We’ve all heard the old saying live below your means. But what does this mean in the actionable sense? How does one actually go about spending less than you earn? Sounds simple to some, but for others (perhaps a significant portion of the population), it’s a tall order. The issue is that most people live their lives according to what their peers and friends are doing. If your co-worker is taking his kids on a Disney cruise, you should be able to do the same right? If you dig a little deeper, you may find that these vacations are financed through a line of credit rather than through savings. Don’t get me wrong, I’m a big believer in family vacations while the kids are young (and still willing to hang out with their parents). However, I believe that vacations are a luxury and should be funded through savings, not borrowed.
When you imagine saving money, you may picture living a bare bones lifestyle that just doesn’t work for you. While some have taken saving money to that extreme, the point of this article is to show that saving money can be easier than you think.
The goal is not to cut out all the unnecessary fat from your spending, but to cut the fat from your largest variable expenses. Going after the largest recurring expenses in your monthly spending will give you the most savings with less effort.
It’s a simple concept that may take a bit of work initially if you don’t already keep track of your expenses. The bright side is that technology has made expense tracking a fairly easy task. For me, I funnel spending through a credit card for the points (I pay off the balance monthly), then use an online program like mint.com, to sort out all those transactions by category.
From there, I sort those categories by total. For us, our top five annual variable expenses include:
- Heat and light (locally, most houses use electric heat)
- Kids activities
As we have recently become an one income family, we’ve had to take a serious look at our budget to make sure that our spending has remained within our means. With that, our top two categories, groceries and electricity, were by far our biggest expenses. In 2014, we spent $13,700 on groceries. It physically hurt me to type that last sentence, spending over $1,100/month on groceries for a family of four is a bit on the excessive side. On the bright side, it’s an easy target for reducing our overall expenses.
With less effort that anticipated, in 2015 thus far, we’ve averaged about $900/month in groceries which will work out to be an annual savings of about $2,400. How did we do it? We took the simple approach of going to the grocery store less often, being more mindful of sales, and wasting less.
Here are some articles that may be helpful if you are looking to reduce your grocery spending as well:
For electricity, last year we spent $3,780 on electricity which was a little higher than our historical average. As $315/month for 1,800 sq ft of living space may not seem like a lot for some, it’s too high for my comfort. The great thing is that the home owner has discretion as to how much electricity and electric heat is used. With that, I applied to the local utility to have one of those wireless power meter readers installed. These readers show electricity usage at any given time which has been a real eye opener. Similar to spending, watching our power usage has made a difference.
Electric heaters really use a tremendous amount of energy to heat a room to a comfortable level. To help reduce our usage (here is an article that I wrote on saving energy around the house), we’ve installed programmable thermostats throughout the house, set our comfort temperatures a bit lower (especially at night), and turned off heaters that don’t need to be on (basement exterior entrance). As a result, our new equal payment plan for 2015 has been reduced to $215/month, which is a savings of $1,200/year. Combined with the grocery savings, with very little effort, that’s $3,400 that can go towards a TFSA/RESP/RRSP contribution, or even to partially fund a Florida family vacation.
The message that I want to bring home is that saving a significant amount of money can be easy if you go after your big expenses. Do you have a big mortgage? Go after the best rate when it’s time for renew – it will save you thousands. Do you eat out everyday for lunch and often suppers? Pick up a cooking class and aim to cook at least a couple times a night with the leftovers used for lunch the next day. Do you need two cars? Or can one spouse take public transit?
Now back to you, what are your biggest expenses? What strategies have you used in the past to reduce them?
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