Strategies to help you reduce your expenses and improve your cash surplus!
Reducing your expenses can be challenging to do, however, if you value your time and don’t want to complete those extra hours each week and grind it out then this is a great alternative to increase your cash surplus. Reducing your expenses will require a different sort of focus, discipline, and consistency. Reducing your expenses isn’t pretty and sure as hell isn’t fun, but if you can delay gratification and sacrifice a little now the benefits you will receive in the future will be tenfold.
When we are looking to reduce our expenses the big scary word that comes up is BUDGET. Budget has the stigma as does the word DIET. The stigma is around it being a restriction and not being fun which I don’t disagree with. However, it is necessary to get us towards our goals. Do you want to sacrifice a little now, or do you want to work 40 plus years to the age of 67? I certainly know what I would rather. Reviewing your spending habits should be completed every 3 months, this keeps you accountable and up to date.
If you sit down and look at your spending habits over the last 3-6 months you can get a really good idea of your spending. When this exercise is completed a lot of people are normally shocked, they realize that they spend a lot more on certain things then they thought they did.
Now when we look at our expenses, we have both fixed expenses and discretionary expenses. Below are examples of what is a fixed expense and what is a discretionary expense.
Fixed Expense- The weekly rent amount or weekly/monthly repayment to your home loan.
Discretionary Expenses – The couple of beers that you have at the pub each week or the avo on toast with some crumbled feta that you can’t resist at the café on the weekend.
What we will discuss below are some strategies to look at reducing both your fixed and discretionary expenses. These will depend on your situation, and which are going to be the opportunity for you to improve. I believe there is always opportunity to improve both. I’m a strong believer that every cent counts. You might do this exercise and realize you can only save $50 a week. Over a year that equates to $2,600. If you focus 2 hours every 3 months that’s 8 hours a year. $2,600 / 8 hours is $325. Not a bad hourly wage if you ask me, perspective is everything.
Fixed Expenses
Fixed expenses can sometimes be a little more challenging to reduce, depending on what strategies you implement that might impact your life a little more significantly than that of the discretionary expenses. Let’s take a look at some of the most common fixed expenses below.
Rent
If you are currently a tenant, you have a couple of options to look at reducing the amount you pay each week. The first may be to downsize or rent a little lower quality house or location that is a little less desirable. This can be a dramatic change to save some of your fixed expenses, you would also need to consider your moving costs however this still may be a fixed expense save for you. Again, this comes back to sacrifice and whether you are willing to do this.
The second is getting an additional person to live with you, you might room share or be a younger couple. If you had an extra house mate they would contribute to the whole cost base of your weekly rent, therefore saving you money. This again comes back to how bad you want to achieve your goals and what you are willing to sacrifice in the short term for the long-term results.
Mortgage
If you have your own owner-occupied property, there are still ways to reduce your mortgage repayments. You can contact your financial institution and ask for a rate review, typically to do this successfully you would quote a couple of competitors rates, if you are with one of the larger banks it is always more effective to quote rates of the larger competitors. If you aren’t successful and you’re in a position to refinance, do it. If you can get a better offer elsewhere you should take advantage of that!
If you have a variable loan and have the 100% offset facility for your mortgage, you need to ensure this is set up. That way any amount you have in the offset account will offset your mortgage and you pay less interest calculated daily. For example, if you have a mortgage loan with a balance of $500,000 and you held $100,000 in an offset account the interest would be calculated daily on the difference between the two amounts. Meaning that you would only pay interest on $400,000 and not that of the full balance in the mortgage being the $500,000. This will save you money each month and help you to pay off your mortgage sooner.
Another option is that you could again rent a room out to a house mate. This way they are contributing to your mortgage and helping you either pay this off sooner or allowing you to pay less to put towards the deposit on your next property.
Utilities
Utilities that you can look at reducing are your internet expense and your mobile phone expense. You may have set these up years ago and the price you’re paying now is not competitive in the current market. If you are locked into a contract for a year or two, that may make it a challenge, however as soon as that contract is up you should always explore your options. It is always good to review these on an annual basis. There are many platforms online that can help you compare plans and prices. The alternative is you contact several providers individually and negotiate with them on the best offer they can provide. I recently finished my two-year contract on my mobile phone plan, I was paying $80 a month. Moving across to Aldi I now pay $35 a month. I still have unlimited calls and texts. This alone has just saved me $540 a year, not bad for a small amount of effort to change over.
Discretionary Expenses
Discretionary expenses are the expenses where you can make the most meaningful differences in my opinion. These are generally where the biggest opportunity is to reduce expenses however this does come at a cost, generally sacrificing on your lifestyle in one way or another. However, if you have read this far, you’re most likely committed, your focused, ready to be disciplined and sacrifice now to reap the rewards later, also known as delayed gratification.
Discretionary expenses can be clothing, online shopping, takeaway, eating out and alcohol/entertainment, etc. These are variables costs, meaning it isn’t the same amount each week, fortnight, or month. Therefore, it is the biggest opportunity, if you are super disciplined and focused, these expenses can be reduced to almost nothing if you really want. The amount you then save on effectively reducing these expenses can then be translated into savings. Let’s look at the following:
Takeaway and Eating Out
If you are anything like me, you’ll LOVE food. Ribs, burgers, smoked meats, pizza, pasta, garlic bread… mmmmm delicious! Anyway, we are talking about ways of reducing our takeaway and eating out, not getting excited for dinner. The question we need to ask ourselves is how often do I get takeaway or eat out? Once you complete your budget every three months, you’ll see how much you spend on food and takeaway, I’m sure you’ll be shocked at what this comes in at. Buying takeaway and eating out can be super expensive and ads up quickly.
If you think you buy takeaway or eat out 5 times a week you could aim at reducing this and cut it down to 2 or 3 times a week. You should focus a little more time on planning your week out and knowing what you need to buy when doing your groceries. There are so many ways that you can make those meals you buy at a restaurant at home. They’ll cost half the price, you can adapt the recipe to how you like it, most likely it will be healthier with less calories. Saving money and helping your waistline all at the same time!! What a combo!
Online Shopping/Clothing
Online shopping and purchasing clothing are so easy these days, you don’t need to go to the shop and can do this in the comfort of your own home. You don’t even need to get off the lounge or leave your bed and still have the temptation to spend money. When we are shopping for clothing and purchasing things online the most crucial question we should ask is ‘Do I need this?’ or ‘Do I want this?’. If you truly need something then buy it, if you don’t need it and you simply want it should you really buy it? If you have 10 pairs of nice shoes, do you really need the 11th pair? Remember you’re not a centipede and only have two feet. I have gotten so good at not spending money that I don’t even buy things when I need them now. Ask the pair of shoes that I’ve been wearing for 6 months with a hole in the sole (haha).
Another tactic to help reduce online shopping and clothing is putting a time limit on making the purchase. If you see something you want, make a rule that you’ll look at this again in 2 weeks, if you still really want it then you can make the purchase. This will give you the opportunity to think it through and not impulse buy, if you have 2 weeks to think it through, you may realize that you don’t really need it.
Entertainment/Alcohol
This is another expense that can really add up. If you go out one night a week and have a big night you can easily spend $100-200 in a night. Then if you factor in the hangover and the food that you’ll most likely purchase, this can add up to even more. Please don’t think I’m telling you to not have fun, if that is something you enjoy and you value do it. However maybe if you do it once a week you could limit it to once a fortnight or once a month. This one is powerful again because not only will you’re bank account thank you but so will your body. I’m almost at 1 year without a drop of alcohol all because I feel so much better without this in my life. I feel physically and mentally better without it, but that’s my personal choice.
Now you might think, “what am I going to do if I’m not partying every weekend?” Well, this is time for you to get creative and put a little time into what you could replace that time with. What can I do to still be social, active and see my friends? I am a strong believer that some of the best things in life are free. You could have a BBQ at the beach or park with some mates, kick the footy around or throw the frisbee. You could go for a walk by the beach, go on a bush walk or a walk-through dense forest. Now I completely understand that because this is something that I value that you may not value this and that is totally okay, we are all different. These are just some ideas; you might realize that you actually do enjoy these and it’s just that you haven’t really tried any of these before.
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