Little Things Can Add Up To Big Things

Today’s post is part of the “Family Financial Guidelines” series. Whether you’re going through a financial turnaround or are just wanting to stay on top of things, this series will give you the tools to get and keep your family’s finances on track.

Last week I wrote about how cutting back on your biggest expenses can really improve your monthly budget. However, cutting back on the little things makes a difference too.

Little Things Add Up To Big Things
It’s easy to look at your big expenses and make the connection that they represent a large chunk of your spending. With the little things, it can be a bit more difficult to really realize how much money is being spent. Since the amount being spent is relatively small each time, it’s easy to rationalize such spending as not being a big deal.

Some Examples
Smart Phone Apps & Downloads: If you download four apps, songs, or videos a week you can expect to spend somewhere between $4 and $10 a week. Over the course of a year, that can add up to as much as $500. Try limiting your downloads to the free versions to save a bundle.

Eating Out For Lunch: If you eat out for lunch every day at work at $5 a meal (which is a pretty inexpensive lunch), that adds up to $35 a week and nearly $1,700 a year. Wow! I understand that going to lunch with co-workers is a good opportunity to network and develop relationships, and I’m not saying to cut it out altogether. Even cutting down from every day to three days a week would end up saving $480 a year.

Books and Movies: If you’re an avid reader and read a book every week, you can easily spend over $400 if you buy every book new (either at the store or with an e-Reader). Check out your local library, where you can rent books (both physical books and e-books) for free. You can also sign up for services such as paperback swap to reduce the cost of reading. The same goes for movies. Rather than buying the newest releases, see if your library offers those titles (you may have to wait a little longer for new releases). Or use the nearest RedBox to rent movies for a little more than $1.00. Unless it’s a movie you really love and will watch multiple times, it’s usually more cost-effective to rent than to buy.

Vending Machine Purchases: Most workplaces have a couple vending machines that offer snacks and soft drinks. It’s pretty common to hit that mid-afternoon wall and need a little pick-me-up. But if you spend $1 a day on a candy bar and another $2 a day on a couple cans of pop, that can add up to $1,000 a year. Instead, buy your own snacks and drinks and bring them to work. This can easily save $500 a year. And by bringing your own snacks you aren’t limited to the choices in the vending machines, so you can bring healthier snacks. Both your wallet and your waistline will thank you.

The Bottom Line
The little things can add up to be almost as large as some of your larger monthly bills. By cutting back here and there, you can really save a lot in your monthly budget. The trick is not to cut out these things completely (you may feel really deprived and miserable), but either scale back or find less expensive alternatives.


When Looking For Expenses To Cut, Start With The Big Things

Today’s post is part of the “Family Financial Guidelines” series. Whether you’re going through a financial turnaround or are just wanting to stay on top of things, this series will give you the tools to get and keep your family’s finances on track.

Expense Control
No matter your financial situation (though especially when first starting your financial turnaround), an important part of successful personal finance is getting expenses under control. There are a lot of ways to do this, and you’ll generally hear two schools of thought:
1. Cut back on a lot of little things
2. Cut back on a couple big things

Looking at the Big Things
For today’s post, we’re going to concentrate on the big things. Cutting back on these will give you the most bang for the buck and can really go a long way in improving your financial situation. This isn’t to say that cutting back on the little things doesn’t make a difference. It does, and we’ll discuss that in the future.

First things first, what do I mean when I say “big” things? Well, for starters you should have a list of all your monthly expenses as well as regular expenses that aren’t necessarily paid every month (such as car insurance or life insurance premiums). Your list should be pretty long and include everything you spend money on. There is no set threshold of what things are “big” versus “little” but a general rule would be to treat at least the five largest items as “big”.

For most people, the item at the top of the list is going to be housing. This is also the item that is probably the most difficult to reduce, but it can be done. If you own your home and have a mortgage, what is your interest rate? If you’re paying 6% or higher, you should definitely look into refinancing the mortgage. We refinanced our mortgage last fall, going from a 6.5% rate down to 4.75%, and reduced our monthly mortgage payment by around $150.

If you rent a house or apartment, look into the possibility of moving to another property with lower rent. Of course you have to consider the safety of the neighborhood and quality of the schools (if you have children). Additionally, you can look into the possibility of getting a roommate (or two) to split the monthly payment.

Another big item for many people is their monthly car payment. If you bought a car more than a year ago, check with your local bank or credit union about refinancing the loan. Interest rates have come down significantly, and refinancing can help reduce your monthly payment. One other possibility is to sell your vehicle and buy a lower-priced used vehicle instead.

Cell Phone
Did you know that the average household with a family cell phone plan including data and texting pays around $150 a month? There are multiple ways to cut this down. First, monitor your cell phone bill for a few months and see if you’re actually using all the minutes included in your plan. If you signed up for a 1,000 minute plan, but only use an average of 600 minutes you are over paying for service. Contacting your wireless carrier and switching to a plan with fewer minutes can easily save you $20 or more a month.

Another thing to consider is your monthly data plan. The average data plan now costs more than $30 a month. While you’re monitoring your monthly bill for how many minutes you use, you should also check how much data you use. If you aren’t using much of your plan’s data, you should really consider dropping the service. However, keep in mind that dropping the data plan will limit your phone choices, as most of today’s smartphones are only available if you sign up for a data plan.

Finally, consider using a pre-paid or no-contract cell phone plan. This way you can make sure you’re only paying for what you actually use, and there will be no large early termination fee if you decide to cancel or switch carriers.

One final “big” item for most people is the monthly grocery bill. We all have to eat, we have to do laundry, and we have to shower, brush our teeth, etc. But there are many ways of reducing the cost of all these things. For food purchases, use your weekly grocery store flyers to plan a week’s worth of meals around the items that are on sale. This will help you stretch your grocery dollars and can also help encourage you to try new foods. Buying store brand products and using coupons for name-brand products can also put a big dent in your grocery bill.

There are also many other tried and true methods to help lower the cost at the grocery store. Always make a list beforehand of what you need, and stick to the list once you’re at the store. This helps to avoid purchasing unnecessary items. And it’s true when they say not to go shopping on an empty stomach. Everything in the store looks so good when you’re hungry, and you end up buying more.

The Bottom Line
By first focusing on cutting your largest expenses, you can really get a good start to getting your personal finances under control.

Spend Less Than You Earn

Today’s post starts off the “Family Financial Guidelines” series. Whether you’re going through a financial turnaround or are just wanting to stay on top of things, this series will give you the tools to get and keep your family’s finances on track.

A lot of people look for shortcuts and easy ways to turn their financial situation around. It sure would be great to find one small, easy fix that would completely transform your situation, and if I found such a fix I would be sure to write a book about it and make a bunch of money from it. But what if I told you that there is such a fix, and that it has been around as long as money itself?

The Basic Principle of Family Finances
There is a common denominator in virtually every situation where a major financial turnaround is necessary. Like I mentioned yesterday, a lot of these turnarounds start when you reach a point where you’re tired of the collection agencies calling, the constant juggling of bills, the paycheck-to-paycheck lifestyle, the stress of knowing that the next unexpected bill (car repair, appliance replacement, medical bill, etc.) will put you over the edge and you want to make it all stop. The fix for this is to spend less than you earn.

This simple concept is the cornerstone of successful personal finance. Spending less than you earn results in a number of positive benefits:

You can eliminate debt: Every month that you spend less than you earn, you can take that difference and pay down your high-interest debt.
You can build savings: Just like paying down debt, you can take a portion of the difference and put it in a savings account for future emergencies.
You can lower your general stress level: This is a big one. When you know that your monthly spending is consistently lower than your monthly income, you can sleep a lot better at night knowing that you’re financial situation is improving each and every month.

Two Sides of the Coin
There are two parts to this concept, both of which are important. You can work to both spend less and to earn more.

Spend Less: The fastest way to start spending less than you earn is to find things you regularly spend money on that you can cut back on. This does not mean you necessarily have to cut out all non-essential spending. What it means is that you need to review everything you regularly spend money on and decide what things you can cut back on, what things you can find a less expensive alternative for, and what things you can cut out altogether.

– Shop around for lower auto and homeowners insurance rates.
– Eat out one less meal per week.
– Switch to a basic cable or satellite package, or cut it out altogether and sign up for Netflix streaming.
– Cut out a few coupons from the Sunday newspaper.
– Install a programmable thermostat and CFL light bulbs in your house.

Earn More: Typically the “earn more” approach takes longer than the “spend less approach”, but it is definitely worth working toward. Ideally, you can find ways to both spend less and earn more. And as an important note, “earn more” doesn’t only relate to your job.

– Go through the clutter in your home or apartment and sell unused items on Ebay, Craigslist, or have a yard sale.
– Do your best while at work. Go the extra mile to master complicated tasks and responsibilities.
– Take on a part-time job, or start a small side business to earn some supplemental income.
– Learn a new skill or further your education

The Bottom Line
There is no magic fix to turn around your financial situation. However, spending less than you earn is the closest thing.