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Money Problems – Day 6: Reducing Expenses
Today, I am continuing the series, Money Problems: 30 Days to Perfect Finances. The series will consist of 30 things you can do in one setting to perfect your finances. It’s not a system to magically make your debt disappear. Instead, it is a path to understanding where you are, where you want to be, and–most importantly–how to bridge the gap.
I’m not running the series in 30 consecutive days. That’s not my schedule. Also, I think that talking about the same thing for 30 days straight will bore both of us. Instead, it will run roughly once a week. To make sure you don’t miss a post, please take a moment to subscribe, either by email or rss.
On this, Day 6, we’re going to talk about cutting your expenses.
Once you free up some income, you’ll get a lot of leeway in how you’re able to spend your money, but also important–possibly more important–is to cut out the crap you just don’t need. Eliminate the expenses that aren’t providing any value in your life. What you need to do is take a look at every individual piece of your budget, every line item, every expense you have and see what you can cut. Some of it, you really don’t need. Do you need a paid subscription to AmishDatingConnect.com?
If you need to keep an expense, you can just try to lower it. For example, cable companies regularly have promotions for new customers that will lower the cost to $19 a month for high-speed internet. Now, if you call up the cable company and ask for the retention department, tell them you are going to switch to a dish. Ask, “What are you willing to do to keep my business?” There is an incredibly good chance that they will offer you the same deal–$20 a month–for the next three or four months. Poof, you save money. You can call every bill you’ve got to ask them how you can save money.
I called my electric company and my gas company to get on their budget plans. This doesn’t actually save me money but it does provide me with a consistent budget all year long, so instead of getting a $300 gas bill in the depths of January’s hellish cold, I pay $60 a month. It is averaged out over the course of the year. It feels like less and it lets me get a stable budget. Other bills are similar. You can call your credit card companies and tell them everything you take your business to another card that gave you an offer of 5% under what ever you are currently paying. It doesn’t even have to be a real offer. Just call them up and say you are going to transfer your balance away unless they can meet or beat the new interest rate. If you’ve been making on-time payments for any length of time–even six months or a year–they’re going to lower the interest rate business, no problem. Start out by asking for at least a 5% drop. In fact, demand no more than 9.9%.
Once you’ve gone through every single one of your bills, you’ll be surprised by how much money you’re no longer paying, whether it’s because somebody lowered the bill for you or you scratched it off the list completely.
Make a Budget
- Image by r.lovewell via Flickr
In the past, I’ve gone through a detailed series of budget lessons demonstrating how to make a budget and showing my personal budget spreadsheet template. If you weren’t here to see them develop, you probably haven’t seen them at all. I’ve never built an actual index for those posts.
This is the master index of my budget planning resources. As I develop more, this will grow.
Budget Lesson #1 – In this lesson, I go over how we handle discretionary income and I explain our modified envelope system. The discretionary budget contains things like our grocery bill, or the clothes we buy. We have near-total discretion over what is purchased, hence the name.
Budget Lesson #2 – Lesson #2 contains the details of our monthly bills. These are the ones that are consistent, predictable, and actually due each month. Most people take these for granted as the bills they have to pay, but it’s not true. You can get almost all of your regular bills reduced just by asking. You would also be surprised what you can do without, when properly motivated.
Budget Lesson #3 – This is where I explain how we deal with the non-monthly bills. That is, the bills that have to be paid, but are not due on a monthly basis. I also share the personal budget spreadsheet template I developed. I am working on a few sample templates to match various imaginary scenarios. If you’d like to be an anonymous case study, and get free help setting up a budget, let me know, please.
Budget Lesson #4 – In this lesson, I describe our “set-aside” funds for things that will need to be paid eventually, but not on a set schedule. Sometimes, they are never actually due. We set aside money for the parties we throw, for car repairs and for a number of other things. A few of these items are outright optional, but they are part of what makes life fun. You can’t make a budget without including some of the extras.
Budget Lesson #5 – This is the companion piece to lesson 2. Learn how I’ve reduced–or attempted to reduce–each of these bills. For the better part of two years, I called Dish Network every few months to ask for a discount. For almost 2 years, it was granted. Then one, day, they told me they were putting a note on our account to keep us from getting any more discounts, so I canceled. 100% discounts help us save more.
Budget Lesson #6 – This is the reduction companion to lesson 3. These bills are harder to reduce. Have you ever successfully gotten your property taxes lowered?
Budget Lesson #7 – This is the reduction companion to lesson 4. Notice a pattern, yet?
Budget Lesson #8 – Here, completely out of order, is the reduction companion to lesson 1. Watch as I magically reduce–or rationalize–our discretionary budget.
So, dear readers, what part of budgeting should I address next?
Teaching My Child about Money in a Way I Was Not Taught
When I was in high school and working 15 to 20 hours a week, my mom gave me free rein to use the money I earned as I would like. Actually, she said nothing to me about saving for college or putting some money into savings.
When I had friends who complained that they had to put away some of their earnings, I commiserated with them. How unfair of their parents to make them save some of their money! They worked hard for their money, often at crappy part-time jobs. They deserved to spend the money any way they saw fit.
The way I saw it, why save for college? According to financial aid rules, if the student has any savings, she would have to use the majority of it to pay for college. How unfair. To add insult to injury, if prospective college students have some savings, they would qualify for less financial aid, which often meant fewer student loans.
The injustice.
Yes, it was better to spend my hard earned money than save it and be penalized.
No one told me differently. In fact, many people in my family agreed with me and encouraged me to buy a used car to get to and from my job. Of course, I paid the loan payments for the car, the gas I used and my insurance out of money from my job. That was a responsible use of money, but I also went out to eat with friends, a lot. At 16, I was going out to eat with my friends twice a week at least.
However, my plan worked perfectly. When I went to college, I didn’t have to use any of my hard earned cash. No, not me, because I hadn’t saved anything. Instead, I left college with nearly $20,000 in student loan debt. I took two years off and paid down as much student loan debt as I could, getting it down to about $8,000, but then I went to graduate school and took on more student loan debt. I graduated with nearly $25,000 in debt total. I am still paying on it today, 13 years later.
Now that I am the parent, I am one of those “awful” parents who makes her kids save. My son knows when he gets his allowance, some goes to save, some goes to donate, and some goes to spend. True, it makes me cringe when he uses his spend money on little trinkets like temporary tattoos, stickers, and gum, but I keep silent. He did the work to earn the money, and he can spend it as he likes. However, I am inflexible with saving; that money must be set aside. When he goes to college, I expect that he will have to use the majority of that money. Rather than seeing it as a waste, I see it as an important component of his financial education. Spending his money to pay a portion of his college education will hopefully make him take college more seriously.
Meanwhile, I have already begun having chats with him about money, spending, and budgeting. He watches his dad and I work hard to pay down our debt with gazelle intensity. He sees me use a calculator at the grocery store to see how much our groceries will be.
Ultimately, he will make his own financial decisions as he grows up, but I plan to teach him throughout these important years so that even if he turns into a spendthrift, he will have a firm financial understanding to revert to as he ages. While my mom taught me how to stretch money further, she never taught me how to save; I hope saving is a lesson my son takes with him throughout his adulthood.
How do you teach your kids about money management?
Melissa writes at Fiscal Phoenix where she encourages people to rise from the ashes of their financial mistakes as she and her husband are doing.
Don’t Screw Future-You
A conversation between me and my temporally displaced self.
Future Me: Excuse me, Jason?
Me: Yes?
FMe: <Slap!>
Me: May I ask what that was for?
FMe: Of course.
Me: What was that for, jerk?
FMe: That was payback for all of the hell you have put me through.
Me: What?!? I’ve never even met you, before.
FMe: Of course you have. I am future-you, and I’m sick of getting screwed by past-me, that is, you.
Me: Huh?
FMe: Listen close. You’re not the sharpest brick in the box and I don’t want to explain this twice.
Me: ???
FMe: A long time ago, when you first met our wife, you were dumb.
Me: I don’t appreciate….
FMe: Shut up. I was dumb then, too. Remember? You…err…we bought a new truck, built an addition on our…err…your…err…whomever’s house, got married in the same year. On top of many other expensive decisions. Do your recall?
Me: Yes, I do. So what?
FMe: If that wasn’t enough, you and your smoking-hot bride are still shopping like you’re rich. You drive a new car. Your kids wear new clothes. You’ve got a house full of new furniture. How did you pay for all of that?
Me: Naturally, I charged it. Zero payments, zero interest for a year! Pretty smart, huh?
FMe: What happens in a year?
Me: I don’t know. I’ve got a full year to figure that out.
FMe: <Slap!> I’ll tell you what happens! Future-you, that’s me, gets screwed! Your raise didn’t come through. You had a baby. The truck broke down. Your wife took maternity leave. A roommate moved out. You took a loss in the stock market. You didn’t plan! You had no savings to cover any of those problems because you were too busy servicing debt to pay for your current life.
Me: How was I to know?
FMe: <Slap!> Life happens! You never know what is coming next. You need to plan and save for what might happen. Otherwise, you’ll just accumulate more debt to be serviced by yours-truly. That is not acceptable.
Me: So? What are you going to do about it?
FMe: <Slap!>
Me: Really? Again?
FMe: <Slap!> I’m struggling to pay your debt. Your son starts college next year, but you’ve left me completely unable to help. Your daughter wants to get married in a couple of years, but the Father-of-the-Bride can’t afford a tux. My wife, your beatiful bride, wants a vacation that I can’t afford. You’ve screwed me, dude.
Me: I’m sorry. What can I do to fix it?
FMe: Buy me dinner, first.
Me: Huh?!?!?
FMe: Stop the excess spending. Spend less than you make, for a change. No credit.
Me: None?
FMe: None. Nada. Zip. Zilch. Only spend what you can afford. Budget. Pay off those nasty bills. Don’t leave me hanging.
Me: So, what you’re saying is that, if I don’t have the money, I shouldn’t buy it?
FMe: Exactly. That’s the path to wealth, freedom, and financial independence. Live in the real world.
Me: Gee, thanks, Future-Me! Now I know.
FMe: And knowing is half the battle.
What would your future-you have to say to you?
A Budget Isn’t Enough
- Image via Wikipedia
You know exactly how much you make, to the penny. You’ve listed all of your bills in a spreadsheet, including the annual payment for your membership to Save the Combat-Wombat. You know exactly how much is coming in and how much has to go out each month. Your income is more than your expenses, yet somehow, you still have more month than money.
What’s going on?
The short answer is that a budget is not enough.
A budget is not…
…a checkbook register. Do you track everything you spend? Are you busting your budget on $10 lattes or DVDs every few days? Is the take-out you have for lunch every day adding up to 3 times your food budget? Are you sure? If you don’t track what you spend, how do you know what you’ve actually spent? You have to keep track of what you are spending. Luckily there are ways to do this that don’t involve complex calculation, laborious systems or even proper math. The easy options include using cash for all of your discretionary spending(no money, no spendy!), rounding your spending up so you always have more money than you think you do, or even keeping your discretionary money is a separate debit account. That will let you keep your necessary expenses covered. You’ll just have to check your discretionary account’s balance often and always remember that sometimes, things take a few days to hit your bank.
…a debt repayment plan. You may know how much you have available, but if you aren’t exercising the discipline to pay down your debt and avoid using more debt, you not only won’t make progress, but you’ll continue to dig a deeper hole. Without properly managing the money going out, watching the money coming in is pointless.
…an alternative to responsible spending. Your budget may say you have $500 to spare every month, but does that mean you should blow it on smack instead of setting up an emergency fund? I realize most heroin addicts probably aren’t reading this, but dropping $500 at the bar or racetrack is just as wasteful if you don’t have your other finances in order. Take care of your future needs before you spend all of your money on present(and fleeting) pleasures.
A budget is a starting point for keeping your financial life organized and measuring a positive cash flow. By itself, it can’t help you. You need to follow it up with responsible planning and spending.
