Countdown to Financial Fitness: Trimming Necessary Expenses, Part I

Countdown to Financial Fitness: Trimming Necessary Expenses, Part I: In preparation for the release of the audiobook version of Live Well, Grow Wealth , I'll be sharing excerpts each week on this blog.   ...

Trimming Necessary Expenses, Part I

In preparation for the release of the audiobook version of Live Well, Grow Wealth, I'll be sharing excerpts each week on this blog. 

This excerpt is from Chapter One, Live Within Your Means. I suggest categorizing your expenses as absolutely necessary, necessary but reducible, discretionary but important, and totally unnecessary. This post discusses necessary expenses such as utilities and gasoline. 

At first glance, the category labeled necessary but reducible may contain expenses that are fixed; indeed, once you receive a utility bill, you usually cannot negotiate a reduction in the amount unless there's been an anomaly. But look for ways to reduce these bills in the future. Tiny changes in your energy consumption behavior can make a difference over time. Shrinking your carbon footprint and preserving the environment go hand in hand with saving money on utility bills and thus reducing your financial footprint as well. Take shorter showers, and if you belong to a gym, take some of your showers there.

Fix leaks promptly. Don't use the toilet as a trashcan. Don't leave the water running while you brush your teeth. Unplug or turn off appliances and lights not in use (including cords and chargers plugged into an outlet but not connected to a device). Install timers and thermostats. When the weather is mild, open a window instead of turning on the air conditioner. My husband and I halved our electric bills (compared with what they had been for the previous owner of our house) by adding screens and installing an attic fan, so we don't have to run the air conditioner in the shoulder seasons.

Don't leave windows and doors open when the furnace or air conditioner is running. As my father used to say, while I was letting the cat hover in the doorway deciding whether she wanted to stay in or go out, "Shut that door! We're not heating the whole neighborhood!"

When heating your house in winter, don't keep it so toasty you can wear shorts. Put on a sweater and some warm socks and turn that thermostat down. Every degree you can stand to push it down will shave dollars from your bill. Same thing goes for air conditioning in the summer. It's hot outside. Wear your summer clothes inside; why turn your house into a deep freeze? Not only will you save energy, but you'll stay healthier, as your body won't have to cope with extreme temperature changes.

In some areas, certain utilities have been deregulated—gas, telephone, cable, internet—and thus there are multiple providers competing for your business. Keep your eye on promotions offered by competitors, and ask your provider to match them. If you're not happy with your service or the response to your request for a lower rate, consider switching if the competition offers a better deal. But beware of limited-time promotions where the savings are short-lived; the new provider's regular rate may not be any better than what you currently pay, and the service could be inferior.

Gasoline may seem like an uncontrollable expense, especially if you have to commute a long distance to work. Prices shoot up and down at the whim of the oil companies. Pay attention to gas prices; while I don't recommend driving out of your way to fill up at a cheaper station, try to find the one with the best price along your usual route. Applications such as Gas Buddy can compare prices in an area and direct you to the best option. Can your car run as well on regular as on premium? Many cars do. If so, you’ll save ten or even twenty cents a gallon. Some stations offer discounts for paying with cash instead of credit; some locations, such as Kroger, offer discounts at the pump with affinity cards. If you belong to a warehouse club such as Costco or Sam's, that store may offer lower prices on gasoline, so plan to fill up when you do your shopping there.

Avoid unnecessary trips by combining errands. Some errands can be eliminated altogether with a phone call or an email. Carpool, bicycle, walk, or take public transportation when it makes sense. Does your employer allow telecommuting?

Drive conservatively: you consume more gas at excessive speeds. Charging up to a traffic light and then slamming on your brakes wastes fuel. Clean out your car; no use hauling around that bag of fertilizer for weeks after you bought it because you were too lazy to take it out of the trunk.

To learn more, read Live Well, Grow Wealth by Sharon Marchisello.

Sign up for her newsletter at sharonmarchisello.com

Countdown to Financial Fitness: How to Reduce Discretionary Expenses

Countdown to Financial Fitness: How to Reduce Discretionary Expenses: In preparation for the release of the audiobook version of Live Well, Grow Wealth , I'll be sharing excerpts each week on this blog.   ...

How to Reduce Discretionary Expenses

In preparation for the release of the audiobook version of Live Well, Grow Wealth, I'll be sharing excerpts each week on this blog. 

This excerpt is from Chapter One, Live Within Your Means. I suggest categorizing your expenses as absolutely necessary, necessary but reducible, discretionary but important, and totally unnecessary. This post discusses discretionary expenses. 

Chapter Two will delve into deriving the most value from your money and deciding what discretionary expenditures bring you the most happiness. But if you're spending more than you earn, this category is a logical place to look for reduction. Do you subscribe to magazines or newspapers you never read? If so, cancel them. 

When you plan to leave town, do you fail to place a vacation stop on your deliveries and ask that your subscription be extended? Do you buy books or movies you could have checked out of the library? Do you watch all those premium cable channels you're paying for? 

Does your calling plan require you to pay extra for features you don't need or use? Contact your provider or check out a different one to see if there's a less expensive plan that suits your needs. Are you paying dues to a country club or gym you rarely visit? If so, be honest with yourself and drop out. 

When you travel, do you buy souvenirs that end up in the next garage sale? Do you exchange gifts with people just because it's expected? (And then later re-gift what you received, knowing your friends will do the same?) 

Are you paying for a storage facility to keep "stuff" you'll probably never use or might have even forgotten about? Why not de-clutter and have a garage sale, or make a donation to charity, saving yourself the monthly facility rental bill? 

Do you over-pack when you travel? Years of working for an airline and flying standby taught me to pack lightly, rarely taking more than will fit into a small roll-aboard suitcase. (And this includes packing for a cruise.) Pack light-weight, washable outfits that can be mixed and matched and worn with the same pair of shoes, and wear your bulkiest items on the plane. Not only will you save checked luggage fees and tips to porters and bellmen, but packing lightly will enable you to maneuver the public transportation system at your destination, instead of hopping into an expensive taxi. (And some taxi services even charge an additional fee for each bag.) 

Can you let more time lapse between haircuts, coloring, manicures, pedicures, massages, car washes, professional cleanings? Instead of taking the kids to a movie every weekend, can you rent a video and serve microwave popcorn once in a while? Do you have to go out for lunch every day, or can you brown bag it, at least sometimes? Can you make coffee at home instead of buying a latte at the drive-through? The point is to find areas you can cut without compromising the quality of your life to an unsustainable level.

To learn more, read Live Well, Grow Wealth by Sharon Marchisello.

Sign up for her newsletter at sharonmarchisello.com

 

Countdown to Financial Fitness: Totally Unnecessary Expenses

Countdown to Financial Fitness: Totally Unnecessary Expenses: In preparation for the release of the audiobook version of Live Well, Grow Wealth , I'll be sharing excerpts each week on this blog.   ...

Totally Unnecessary Expenses

In preparation for the release of the audiobook version of Live Well, Grow Wealth, I'll be sharing excerpts each week on this blog. 

Today's excerpt is from Chapter One, Live Within Your Means. I suggest categorizing your expenses as absolutely necessary, necessary but reducible, discretionary but important, and totally unnecessary. This post defines totally unnecessary expenses. 

To build your confidence and produce instant results, start with the low-hanging fruit. If you're paying late fees or excess interest because you didn't make a payment on time, you need a better system for managing your bills. Not only does it hurt your credit rating, making it more expensive or more difficult for you to borrow money in the future or even find employment, you're wasting money that could be better spent on something you need or enjoy.

Most creditors allow you to set up automatic payment arrangements, to deduct the balance you owe from a checking account or charge it to a credit card on the due date, so you'll never have to worry about late payments. If you do enroll in auto-pay, make sure you keep enough money in the specified account to cover these payments so you won't be assessed a returned check fee or other penalty—another unnecessary expense. Perhaps an email reminder from the creditor will work better for you. Or maybe you set up a special folder, kept in a prominent place, for organizing bills. Be familiar with the due dates, so if a bill gets lost or misplaced, or an email reminder is accidentally deleted or ignored, you can contact the company or go online and make your payment on time. If you're planning to be out of town when your statement is scheduled to arrive, contact the creditor, have someone handle the payment for you, or set up an online payment to occur just before the due date. Whatever your system, just make sure you use one that works, so your bills are always paid on time, your checking account is never overdrawn, and you never charge over your limit. If your outgo numbers are so skewed that you have to negotiate with your financial institution to balance your budget, then do it.

Traffic tickets, parking violations, library fines, etc., are all categorized as unnecessary expenses that add no value to your life. Not much you can do about them once incurred, but you can learn from your mistakes and try not to repeat them. If the traffic ticket is a first offense, investigate the possibility of attending traffic school or doing community service to have it removed from your driving record; otherwise, you'll keep paying for it through higher insurance rates.

My husband takes issue with my listing "library fines" as an unnecessary expense. If he's unable to renew a book he has not yet finished, he'll keep it a few extra days and pay the fine. He considers it renting a book he wants to read but doesn't want to buy. University students have been known to check out textbooks and keep them for an entire semester; the overdue fine is most likely much less than purchasing the book, even used.

A similar case could be made for incurring a parking ticket to keep from being late to an important job interview. It's your list; if you're honest with yourself, you'll be able to identify expenses that can be trimmed or avoided without compromising your values.

Some people put vices, such as smoking or gambling, in this "unnecessary expense" category. If you did that, maybe the habit doesn't give you enough pleasure to justify the cost. Think of the money you can save by giving it up, and work toward that goal. Motivate yourself by setting aside the money you would have spent (for example, for a pack of cigarettes or a lottery ticket) and watching it grow.

To learn more, read Live Well, Grow Wealth by Sharon Marchisello.

Sign up for her newsletter at sharonmarchisello.com

Countdown to Financial Fitness: Live Within Your Means

Countdown to Financial Fitness: Live Within Your Means: In preparation for the release of the audiobook version of Live Well, Grow Wealth , I'll be sharing excerpts each week on this blog.   ...

Live Within Your Means

In preparation for the release of the audiobook version of Live Well, Grow Wealth, I'll be sharing excerpts each week on this blog. 

This excerpt is from Chapter One, Live Within Your Means. First, you have to look at the big picture: 

There is no such thing as unlimited wealth. Even the developers in Dubai learned that lesson after the global financial meltdown of 2008. One catastrophic spill can wreak havoc with the fortunes of a titanic oil company. Famous real estate moguls have declared bankruptcy. 

No matter how much money you earn, if you spend more than you have, you will run out. The converse is also true: no matter how little you earn, if you spend less than that, your wealth will grow. It's simple arithmetic. 

Think of certain professional athletes who rose from poverty to snare multi-million-dollar contracts, yet found themselves penniless within a few years. Or lottery winners who quit their jobs and proceeded to fritter away their fortunes. Contrast the retired school teacher with a modest home who left millions to her favorite charity. The difference: the teacher lived within her means. 

Not having enough money to meet your needs and live the way you want is stressful. It can cause health problems. It can ruin a marriage. Some people are tempted to violate the law, or fall victim to get-rich-quick scams, trying to take a shortcut. 

Every time you turn around, someone has a hand out. The prices of basic necessities rise, but your income may not keep pace. Your possessions break or wear out, and must be repaired, replaced, or updated. The best-laid plans can be thwarted by an emergency expense no one could have foreseen, or a catastrophe that was not your fault. How can you possibly live within your means? 

The first step is to know exactly how much is coming in, and how much is going out. If you hire a financial planner or credit counselor, he or she may tell you to write down every penny you spend and receive for a specified period of time, and then make a budget: the dreaded "B" word. I must confess I never did this. 

The closest I came to budgeting was when my future husband and I purchased a house together. He had money for the down payment; I did not. I had a job, though, so I agreed to pay all our utility bills and buy the groceries after we moved in, in addition to my share of the house note. We kept a log of our household expenses and I'd deduct his half each month from what I owed on the down payment loan. 

We still handle our expenses this way. Periodically, we tally everything up and he transfers money into my account for the difference. Once we went to a financial planner and she asked me about our budget; I was able to produce one from this expense log, our bank statements, and our credit card bills. 

Whatever method you choose to document your big financial picture is fine; the goal is to understand what money is coming in, and what is going out. Writing down every expenditure and then creating a budget works for a lot of people. 

Once you've figured out how much is coming in and how much is going out, it's time to start analyzing. If more money is coming in than going out, you're in better shape than most. If you have more money going out than coming in, the faster you take steps to reverse the situation, the better off you'll be. The magic of compound interest and wealth-building principles are working against you. 

So how do you do that? 

Can you increase what is coming in? Ask for a raise or apply for that promotion. Take advantage of some overtime. Get a part-time job or start a business on the side. Send the kids out to solicit yard work from the neighbors. Re-structure investments or tap an asset. Organize a big garage sale or start selling your treasures on eBay. 

For most people, it's not easy to increase the "coming in" column, and some of those solutions might only be short term. For example, once you've sold all your valuable possessions, if you're still spending more than you make, then what? Therefore, it's more effective to concentrate on shrinking the "going out" column. 

First, classify your expenses as absolutely necessary, necessary but reducible, discretionary but important, and totally unnecessary. 

Absolutely necessary, non-negotiable expenses probably include your rent or mortgage payment, and other fixed costs like insurance premiums, union dues, tuition, and taxes. Necessary but reducible might include utility bills, gasoline, clothing, and groceries. Discretionary but important expenses are not necessary for survival but add value or pleasure to your life: travel, cultural activities, magazine subscriptions, entertainment, toys, pampering. Totally unnecessary expenses eat up your income and add no value to your life: late fees, fines, excess interest on credit card debt.

To learn more, read Live Well, Grow Wealth by Sharon Marchisello.

Sign up for her newsletter at sharonmarchisello.com