Reduce Your Personal Expenses

Friends sometimes ask me to help them pack when they’ve moving to a new place because I’m ruthless when it comes to streamlining, eliminating clutter, and donating unwanted items. The only way to reduce your load of belongings is to scrutinize what you own. Similarly, the best way to reduce your personal expenses is to review how you spend your money on and ask some critical questions. This article is not about creating a comprehensive budget (which is also a useful idea). Rather, this is about cutting out things that are unnecessary, unproductive, unhealthy, or relatively unimportant – all in the name of reducing personal expenses. When you make an expense cut, you can replace a particular good or service with something more valuable to you.

I subscribe to the notion of working less in order to enjoy more free time, even though it means fewer dollars to spend on leisure. It is difficult to reduce your personal expenses without making some sacrifices, so any overhaul of your spending should begin with a review of your values. Knowing what is most important to you will help with this process.

The Starbucks Example

Is $3.50 for a Starbucks latte really worth it to you? It depends on the context and your reason for choosing it. If you simply waltz into the store, grab your cup of high-end joe, and scoot out the door, then the value of the experience must depend on the coffee itself. Do you really notice a discernable difference in taste that makes this coffee beverage worth the relative cost? If so, then you should probably continue to buy Starbucks coffee instead of something cheaper. Also, if you spend time at a Starbucks location not just because you dig the coffee but also because you meet friends there, read the paper, and enjoy the public social atmosphere, then that’s also a good reason to include Starbucks in your personal spending.

So when is it NOT a good idea to opt for Starbucks? If you need coffee on your way to work but don’t notice a significant taste difference between Starbucks and a cheaper brand, especially at 7:00am in the morning, then a better option is to stop at Dunkin’ Donuts instead. Or maybe try brewing your own coffee at home. If you think you “just know” that Starbucks is better, then why not test your assumption by trying something else and comparing?

A friend of mine conducted an experiment wherein he bought Dunkin’ Donuts coffee beans, ground them, and brewed coffee for friends at his house. He hid the Dunkin’ Donuts paraphernalia before they saw it and slyly left a half-full bag of more expensive Starbucks beans on the table. Someone commented positively on the quality of the coffee, and another guest responded with: “It’s just so obvious that Starbucks is the best.” The moral is clearly that it’s not always obvious what will please us; we’re just used to brand loyalty and other modes of behavior that don’t force us to question our personal expenses.

While I’ve singled out Starbucks as just one example, it’s the logical, value-seeking process that is crucial here. You must question yourself about your expenses to determine what ultimately results in a justifiable amount of pleasure. Although I hate to reference a term from microeconomics, you do at some point need to (roughly) measure the utility of the things on which you spend money. Even though everyone obtains different amounts of utility from different goods an services, there is a common principle: spending money on things that have relatively little value in your life is a bad idea.

Specific Ideas for Reducing Spending

So what are the nuts and bolts? What specific ideas can be employed to reduce personal expenses? Start with the basic expenses of your home or apartment, regardless of whether you are contractually obligated or not. Ask yourself where you are willing to compromise and where you are not, and make changes when you can.

Ã?· Lower your rent. It’s time-consuming, emotionally taxing, and often expensive to move, so relocating yourself to a less expensive place is rarely a good idea unless you are totally overburdened or renting an overpriced space. If you’re paying $800 a month for an apartment and have seen other desirable places in the same neighborhood that cost only $550 month, then perhaps a move at the end of your lease is in order because the expense difference is so dramatic. If you can save money by moving to a cheaper place without unduly compromising your quality of life or spending a ton on new furnishings, then it may be worth a change. This should only be done after very careful calculations.
Ã?· Find a Housemate. If you own a house and have extra room, consider taking in a renter. Don’t do this if you can’t bear the thought of another soul living with you. But if you can spare a bedroom and might enjoy the company, consider looking for a roommate. Remember that you don’t have to rent to anyone unless you feel they are a good match, so there is no need to rush the process. Once you find a person you like, you’ll have a stream of new income and possibly a new friend in exchange for some loss of some personal space. Consider your values and make a decision.
Ã?· Use your cell phone as your only telephone. These days, the argument for a land line telephone is increasingly tenuous if you also use a cell phone. Consider getting rid of the home phone and just using your cell phone as your exclusive number. You may need to up your phone plan to accommodate the extra minutes, but chances are that you’ll save money. Even better, you’ll streamline and simplify communication and have one less bill to pay. For those who don’t like the idea of having their cell phone ring when they’re out in public, I have one obvious piece of advice: don’t answer it unless you want to. Remember that you can screen you calls just as easily with a cell phone.
Ã?· Use a Vonage phone. If you’re not keen on the idea of eliminating a home phone altogether or if you don’t carry a cell, think about a Vonage line. Provided that you already have high-speed internet service, Vonage is quite easy to install and use. With a variety of unlimited calling plans and some excellent extra features, it’s almost universally cheaper than using the local phone company.
Ã?· Eliminate home internet service. Although it would reduce my personal spending, this is something I couldn’t do because I value the internet immensely. Chances are, if you’re reading this article, that access to cyberspace from your home is important to you too. However, if having instant internet at all times is not crucial to your livelihood, then consider all the other places you can access the web (workplace, wi-fi coffeeshops, public libraries, friends’ houses). If you rarely use the internet at home, then consider disconnecting the service.
Ã?· Cut out cable television. I’ve lived without cable television in many apartments and never noticed much of an impact on my entertainment life (except that I read more books!). If you don’t watch a lot of television or you don’t watch the bulk of the channels you pay for, consider cutting back the service or eliminating it entirely. A good pair of rabbit ear antennae will still get you some basic reception just in case a major news story goes down or you have a favourite show on a broadcast channel like NBC.
Ã?· Go carless. This is not an option for most people, unless you live in a city with excellent public transit. I survive quite well using public transit in Milwaukee, but I live in a pedestrian-friendly part of town with lots of shopping, entertainment, and access to bus lines. If you can make a manageable commute to work using transit and you aren’t locked into a loan on your vehicle, going carless is a great way to reduce your personal expenses. Say goodbye to gas, insurance, parking, and maintenance costs. You lose some flexibility and mobility, but the payoff can be huge if a car was never that important to you in the first place. It all depends on your context and your value set.
Ã?· Change insurance companies. Maybe you can’t get rid of your vehicle, but you can still reduce the costs related to driving your car. There is a reason that major car insurance companies advertise free rate quotes! You may find comparable coverage at a different company and save a healthy chunk of cash. Contrary to what most people think, it’s actually quite easy to change car insurance companies. Also, be sure to pursue discounts offered in conjunction with renter’s insurance or discounts offered for memberships in organizations. I used to save about $60 on my semiannual premium for being a member of a professional organization for people who worked at colleges. Maybe your current company offers a discount you haven’t realized.
Ã?· Just drive less! Even if you keep a car, chances are that you use it more than necessary. If you plan trips, walk when feasible, and even consider biking for practical purposes instead of just leisure, you’ll save money on gas and upkeep of your vehicle.
Ã?· Re-think credit cards. You may want to eliminate credit cards entirely, as I did. If you can’t eliminate interest and fees entirely, there are still options. Look into balance transfer options that may save money by lowering interest rates. Take out a consolidation loan from a bank to pay your cards off. If the bank gives you a decent rate, you’ll save a lot of money and streamline your bills. Or if you just love credit cards and intend to keep using them, at least consider a card with a good rewards plan. As long as the membership fees are not outrageous, you might as well earn frequent flyer miles or free hotel stays by selecting a rewards-based card.

After weighing some of these basic personal expenses, it’s time to look at the “little” things. There are countless ways people spend money outside of their basic needs, so this list is in no way exhaustive. Again, you need to evaluate what is most important to you and cut things out if they don’t return a desirable amount of enjoyment or usefulness relative to their cost and effort.

�· Buy used CDs instead of new ones. You can often cut the price in half, even on relatively new releases.
�· Buy used books instead of news ones, or visit the library. (As I write this, I am sitting at a public library because I wanted a change of atmosphere from my apartment. It costs nothing to be here, the wireless internet is free, and I am going home with two books I have been meaning to read. This entire experience has no monetary cost.)
Ã?· Don’t buy magazines in stores. Either get a subscription (universally cheaper) or visit the library.
Ã?· Consider off-brands for some products. I’ve had bad experiences with cheap peanut butter, so I always buy a name brand like Skippy. However, for many other items, the generic equivalent is not much different than its fancy-labeled friend. Glass cleaner is a great example. I haven’t used Windex in years, but my mirrors are just as clean and my wallet is a dollar richer.
Ã?· Join a movie rental program only if you watch a lot of movies. Netflix is a stellar service, but it’s not worth its weight in DVDs unless you use it enough to justify the monthly fee.
Ã?· Don’t buy a gym membership at an expensive gym unless you’re very serious about working out. if you exercise more casually, look for a free recreation facility with basic equipment or join a place with cheaper fees, like the YMCA.
Ã?· Don’t buy clothing just because it’s on sale. Look through your closet and ask yourself which items you wear the most. Inevitably, you will see a pattern emerge. Perhaps GAP t-shirts are a good investment for you while button-down shirts from Banana Republic just collect dust in your closet. Evaluate your past spending habits with clothes, and you’ll gain valuable insights about what you should buy in the future.
Ã?· Stop smoking! I know it’s extremely difficult for people who are addicted to a substance to quit, yet the rising price of tobacco products makes them a personal expense that should be scrutinized closely. Although you may need to invest up front in some help for smoking cessation (gum, patches, counseling, books, other resources), quitting will end up saving you money and making you healthier.
Ã?· Get a cheaper haircut. For some people, a visit to the salon is an important relaxation experience and an almost social engagement to which they look forward. If it’s meaningful for you to spend a lot on an involved haircut from someone you respect and trust, then do it. But if you pay $60 at a foofy salon and you get a really basic haircut that just about any stylist could manage, then seek out someplace cheaper.

Equation Exercises

I can’t call myself a visual imagery guru, but I do think I’ve become versed in the art of weighing apples against oranges. Not everything can be assigned an exact value on its own, but sometimes relative values will help clarify what is most important to you. The concept of relative values is best explained by example:

I tend to enjoy eating out at restaurants because I don’t especially like cooking. I also value connecting with people important to me in a pleasant setting away from our homes. Dining out is a way to participate in the community around me, support local restaurants, and catch up with friends. In other words, it’s a social activity I value immensely – probably more than most people do.

Accordingly, I must weigh the amount I spend on this activity in relation to other personal expenses. For a long time, I spent my own money on books from bookstores, sometimes upwards of $75 a month. By opting instead to use library books, which means I don’t get to keep the items forever and may have a slightly reduced selection of new books, I can devote more money to dining out with friends. Now, instead of spending $75 a month at a bookstore, I get most of my reading material from the public library and only buy about $20 worth of books a month from the store (when the library does not have what I want). The difference is $55, which I can now devote to eating out. I’m still getting books to read, but I am willing to give up some of the convenience and permanence of buying books outright in order to have more disposable income for memorable restaurant meals with my best friends.

As I go through my day, I create and evaluate scenarios like this one, which I now call “equation exercises.” The process doesn’t need to be grand in scale. The equation exercise can be as simple as saying to yourself: “If I don’t buy any soda this week, I can get the shirt I saw for $10.” Or try this one: “If I cancel my cable television service, I’d save $40 a month, which could mean four trips to the movie theatre each month.”

Making these choices in a careful way, based on what you value, is key. My place is not to judge what others spend their money on because everyone finds different things beneficial and enjoyable. However, when people spend a disproportionate amount of money on something that they don’t receive a similar amount of utility from, that’s when it’s time to reduce those expenses to free up cash. By using the strategies above, you can ensure that your lifestyle reflects what is most important to you. Don’t be afraid to be hard on yourself: it’s time to live a life more congruent with your values and alter your expenses accordingly.