In our previous blog we discussed the ‘Golden Rule’ of financial management – “Your income must always be greater than your expenditure”. It sounds simple enough but it can be really hard to do; life is always far more expensive than we would like it to be!
In this blog, I will take you through the 6 most common areas of over expenditure and outline some strategies for reducing these costs in your budget.
1 : Debt Repayments
Most of our members come to Grandma’s Jars with some form of personal debt so it is not a surprise that this is a key area of expenditure.
The problem with taking on debt today is that it robs us of tomorrow’s cash flow. The more debt we have, the less free cash flow we have available to save, accelerate repayments on existing debt, or pay cash for items in the future.
Helping our members eliminate lifestyle debt from their lives is a primary objective for Grandma’s Jars. Here a few quick strategies:
- It sounds obvious but needs to be said- no more debt; debt is a habit – break the habit by committing yourself to taking on no more debt!
- Pay the minimum on all your loans except the smallest one and direct all extra funds at paying down your smallest loan.
- If you have a home loan, consider reducing your home loan repayments to ‘interest only’ to free up funds to pay down your higher-interest lifestyle debt.
- If you are committed to dealing with the problems that caused you to be in debt in the first place, you may want to consider consolidating your debt into one facility at a lower interest rate if possible. Paying off debt is always far easier if it is just one larger payment, rather than lots of little payments.
- If you have savings available make it your priority to eliminate smaller high interest debts.
- Speak with your financial institutions about lowering your interest rates. If you do your homework and threaten to move to another institution offering lower rates, you may be surprised at how accommodating they can be.
2 : Groceries
People are often surprised to see groceries on this list; after all it is an essential area of expenditure. Nevertheless, in our affluent society the average person spends way more than is necessary on food. Some simple rules that can make a significant difference to your grocery bill:
- Shop with cash! It is unusal these days but think about it – how often do you walk around calculating how much you have in your shopping trolley? Chances are you don’t because you just whack it on the Visa and if you spend $20-30 more than expected it really doesn’t matter. But when you shop with cash, the Tim Tams are far less likely to make their way into your shopping trolley. Dunn and Bradstreet statistics have shown that people spend on average 18% more when paying with a credit card than when paying with cash.
- With the exception of topping up on milk and fresh fruit you should not shop more than once a week. Shopping every day or every second day is a sure fire way to kill the budget.
- Don’t be afraid of home brand products. In a previous career I once did a site visit to a frozen food factory owned by a household name company. I was surprised to see the same product being packaged as both home brand and branded. Don’t let clever marketing get the better of you – experiment with home brand products; much of the time there will be no discernible difference.
- If you have the cupboard space and a freezer, buy in bulk when there are specials on essential items.
- Try to shop at the same time every week; routine is really important when it comes to managing your money efficiently.
- Use junk mail to your advantage; shop at a time of the week when specials are available.
- Plan your meals. You should never go shopping without a list and purpose for each item on that list; this one rule will make a huge difference.
- And last of all – don’t go shopping when you’re hungry.
3 : Everyday Lifestyle
Over the last decade we have seen a proliferation in what I call everyday lifestyle expenses; this is the bought coffees, the freshly squeezed fruit juices, the bought lunches and takeaways. As ‘one offs’ these expenses don’t seem so bad; the problem is they are rarely ‘one offs’. Bought coffees have for many become an expensive daily ritual.
Because each of these often become part of the daily or weekly ritual they can be hard to eliminate, so here are a few suggestions:
- Firstly calculate what you think is a reasonable amount to spend on these daily lifestyle expenses given your income, priorities and objectives. Then pay yourself a cash allowance each week or month to cover these expenses – however when the cash has been spent – bad luck!
- Make sure you plan your lunches as you would your evening meals and buy ingredients for lunch during your weekly grocery shop.
- Use a coffee or bought lunch once a week as a reward for sticking to your budget the rest of the week.
- Change your route to work so it doesn’t go past the coffee vendor.
- Brew your own coffee.
Change the time of day you meet with friends of work colleagues; meetings and get togethers don’t have to be a ‘get together for lunch’ or a ‘meet for a coffee’. By picking the time of day for your meeting neither lunch nor coffee would be necessary.
4 : Grooming
There is no ‘typical’ figure when it comes to amounts spent on grooming, however we do tend to spend excessive amounts on trying to make ourselves look good to people we don’t really care about. Grooming is one of those areas of spending that definitely needs the boundaries provided by a budget.
There are two aspects of grooming spending we need to be very conscious of:
- Comfort spending. Often people buy clothes or get their hair done to make themselves feel better. Unfortunately in the majority of cases, the ‘feel good’ aspect of splurging on grooming quickly wears off. The most detrimental aspect of buying for comfort is that it almost always occurs spontaneously without any serious consideration of financial constraints and is often quickly followed by buyer’s remorse.
- Image Maintenance. This is the second type of grooming that becomes an expensive trap. The simplest example of this is hair colouring at the hairdresser. This has become an incredibly expensive process and unfortunately once you start down this track it becomes very difficult not to keep having your hair coloured, particularly if you are trying to hide those grey hairs.
The same goes for having manicures, eyelash tints and expensive dental treatments to make your teeth shiny and white. Now please don’t get me wrong, I am not against people trying to make themselves look nice but image maintenance can become a very expensive trap.
The ease with which we can take or more importantly ‘leave’ the expense if it no longer fits the budget needs to be carefully considered.
Some points to consider in reducing grooming costs:
- First and foremost give yourself a realistic grooming budget. The amount you allocate is completely up to your overall income and the priority you place on grooming, however once you have set yourself that budget, stick to it. Don’t go clothes shopping without first knowing how much you have to spend. After a while you will find that having a budgeted allowance for grooming allows you to enjoy your money because as long as the money is there in the budget for grooming you can spend it entirely guilt free.
- If you like to have your hair coloured, get a friend or family member do it for you at home. Colouring products are readily available in most supermarkets and pharmacies and with a bit of practice the outcome is no different.
- Don’t pamper your children. It is becoming an increasingly popular for parents to spend exorbitant amounts on kids’ clothes and grooming. If your children are asking for expensive brand name clothes or expensive haircuts, use the opportunity to teach them the value of money so they gain an appreciation of what they are asking. Require them to contribute part of the funds, give them jobs to do to earn the money, or if they are old enough allocate them part of the grooming budget to manage themselves.
- Do not become a shop trawler. Go to the shops if there is something you need but don’t go “just to have a look around” or to “see if there is anything I need”. If you go to the shops with these notions, you will always find something to spend your money on and rarely is it something you actually need. As with grocery shopping, always take with you a list of things you need and stick to the list.
- When it comes to clothes take advantage of the sales. Save up your grooming allowance for a few months and enjoy having a jar full of money to spend when the sales arrive.
- At risk of offending some people – don’t be afraid to shop at op shops or thrift stores. If you look around, you will be amazed at some of the quality bargains you will find – especially for toys and household items.
- When it comes to kids clothes, organise to swap and hand on clothes with friends. Children typically grow out of clothes before they wear them out. As parents, we have benefited greatly from friends with older children handing on clothes to us. We have also had great satisfaction from seeing other friends’ children wearing clothes that came from our children.
- Get with the 21st century and use the internet. Auction websites such as e-bay, and online businesses can be great places to buy quality 2nd hand, new, and brand name clothing.
5 : Gifts
You only need to look at the TV advertisements and junk mail around Father’s and Mother’s Days to get an appreciation of how extravagant our gift giving as a culture has become. Unless we make an effort to plan our gift giving, it becomes very easy to spend way more than we intend or can afford. The cost and stress associated with gift giving can be greatly reduced by implementing the following strategies:
- Firstly do your gifts list in an exercise book or spreadsheet and keep it year on year as a template for who you have to buy for and how much you have budgeted to spend.
- Sit down and write on the gifts list your ideas for what you will buy each person at the beginning of each year. Don’t be afraid to ask for ideas but stick with those ideas that fit with your budget.
- Don’t wait till the day before to buy the present. Have an awareness of what you want to buy throughout the year and chances are you will be able to buy the same item at sales or on special for a lot less. Leaving ourselves short of time is one of the greatest causes of over expenditure when it comes to presents.
- If you have a large extended family discuss the Kris Kringle (Secret Santa) option; most people think it but few want to be seen to be the ‘cheapskate’ by suggesting it.
- Don’t be afraid to buy second hand through local trading posts and e-bay – it’s much easier to look for what you are after and often with a bit of patience you can get a far better product at a much cheaper price.
- Don’t fall into the trap of thinking you need to spend lots on your children; expensive gifts can never be a good substitute for your time and attention. Take time to plan what you will buy so that the gift is in line with your child’s interests – they will appreciate it far more.
- While they can be hard to predict, make sure you make an allowance for miscellaneous gifts, eg. engagements, babies, work colleague departures. Again, decide in advance how much you are willing to spend and try not to feel pressured to spend more.
6 : Mobile Phones
For an expense that didn’t even really exist 10 years ago, smart phone usage is rapidly becoming one of the most common areas of over expenditure. I know it sounds harsh but in most cases the overspending is very easy to control but we just can’t be bothered to do anything about it. Here are some suggestions that could save you hundreds of dollars every year:
- Get the right plan – most overspending occurs because people simply have the wrong plan. Do your homework, figure out how much you use your phone and what you use it for and then find a capped plan that suits your usage.
- You don’t need to upgrade your phone every 2 years – upgrading your phone has become just another form of keeping up with the Joneses. When your phone plan ends, keep your old phone and find a plan that suits your usage and your budget.
- Monitor your usage – given smart phones have only been around for the past 10 years it is scary how quickly we have become dependent on them for entertainment. I understand their usage for work and communication but the biggest costs come with surfing the net and downloading videos. It is worth considering whether there are more cost efficient ways to keep yourself entertained.
There are of course hundreds of other potential areas for over expenditure; these are just the ones we see the most often. We would be interested to hear from you about the areas of expenditure you struggle with the most. Please go to our forum and have your say; if on the flip side you have found great ways to save money we would love to hear from you too!
Tweet us your budget tips on twitter @grandmasjars or post them on our Facebook or Google+!