Have you ever done a 'Financial Experiment'?


#1

I’m working on an article on how you can use experiments to improve your finances. Experimenting makes counting numbers and budgeting way more fun and helps you try out new ways of managing your money.

I’d love to hear what experiments you’ve done and what you’ve learnt from them! Let me know if it would be ok to feature you in my post :slight_smile:


#2

Much of my JumpStartfromScratch content is based around an experiment. I’ve been taking advantage of credit card bonuses, perks, and points for close to 5 years. There is nothing unique about my journey, because I just followed the travel-hacker blog advice. However, there was no blueprint I could find for my son or daughter, as they transition to adults. My son is almost 19. The blog has been tracking his credit score, reporting successful and unsuccessful card applications, and tallying miles/points/cashback earned. Hopefully by graduation time, my experiment will be a success and he will be sitting on a high credit score and a large stash of airline and hotel perks.


#3

I once attempted to make my fortune writing a Personal Finance blog… I learned that as far as financial plans go it was about as reliable as attempting to fund retirement via purchasing lottery tickets and hoping to get lucky!

On a more serious note @financiallymint, a couple of years ago I realised my net worth should have been sufficient for me to be FI, however I regularly felt cash poor.

In part this was due to the uneven earnings profile often associated with operating a business, and in part because I’d locked away capital in cash flow neutral investments (to minimise tax). The investments were achieving capital growth, but not throwing off streams of cash.

I looked at how I had structured my portfolio and did some experiments to see if I could engineer a way to restructure the portfolio and financing such that it would throw off sufficient cash to cover my living costs, and in doing so make me comfortably FI without needing to sell down capital to support myself.

With varying degrees of success that worked out pretty well. As each recurring cash flow stream was established/restored I was able to tick off my regular bills one at a time… never needing to worry about how I was going to pay the gas bill or buy groceries again.

A few lessons:

  • Letting the tax tail wag the investment dog is not a recipe for happiness, contentment or financial success.
  • It is capital growth makes you rich, but it is free cash flow makes you feel rich. There is a big difference between the two.
  • Pensions are great for supporting people later in life, but anyone wanting to dial back the pace a bit or even retire early needs to have a sustainably viable way to make ends meet outside of age restricted pension accounts.
  • Getting leverage levels right on investments requires careful running of the numbers, including factoring in interest rate rises. What we’ve experienced over the last couple of years is so different from historical norms that it is easy to forget that mortgage rates used to be 18% not so long ago.
  • Diversification across asset classes is hugely important for many reasons, not least of which is the government can (and often does) change the rules which can at times adversely impact the performance or desirability of a given asset class. For example in the UK a couple of years ago borrowing costs for investment properties ceased to be tax deductible. More recently the new government in New Zealand is proposing to outlaw property ownership by foreign nationals.

#4

Wow! That’s a very original way of doing an experiment: conducting it on someone else. I’d love to hear more on your experience testing out finances on young students (since I am one of them) and what you think they learn from it.


#5

The post below details the last progress report. An 18 year 9 month post will come out in a few weeks.


#6

I follow the same jouney with you. I make an average of $1,000/year as supplemental income. I open up various credit cards to purchase so much within a given time period to get nice bonus’s. I have also been receiving bonus’s by opening new checking and savings account and meeting various requirements.


#7

Like @Mr.JumpStart, I’m running a credit card churning experiment right now. In 3 months, I’m up 68,917 points. If I can achieve 1.5 cents per points, that’s $1033 in value. I’ve also received free access to airline lounges across the world, will get $200/year in airline fee credits, can receive $200/year in Uber credits if I decide to use it, upgraded status at hotels and car rental companies, free hotspot access, etc. I’m estimating that I will get $5000-$6000 in value in my first year :grin:


#8

I’ve been running an experiment the last two years in which I have been purposely living off of my passive income (e.g. dividends and rentals). I have the option at work to defer my base salary and bonus, and I have ratcheted up so that my net pay is ~$800 per month or a little under 20% of our target budget. Next year, I plan to ramp it up further so I don’t get any normal pay and will sustain our living completely off our after-tax investments. I’m doing this as tax management and to disassociate working from getting paid.


#9

Hey @financiallymint! You should check with Chris, from @keepthrifty. He’s writes a lot about ways his family experiments with money, and would have some great stuff to share. From living in half of their house, https://www.keepthrifty.com/2017/04/10/living-in-half-of-our-house/ , to leaving his job for a one year mini-retirement, https://www.keepthrifty.com/one-year-mini-retirement/, lots of fantastic content on the topic. : )


#10

We are experimenting with living on only 15% of our income in a VHCOL (very high cost of living) area.
Basically, as soon as the money hits our bank, it’s automatically transferred to saving/investing, tax fund, and giving. The rest (15%) is what we live on. Sometimes, we might run out of money towards the end of the month and we find ways to manage with whatever we have left such as the food we already have in the fridge or pantry.

Here’s a post we wrote about it:


#11

I did a spending fast between memorial day and labor day in 2016 (no new clothes, shoes or purses). It wasn’t as ambitious as some of the other experiments described above but it was eye-opening as to why I wasn’t great with getting rid of and staying out of credit card debt.


#12

Wow great thank you! I love how creative people get with experiments!


#13

Thank you! Would you mind if I feature your article in my post?


#14

I still love the idea! Did you write an article about it?


#15

I don’t mind at all. Feel free to use it or any other material you like.


#16

I talk about in my very first blog post as one of the triggers for getting my life in order. https://goodlifebetter.com/getting-unstuck/. It was a good introduction to FI because it was for a limited time. A baby step, I guess.


#17

Thanks MMM! Experiments have been a huge part of our life - financial and otherwise - as a way to try something out before we commit to it long-term.

We’ve done this for downsizing our living space, going down to one car, leaving my work, and even trying to go a whole year without buying anything “new” (spoiler: we’re failing this one, but we’ve definitely reduced our spending and new purchases by a ton).

Definitely feel free to include me in your post and let me know if you’d like to discuss further.


#18

Great! I’ll feature you in my post :slight_smile:


#19

I once tried to cure my wife’s luxury shoe habit by hiding her credit cards.

After several nights sleeping on the couch I concluded this was a bad idea.

The lesson: In the same vein that it is impossible to outrun a bad diet, it is challenging to out earn a spendy spouse.


#20

Great!