A Foray Into Fiction
I got this idea from a writer I love, Amy Dacyczyn of The Tightwad Gazette. She talked about the Snowball Principle, in the form of saving and investing money in yourself and your future. Dave Ramsey talks about the Snowball Effect in a different perspective, having to do with loans and debt.
Working and living paycheck to paycheck does not leave money for savings. Amy D wrote about two hypothetical couples saving for a down payment on a house. This idea and principle are still the same whether in the 1990’s, 2010’s, or even in the 2030’s: to use some of your savings to reinvest in skills and tools that save or earn you even more money. This extra money will compound or SNOWBALL over the months and years.
We will assume for these two couples that their debts are paid off. This is a fictionalized group of people using numbers of 2017 trying to buy an RV after five years without getting a loan.
The Simpletons and Allbrites both want to become full-time Recreational Vehicle (RV) people or RVers. Both couples have modest jobs.
Meet The Simpletons
Year 1: Suzie and Todd Simpleton have no long-term plans except they want to Full-Time RV someday. At the end of year 1 they have saved $100.
Total Savings: $100
Year 2: Suzie and Todd’s dishwasher breaks down and floods their flooring. While the landlord pays for the fix and the floors, they had to buy new rugs for $100. At the end of the year, they have saved another $100.
Total Savings: $100
Year 3: Suzie and Todd head to a wine festival to workamp (work and camp) for the weekend. While there, they spend $100 on wine. They figure they have need to drink it all so that no wine bottles break when they transport it back to their home. At the end of the year, they have saved another $100.
Total Savings: $100
Year 4: Suzie and Todd want to get serious about Full-Time RVing. They go to Camping World and get a 2-year membership for $50. With that membership, they get $25 gift certificate and 10% off purchases at Camping World. They promptly spend the gift certificate and another $50 for two camp chairs for a total cost of $75. At the end of the year, they have saved another $100.
Total Savings: $100
Year 5: Suzie and Todd decide to go to an RV show. They stuff their SUV with sleeping bags and coolers of snacks. By the time they get to the Hershey RV Show it is pouring rain. They get the last hotel room for $100. At the end of the year, they have saved another $100.
Total Savings: $100
Suzie and Todd read The Allbrites’ blog and think, “Some folks get all the breaks.”
Meet The Allbrites
Year 1: Beth and Tim Allbrite run a blog stating they want to be Full-Time RVers in 5 years. They need to buy an RV and they do not want to get a loan. Beth and Tim’s income is modest and at the end of the first year they have only saved $100.
Total Savings: $100
Year 2: At the beginning of the year, Beth and Tim put $75 into an I-Bond earning 2.75%. They know this money cannot be taken out for the first year of the bond. They can decide to keep it in or take it out after the first of the new year.
They spend $25 on a professional haircut kit and both of them learn how to cut each other’s hair. This saves them $12 each month for Tim’s haircuts and $25 each month for Beth’s haircuts and blow-dries. This savings allows them to bulk purchase sale items at Walmart and grocery stores near them. The haircut kit saves them yearly $144 for Tim’s and $300 for Beth’s and the bulk purchases save them $600 this year. Plus, they have saved another $100 at the end of the year.
I-Bond: $75 x 2.75% = $2.06 + $75 = $77.06. They leave the money in the bond.
Savings of year 2: $100+ $144+ $300+ $600 = $1,144 + $77.06 = $1,221.06
Total Savings: $1,221.06
Year 3: Beth and Tim leave the I-Bond alone for another year, and decide to buy $1,000 in a Vanguard Fund. They want to get one with very low fees and no commissions. They go with an Index Fund. As long as they keep it in there for two years, they will not pay capital gains on it. This fund pays out a quarterly dividend.
They spend $100 on oil and filters for four oil changes a year. Tim learns how to change the oil of his small car. They decide they do not need Beth’s car and sell it for $2,000. They get up earlier and carpool to work together. By learning how to change the oil and filters, Tim saves $35 each 3000 miles with a total savings each year of $140. While driving in together and only having one car, they save money on gas, maintenance, and insurance of an extra car at $1,000 a year.
While driving the back roads that year, they see a couple of quaint campgrounds. During the spring, summer, and fall, they stop and talk to the folks staying at the campground. Tim and Beth spend a dollar each week buying a Bingo card at the campground. They manage to gleam a ton of information about RVing from people actually doing it. And one week they won $200! At the end of the year they also saved another $100.
I-Bond: $77.06 x 2.75% = $2.12 + $77.06 = $79.18
Index Fund: $1,000 + (10+12+14+16) = $1,052
Savings (of year 2 and 3): 100+ 144+ 300+ 600+ 2000 – 100 + 140+ 1000+ 200 = $4,384
Total Savings: $5,515.18
Year 4: This is the year Beth and Tim decide to sell as much stuff as possible before they hit the road. They digitalize all of their music and movies and books to sell on Amazon, Craigslist, and eBay. They manage to net $300. They start a nationwide search for a model they like after seeing all of the different RVs at the campground.
They keep the I-Bond and the Vanguard Index Funds and add another $3,000 to the Index Fund. Any savings they make after this will go into a high interest money market online bank, such as Capital One 360 or Ally Bank. This money will earn between 1.3 and 1.5%.
At work, Beth asks to telecommute, but Tim cannot. He decides to invest money in learning how to be an RV technician as he is good with his hands. He takes online classes in his spare time. The online course cost $89 and $150 for the test.
Half-way through the year, he registers as an RV Technician and works part-time at the campground to get real-world experiences. He makes $12 an hour for 20 hours a week. His take home pay is $200 a week after taxes: $200 x 26 weeks = $5,200.
With Beth able to telecommute, she sets up systems to make life easier for her work. She configures her laptop to do video-conferencing and videos with a professional microphone and software to create videos. Part of the equipment will be paid by work, $145 spent.
Because she no longer goes into work, she sells her work clothes, make-up, costume jewelry, hair products, and shoes. She opts for more casual clothes bought at thrift stores and keeps only two dress shirts and a black dress for online meetings and videos. The rest of the time she is in jeans and t-shirts. Her clothing budget decreases from $500 to less than $100, a yearly savings of $400. And this year she sold $350 worth of “work stuff”.
They are pushing hard to make more money and still save the extra $100 this year.
I-Bond: $79.18 x 2.75% = $2.18+ $79.18 = 81.36
Index Fund: $1,052+ $3,000 = $4,052+ (40+50+65+90) = $4,297
Savings (year 2, 3, and 4): 100+ 144+ 300+ 600 -100+ 140+ 1000+ 300 -89 -150+ 5,200 -145
+ 400+ 350 = $8,050
Capital One 360: 1.3% on 8,050 = 104.65+ 8,050 = $8,154.65
Total Savings: $12,533.01
Year 5: Hitting their stride, at the beginning of the year, Tim and Beth leave their I-Bond in place of $81.36 and Index Fund in place without adding to it of $4,297. And the Capital One 360 is now earning 1.5% on $8,154.65.
Tim has become well known at the campground and people come there to get work done. He cuts back on his hours at the “real job” and only goes in two times a week. He starts working more hours as an RV Technician. The campground gives him a raise to $15 an hour and he works 30 hours a week. They also offer to pay for his certification test for Master RV Technician at the end of the year. He brings home $382.50 a week from the job with 15% tax rate. He does this for 50 weeks, for a total of $19,125.
Beth’s job with telecommuting has worked better than she or her bosses could have ever thought. They offer to increase her salary an extra $10,000 a year, plus pay for her yearly internet and cell phone, plus a top of the line MacBook Pro. $10,000+ $1200+ $1200+ $4500= $16,900
With the salary increases and savings, at the end of year five: They decide to keep the I-Bond where it is, and not cash it out until after Year 6 or keep it in there as a reminder of The Snowball Principle. They also decide to keep the Index Fund where it is too, and plan on adding more money to it once they find a used RV to buy.
Hitting their stride and still saving the extra $100 this year.
I-Bond: $81.36 x 2.75% = $2.24+ $81.36 = 83.59
Index Fund: $4,052+ (60+62+75+80) =$4,574
Savings (year 2, 3, 4, and 5): 100+ 144+ 300+ 600+ -100+ 140+ 1000+ 400+ 19,125+ 10,000= $31,709
Capital One 360: 1.5% on $31,709 = $475.64
Total Savings: $36,842.23
Beth and Tim Allbrite plan to buy a used RV with a workspace for Beth in the near future. With a Certified Master RV Technician at the helm, they know a good deal is just around the next bend.
Financial Independence is possible with a little work beforehand, and getting on the road once you have a plan.
While we were not exactly like the Allbrites, we did serious savings before we got on the road, and even more savings the first couple of years on the road. Full-Time RVing is a fabulous lifestyle. Why not see if you can do this too?
We follow the Principles of Your Money or Your Life, Transforming Your Relationship with Money and Achieving Financial Independence. We try to live softly upon the earth and practice voluntary simplicity and frugality. The link above is for a New Book. If you cannot afford the book, please send me an email, and I will help you get it for free.
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