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Category: finances

How I Got My Finances in Order Part 4: How I Spent Less

My Simple 4 Step Financial Plan:

  1. Stop increasing debt
  2. Get Out of Debt
  3. Build an emergency fund
  4. Invest
  5. Bonus step: retire

Now we finally get to the post you’ve all been waiting for. What I did to save money This is largely my personal story and my not apply to you.  The ultimate simplistic formula for financial success is money coming in greater than money going out. It is in the actual execution that we encounter problems. To make sure you have more money coming in than going out there are two things you can do.  You can reduce your expenses and/or increase your income.

How I reduced Expenses:

There were three major places I worked on to cut my expenses. I sold things that still had a monthly payment, I reduced my monthly bills, and I created and stuck to a monthly budget.

Sell Things that Have Payments

This one may not be possible or even apply to some people. Sell item(s) that have payments. These items include cars, other vehicles, boats, property, and large ticket items like appliances. For some items the decision might be emotionally difficult but from a practical angle a no brainer. I am talking about that boat you splurged on or your extra car/motorcycle just for fun.

It may seem simple to just get rid of anything that has a payment but the actual decision can be very hard to make. What if you are underwater on the loan. Should you wait until you can get enough in payment for the item or sell it immediately taking a big hit to cover the cost. Maybe you don’t even have the money to pay off the extra. You have to have a car for work but you won’t have enough money to buy a reliable vehicle if you sell the one you are still making payments on.  I can’t make these decisions for you. You have to make them, but be willing to make very hard choices that might cause difficulty in your life. You gotta do what you gotta do to get out of this mess. Luckily, I was able to sell my car and had access to another vehicle free of charge.

Reduce Bills

One important way you can cut expenses is to lower your monthly bills. I was shocked how much money I could save  a month.

One of the biggest places I found savings was in the cable/tv bill. I cancelled all my extra channels just going with the most basic package to keep my internet connection.  I saved almost a hundred dollars a month this way. I know people that are paying over 200 hundred a month just on TV. The world is full of cheap and easy ways to be entertained.

Another place you can find savings is in paying for phones. If for some bizarre reason you still have a land line get rid of that thing. Also look for a simpler plan. Perhaps you lower you data package or join someones family plan.

You can cut some more expenses by reducing your electrical bill.  If you are still using old school bulbs replace them with modern energy savings one.  Turn your heat down. Turn your ac down. Make sure you turn off lights when they are not in use.

Cancel any service or subscription that you can do without. You don’t need magazines most information can be found online for free.  I canceled my spotify subscription. I could handle having commercials in my streaming music.  I did keep my netflix because I have to have some entertainment. Do you really need that World of Warcraft game?

Cut Expenses

This is where the real battle to save money mostly takes place. This is when the daily/monthly struggle of keeping a budget is fought.

Eating out had been one of my biggest out of control expenses. In the dark olden times I spent about 600 dollars a month eating out, sometimes more, rarely less. So one of the biggest targets of my cost reduction was eating out. I didn’t just come up with a dollar amount I would allow per month. I created a whole plan of what days and where (or what price range) I would allow myself to eat out. I cut out all paying for lunches except for one 10 dollar lunch a week. I scheduled 2 dinners a week at approximately $20.  I also allow an extra meal out every other week. Like with most of things I allow flexibility and don’t beat myself up if I have an extra meal out.

Now with much less eating out the amount you spend on groceries will most likely go up. There are things you can do to try and keep costs down here. Wasted or rotten food can be one of the biggest cost amplifiers with groceries. Meal planning will help you only buy food you actually end up using. This will help you make a grocery list and only buy things you will actually eat. You can also save money by buying at a cheaper store or cutting back on expenses cuts of meat etc.  I also have been able to get meals from getting free food at work. At least once a week we have pizza or sandwiches or something that I can grab for later.

One almost completely unneeded expenses are drinks. Whether we are talking about drinks at the bar or spending six dollars on that nutrient deficient calorie filled  vente iced frapo whipped diabetes drink, you aren’t really adding anything to your life. Having said all that I do still allow myself to have a couple beers with friends. So much for my pontificating.

This one doesn’t really apply to me, but maybe you spent a lot of money on clothes, shoes, household items, etc. I don’t. In fact I haven’t bought on article of clothing in over two years and have barely noticed. Though I am starting to run out of socks.

My Goal

My goal with my budget was to cut my expenses as much as I could while still living my life.  I could have gone really extreme and cut another couple hundred dollars off of my monthly budget, but I wanted to make this a long term sustainable thing.  I spent several months playing around with the budget, decreasing this increasing that, till I found one a could consistently stay within while still living my life.

Next up, earning more money.

How I am Getting My Finances in Order: Part 1 The Problem

Debt My Eternal Companion

For almost all my adult life I have had credit card debt. Usually a large amount of it.  For one brief shiny moment in the early 2000s I had no cc debt. Even then I still had a car loan. I lived under a vague sense of dread. I knew it wasn’t good to have so much debt but I tried not to think about it too much. I would look at what I earned and justify that I could make the payments and would eventually pay off all the debt. Maybe I just needed another raise.

Poor Attempts at Tackling the Problem

I tried some lame attempts at dealing with my CC debt.   One of my earliest efforts was the debt-o-meter.  I graphed out on paper all  my debts. I naively looked at how much I made and calculated how quickly I would pay off the debt. I had no actual budget and I completely ignored the fact that I was paying interest on that CC debt. The amount I was paying off never came close to what I thought it should be.  I think I gave up after a few months.
Another one of my classic debt handling techniques was the balance transfer. I would get a  new offer for a 0% APR transfer for 12 or 18 months or even a new credit card offer with a balance transfer.  I took advantage of these always with the justification that I would have plenty of time to pay it off before I had to start paying interest. I remember one particularly big transfer when I got my Discover card. I think it was an 18 month offer.  About three or four years later I looked back at the discover card and its’ balance was almost as I high as when I had first made the transfer.  I had only been making the minimum payment that entire time. I actually had to check if I had been paying interest. That is how out of touch with my money I had become. 

Honestly Assessing the Situation

I finally came face to face with the problem when I started using the mint website. I entered all my various account numbers and there staring back at me was I giant number.  I tried to rationalize the big scary number for awhile. Then one day I did the unthinkable. I calculated how much in total I was paying in interest charges. I then extrapolated that to get a ball park of how much I had paid in interest over the previous ten years. I think horrified would be the word to use for my reaction. I knew I had to actually do something and thus began the process of getting a handle on my finances.

Why Debt is Horrible

You might be thinking what’s the big deal, debts not that bad. Everybody is in debt. Two realizations made me determined to overcome my debt.

Interest is a very powerful financial tool. In the long run you want to be using it to make you money. When you owe you are paying interest.  Especially with the high interest rates on CCs you are just burning your money for no reason.  It dumbfounded me when I realized how much money I had simply thrown away because of my lack of financial sense.

Debts are chains. Debts control you and restrict your choices. You are beholden to the person/company that holds that debt. They have claims on your choices. Want to switch careers?  Sorry you wan’t make enough in the beginning to cover your debt payments.  Want to move? Sorry you can’t afford the initial outlay of money to set up the new situation. Being open to opportunities has been one of the main motivations for me to get out of debt. You are also chained down by fear and stress. If you lose your job how will you make the payments?  If your car breaks down or someone gets sick, how are you going to pay for that? Debt is a vicious cycle of dependence and exploitation.

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