In 2009, I was a very senior executive celebrating my fourth anniversary at a brokerage firm. I was working about 70 hours a week, managing 80 people, and traveling to the company’s other offices (two of which were cross-country) 3-4 days a week, twice a month. Even when I wasn’t at the office or on the road, my Blackberry was constantly lighting up on nights and weekends. I would estimate I got about 400 emails a day.
But with three children under 10, I knew that years of working at a blistering pace was taking a toll on our family, and I needed to make a change. I set out to find something a little less intense and found a great consulting role in marketing and product development with a small firm. I was excited to keep up all my professional skills (and get some new ones) at a pace I knew would bring some welcome relief to the crazy of our household. At this new job I would manage only 15 people, largely set my own schedule, and truly be offline while I was at home.
But to make it work, we had to make some adjustments in order to accommodate my reduced salary. In fact, it was a big reduction: $ 5,000 a month, plus the substantial bonuses I would no longer receive. When I did the math, I didn’t think it was even possible to make such a massive shift in our lifestyle—but I knew I had to give it a try if I didn’t want to burn out before I turned 40.
How We Cut $ 5,500 a Month
My husband Mark and I live in Larchmont, N.Y., a small town about 30 minutes outside of New York City, with our three kids, plus our dog Emily, our cat Nikki, and our fish Charlie. It isn’t cheap: The median household income hovers around $ 160,396.
Mark and I had always been good savers. I grew up in a modest home in a blue-collar town near Detroit, Michigan, but I never felt deprived. My parents taught me to never spend more than you earned—period. And I think that instinct kicked in when I took the new job. I had lived with less before and I absolutely knew I could do it again.
Salary cuts aside, I knew that no matter what, we could make things work as long as I followed my parents’ advice. I was fortunate that along with my new position, I still had the financial advantage of a 401(k) with company match for my retirement savings, and considerable savings. My kids stayed on my husband’s insurance, and I realized it was cheaper to leave them there and put myself on my new company’s plan. That just left our monthly expenses, which had ballooned as our family grew. After a lot of conversation with my husband and a ton of research, I figured out how to make it work.
The first thing I did to scale back our spending was aggregate all of my accounts with an online tool to understand where my pay was going. Once I could see my spending in one place, I sorted my expenses from largest to smallest. I figured if I could make big cuts on the big items, I would have a fighting chance of making it work. I’ve never been an over-spender, but we had a substantial mortgage and a full-time nanny, which topped my list of expenses.
First, we put down the money we had saved from our bonuses years prior to pay down a big chunk of our mortgage so that we could refinance and move from a jumbo to a conforming loan. I’ll explain: Fannie Mae only guarantees loans that meet certain requirements, including falling under a cap that changes annually. For 2013 it’s $ 417,000 ($ 625,500 for high-cost areas like Larchmont). These are considered “conforming loans.” Because they’re guaranteed, there’s a higher demand for them, and consequently lower interest rates.
The loan we had originally was considered a jumbo loan because it didn’t meet those requirements and wasn’t guaranteed, and had a higher interest rate. Once we put our bonus money toward the loan, we were able to refinance for a conforming loan with the lower interest rates (we went from about 6.75% to about 4.125%). Plus, we achieved 20% equity in our home and were able to stop paying PMI, the insurance you pay before that marker. That made about a $ 1,500 difference in monthly cash flow—a huge win—after a lot of effort!
Since both Mark and I were working full time, we had employed a nanny to help out. When making cuts, I decided to switch from our nanny of eight years to au pairs, who would live with us for one year each, sacrificing some salary for room and board. I worked with a company that arranges for international students to spend time in the United States. I didn’t like the idea at all of having someone living with us, but the switch would save us another $ 1,500 a month. (So far, we’ve had three au pairs, and everything’s gone great.)
We also tackled some other areas, like eating out, which saved about $ 500 per month (we’re up to $ 3,500 in monthly savings, if you’re keeping track!). I know spending $ 500 a month on eating out sounds like a lot, but for a family of six—including the au pair—that’s only dinner out four times a month, spending about $ 15 per person each time. I had more time to shop and cook because of my new hours, and I’d say it was the best thing that ever happened to our family. My kids were too young to realize that we were cutting our expenses, but I know they noticed that I was home more—and less stressed when I was.
While making all of these cuts, we also made sure to leave room for little luxuries so the transition wouldn’t be too hard. For example, we love wine, so we doubled our “bottle of wine at home” budget. Side note: There are some amazing bottles for less than $ 20 in any local wine store. That’s not to say that everything went perfectly all the time. Mark, who works in clean energy, was incredibly supportive—but we did have a “flare up” when I tried to swap his precious parmesan cheese block for a less expensive kind. There was a near revolt from my foodie husband, and I earned that some cutbacks are just not worth the fight.
Between these changes and a few more everyday tweaks, we managed to reduce our monthly spending by about $ 5,500 in the end.
Where We Are Now
The hardest part of the entire process wasn’t the actual spending less. It was the legwork of researching and finding the best lower-cost options, just when I was starting a new job. Refinancing a mortgage takes time, focus and paperwork. So does finding a great au pair service, writing the application and interviewing candidates. Plus, I had to get used to someone else living in my house… which actually turned out to be much easier than I thought. The au pairs tend to be really independent, and when they’re off duty, they usually aren’t around. I was worried about the transition, but my kids like having a fresh approach every year.
It took me two-and-a-half years to get myself into a role at the consulting firm where I could earn a good deal of sales commission, and we kept up our new spending habits throughout that time. In fact, I eventually ended up earning even more than I had at my old job when all my sales commissions were factored in, but at that point, we had already made structural changes in the big things and were able to save more than we ever had.
I’m no longer at my consulting job—I found my next position through a project for a company I ultimately decided I really wanted to join. When I read all of the research about the relationship between money and happiness, I can’t help but think that they’re completely different metrics. I was certainly very happy when I shared a basement apartment when I was just starting out, and no matter where life takes me, I know that I could be equally happy with far less than I have now.
Libby Kane is the associate editor at LearnVest. After graduating from Wellesley College, where she was an editor at the Wellesley News, she joined the LearnVest team. Her work has appeared on the Huffington Post, Forbes, the Fiscal Times, and more. Libby spends her time visiting the best museums she can find—the mustier, the better. Follow Libby Kane on Twitter: @LibbyKane
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