Ice cream in Napoli - The ultimate indulgence

How Much Do Little Indulgences Cost

Calculate How Much Little Indulgences Cost You

Little indulgences are nice, but how much do little indulgences cost in the long run. A coffee before work, going out to lunch a few times a week, a restaurant visit a couple of times a week. Even more organized indulgences such as a cable subscription or a magazine? If you would take all your weekly coffee purchases and instead invest the money in a fund, how much money would that be after say 10 years? Use the calculator below to find out.

Indulgences Time Cost Calculator

If you are thinking about saving, one good way to look at cutting these little habits is asking yourself how much time it adds until you will achieve your financial goal, whatever that may be. For me, I think a lot about how to shorten the amount of time until we can become financially independent. I would like to become independent before our son reaches school age because at that time we will be much more restricted in where and when we can go and explore the world.

Let’s find out how much your little habit from the example above costs in terms of time:

Methods for Cuttings Little Expenditures

Another good way to cut spending and getting rid of some of these little habits is to come up with a substitute. Maybe you don’t need to go and buy a coffee, maybe you can make it yourself. Perhaps instead of having cable you can cut that entirely and focus on learning a skill instead using the numerous free videos there are online. I employ this tactic a lot in my life, not just because I like to save money but also because gaining skills and leveling up in life is important to me.

Some other ways to cut spending is to focus on spending that is damaging to you. Do you buy too much alcohol? It’s easy to justify cutting some of that. Do you eat too many sweets? Cut. Do you watch too much TV? Cut the channel subscriptions or even the TV itself and spend the time with family or friends instead. Find yourself taking a taxi too often? Consider bicycling or planning better. The list goes on. You can reinforce the spending cut by justifying it with supporting arguments such as health and time spent with family or on hobbies you love.

Above all else I think the most important thing you can do to start saving money is to sit down and actually come up with a financial goal and a way to reach it (also known as a “plan”). Check out our post on how we calculated our own financial end goal. It puts you in the mind set of having a project, a really valuable project. What could be more important than to spend as much time as you can on your family, hobbies you enjoy, traveling and generally enjoying life having reached financial independence? I myself absolutely love my work, but I do one kind of thing at work for 8 hours straight. I have so many other hobbies I would just love to dedicate more time to, but I can’t right now because more than half of my waking time goes towards work.

Grape Angel

How We Started Saving 70% of our Take Home Salary

How we went from occasional savings to 70% a month

Agust and I were frugal before we met. I waited to get my driver’s license til 21 (most Americans get theirs the day they turn 16) to save on car payments, insurance, and gasoline, and was able to go into university with about $8,000 in my savings account. Ágúst has always been frugal at heart and does not have many material needs. He didn’t have a set financial goal for a long time until one day he did the mistake of co-signing a loan as a favor to a friend. Less than a year later the friend defaulted and Ágúst had to pay almost the entire loan himself. He intensely hated having that loan hanging over him so he made it his mission to pay it off as quickly as possible. After paying it off in a couple of years he kind of liked the idea of being debt free and started working on his student loan, which also disappeared in a couple of years. Right around this time he met Sæþór and kept saving a significant (yet far less than currently) part of his salary. Later this would become the down payment on our first mortgage.

For the first years we were together we didn’t have much of a budget. We simply tried not to spend too much, saved extra on our pensions, kept an emergency fund, and largely relied on being young and with good salaries rather than budgeting. We also got lucky in our life choices in that we moved to Germany during the height of the economic crisis in Iceland, and were saving Euros. When we moved back to Iceland we were able to take advantage of a very favorable exchange rate, and many people were looking to sell the houses in Iceland that they were upside down on. We needed to have at least 30% down for a loan and because of the specifics of our situation and the house we wanted, we needed just over 36% down in cash. At 29 this would have been impossible to save up in a short time, but thanks to our frugality and savings earlier in life it required only a bit of a final savings stretch. When we returned to Iceland we found a small shared flat for a good price and lived as frugally as possible to save up the final amounts for such a large down payment. After doing all of that we sort of continued saving in an aimless fashion. It did not even occur to us that you could save enough to live off the interest payments long before the ripe old age of 67 (and probably 70 by the time we get to that age). One day though we came across a very interesting blog that was all about self reliance and you guessed it, early retirement, that blog is called Mister Money Mustache.

The mind set of early retirement and how we started saving 70%

The concept is simple, much like losing weight, one has two options. Burn more calories or eat fewer. In the same way eating fewer takes less actual effort (but more will power) Mister Money Mustache suggests spending less money on things that are pure “wants” and more on things that improve your skills, save you money or optimally, earn you money. Also, the best way to save more money is to earn more money if you can so feel motivated to go and get that pay rise. He has many other areas of advice such as self reliance and improving one’s skills, and smart investing, but his site was the first I ever read that showed how many changes a person can make with their current salary. It made total sense, and we decided to do a total overhaul of our spending and saving. The idea of being retired by 40, when our son will be 7, became our goal. This is a perfect age to be free to go on adventures, pursue new hobbies, or be invested time wise in whatever he is interested in beyond the level of having a 9-5 job will allow. Especially in light of our second blog subject, building a house in the mountains of Virginia, being able to spend a month or two in the mountains without the worry of planning time off or income will enable a really engaging childhood for him and for us to enjoy it with him.

First, we went through all of our monthly expenses to see where we could save. We consolidated our house and car insurance, we hunted for the best phone + internet plan, we decided to eat out far less often (we were averaging once a week) and made a per day food allowance. We also set a savings goal: 70% of our take home pay a month, transferred at the beginning of each month. We also started trying to add as many skills as we could that would save us money in the long run. From learning how to do construction and renovations to shopping 2nd hand for clothes when possible, to selling used things rather than taking them to the dump. We are lucky that we never really got too much satisfaction in life from consumer spending, so it wasn’t much of a change, just small sacrifices that aren’t missed at all. Early retirement seems like the most luxurious thing we could ever buy. The new hobbies and skills we have learned more than make up for any missed entertainment from more casual spending.

After running the numbers, it made far more sense for us at that particular time (right after the crash) to pay off our mortgage early rather than put that money in a savings account, so we did that. One reason we purchased the house we live in now is because it has a guesthouse in the garden. Originally a garage, the previous owners converted it into a home office space. We took the first few months, spent around $4,000 to renovate it into a full guesthouse, complete with tiled shower. We had to learn how to install drywall, plumbing, tiles, kitchen cabinets, and wooden floors. We then took to renting it out over AirBnB but have since changed to long term rentals after seeing how much AirBnB has messed with the local rental climate. We continued to pour our extra savings into the mortgage, and as of late 2015, we are mortgage free on our primary residence. At that point it made sense to buy another apartment, so we shopped around and did just that, and used our new construction skills to renovate the place. We also replaced the entire upstairs bathroom in our primary house, and redid the flooring in our kitchen. All of these were newly learned skills, where the projects took up time and were fulfilling hobbies, and increased the value of the house while we only needed to pay for the supplies. Additionally our skillset is that much greater, enabling future projects such as the Virginia mountain house.

Final advice

If there’s one piece of advice I’d give you it is that you should look at spending (larger amount of) money asking yourself the following question: will it save me money in the long run or will it earn me money? In other words, is it a good investment? It’s also worth wondering how much early retirement is worth to you? Are you ready to forgo buying that second car if it means you get financial freedom months or years earlier? Do you really need that entertainment package when it’s going to cost you $10,000 over a 10 year period?

Another Extra Mortgage Payment

Today I made another extra mortgage payment on our big loan. It’s far less than usually because. The reason for that is that we are still waiting to see how much the repairs on the rental property are going to cost and also because we are expecting a bill from the tax authorities for a few thousand dollars any day now.

We decided to split what we would usually put towards the mortgage in two, half of it went towards the principal of the mortgage while the other half went into our emergency savings account. It’s nice to see it swell a bit. This month, we are only paying an extra $1,462 / 182,692 ISK.

Paying extra on our mortgage using our online bank
Paying extra on our mortgage using our online bank

In total we saved $2,923 / 365,384 ISK, which is 50% of our income. That’s too slow for my taste, I’d like to see that number at 70%, although according to this early retirement calculator, we just might reach our goal if we play everything correctly before we reach 40.

As usual, we were hit by some unexpected expenses and some expected expenses this month. The expected expense is our trip to the US to visit relatives and also the survey the land we just invested in. We’re going out there to meet with a representative of the Virginia Health Department to get a building permit and also with a well and septic system contractor to lay out the location of the house we’re going to build as well as the well and the septic system. You can read more about our project on our house building blog.

The unexpected expense was a $1,000 / 125,000 ISK bill from the tax authority. Apparently we forgot to include some freelance invoices in our tax return and are now being charged a penalty as well as the missing tax. This was a pure oversight on our half. We really need to get better about organizing invoices and keeping track of tax issues. I’m on that.

Success! And poor English.

Changes in our emphasis

After the latest renting disaster we started thinking that it might be a good idea to diversify. We have very little liquid cash on hand which is not generally very good. We have been thinking really hard about what exactly we can put some of our money in and so far the only other thing we can think of is either Iceland state bonds or the Icelandic stock market. Both of those do not sound very appealing so for the time being, we’re putting it into a high-interest savings account. They are actually quite good (for the time being) with interest rates around 4.6%

Once the capital controls are released (in Iceland, since the financial crisis, you can’t transfer money out of the country). Were were thinking about investing in real estate REITs. These are special financial constructs that invest in real estate only, such as buying office buildings and renting to companies or buying shopping centers and renting to retail companies. We can only start to fully think about how we want to diversify when we see some movement towards the Icelandic government lifting the capital controls.


The current tally

Whenever the last post is in a previous month I’ll include the repayment tally like the one below. I’ve fixed the interest rate at 1 USD = 125 ISK (the average February rate for the last 5 years):

  • Assets: $460,477 
    • Real estate: $455,506 / 56,938,190 ISK
    • Cash: $4,867 / 608,394 ISK
    • Stocks: $104 / 12,966 ISK
  • Debt: -$127,942 
    • Mortgage: -$127,868 / -15,983,531 ISK
    • Credit Cards: -$74 / -9,295 ISK

Sum: $332,535 (Up 1.1%)