday, February 29, 2008

Downsizing our Expenses

Downsizing our monthly budget has been an interesting experience. One surprise was that by moving to Hilo, Hawaii we were able to rent a great house with a view for one third the cost of a dumpy tear-down apartment in Cupertino. In the case of housing, the quality of our life has greatly improved. Another result was that as our expenses are being downsized, some expenses suddenly stick out because they become a greater percentage of our overall expenses for the month. The cost of our electricity in Hawaii, for example, has become one of our top expenses and an area we are focused on reducing. Some expenses we can only get down so far. Our health insurance, for example, we were able to cut to less than half the cost of COBRA, but the only way to get it cheaper is to give it up entirely or get a job with health coverage.

Our motivation for downsizing our expenses is the opportunities it opens to us in replacement. Replacing a $120,000 yearly run rate is a whole other matter than replacing a $60,000 yearly run rate (by run rate I mean yearly expenses after taxes). Something that pays $40 an hour could be considered, whereas in Silicon Valley it would be considered insulting. The challenge is doing it in a way that doesn’t degrade our quality of life. The process is taking us years to slowly modify our expenses and habits, but worth the additional freedom we believe we are gaining.

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