Finances are about income and outgo. That’s it.
And that’s true whether it’s your household finances or the federal budget. There’s a reason the debate in Washington is all about the balance between raising taxes (income) and cutting spending (outgo). It’s because it really all does come down to that.
This post is about cutting the spending. Personal spending, that is. And just like the income/outgo equation is simple, so, too, is cutting spending. In fact, these three questions will take you a long way toward finding all the spending cuts you’ll ever need.
Question #1: What can you do without?
First, let’s get this out of the way: This is not about deprivation. It’s about being intentional with your spending.
Giving up some things will make room for others – financially, logistically, and even cosmically, if you’re open to that kind of thing. Choose the things that add the most value to your life and ditch the rest.
Maybe you have a gym membership that is rarely used but you love your iPhone with the full data plan. The gym membership isn’t adding much value to your life, but you’d be lost without your iPhone. Those are the kinds of things to evaluate.
And you may have to give up some desirable things in the short-term in order to achieve long-term goals. Think of it not about deprivation, but rather delayed gratification. That’s a very different thing. And it’s a sign of financial maturity.
I’m currently engaged in a lot of delayed gratification. Every time I walk into my outdated kitchen I dream of replacing the white laminate countertops with granite and my old stainless steel faucet with a sleek, brushed nickel version. But I also take pride in my slightly worn – but also very pleasant and functional – kitchen because I realize that we’re delaying the gratification of a new one while we pay off cars, pay cash for college educations, and invest for our future.
Question #2: What can you use less of?
A lot of things, as it turns out.
We have two dogs, Annie and Cash. These spoiled canines get dog treats several times a day.
One day I witnessed my husband take a dog biscuit out of the jar and snap it in half: half for Annie, half for Cash. Such a simple thing, but something I hadn’t thought of. Just like that he had cut our budget for dog biscuits in half. (We don’t really have a budget for dog biscuits. I’m compulsive, but not that compulsive.)
You can apply this technique to lots of spending in your life. Start by questioning pre-portioned things, like dog biscuits. Try it also with laundry detergent, by using less than those measurement lines on the lids and scoops.
Remember, the makers of Tide and Cheer and All and Xtra have a vested interest in you using more of their detergent than you need. So do the shampoo makers who advise you to shampoo, rinse, and then repeat. Experiment with using less – as little as half as much – and take note of where you begin to notice a difference.
This works with big ticket items too. Try asking yourself:
• How much house do you need?
• How much car?
• How much vacation?
You don’t have to give these things up…just apply the less is more principle. Try to find that sweet spot where the law of diminishing returns kicks in. Once you find it, your life will be improved.
Question # 3: How can you get it cheaper?
Now that you’ve eliminated some things and cut down on others, it’s time to focus on getting the things you need and want for less.
About six months ago I made a conscious decision to buy fewer books. I love books and, when I heard of a book that interested me, I headed straight to Amazon.com to check it out.
Amazon had a prominent spot on my Firefox toolbar, so I could get there in one click. (And those nice people at Amazon let you order in one click too!)
Now my library’s website is on my toolbar instead.
I ask my library to send the books I want to my closest branch and they email me when they’re there. I zip in to pick them up when I’m out running errands. And the $4.20 in fines that I currently owe is much less than my Amazon bill used to be. Quicken tells me it’s about $90 less, in fact.
What else can you get cheaper?
The answer is everything. The internet is full of money-saving ideas. A lot of the content on this blog is dedicated to saving money. In fact, one of the most popular posts I’ve ever written is 25 Things I Do to Save Money. It’s still getting hits four years later.
What if you made it your mission to save 5% this year on everything you buy? How about 10%? 25%? What kind of difference could that make in your financial life?
Back in 2006 I decided to identify the things that we could eliminate, use less of, or get cheaper. I also decided to treat it like a part-time job, which is how The Family CEO came about. (By the way, it’s the best job I’ve ever had because I don’t have to pay taxes on my earnings.)
Of course, prior to 2006 I did lots of things to save money, but I wasn’t very purposeful about it. The shift in thinking to treating it like a job was huge. And it was a fun job. Like I said at the top, it’s not about deprivation. It’s about being intentional.
In the last five years we’ve gotten rid of some things, used less of others, and found cheaper alternatives for still others. All of this has freed up income to pay down debt. That, in turn, has freed up even more income.
Now we get to talk about what we want to do with that freed-up income. We talk about which debt to pay off next, how much to put away for retirement, and where to go on a vacation paid for in cash.
And all of that feels a lot more like abundance than deprivation.