Week 4 of the six-part summer series concerning rebuilding your credit. If you have any questions about the series you can email the writer Jay Turner at firstname.lastname@example.org.
As we enter the cool down phase of our summer credit clinic, I want to transition our focus away from the theoretical to the practical. It’s one thing to understand how credit scoring works and ways you can play the FICO number game; it’s another thing altogether actually to have the means to play. The reality, as you are well aware, is that you cannot improve your credit or save for tomorrow if you do not have enough money today.
In my opinion, there are only two ways of obtaining more money to improve your financial standing. You either have to bring in more revenue or reduce your expenses. I argue that in this slumping economy it is likely easier to reduce your expenses than generating more revenue, because when it comes to reducing expenses, you are in control. Conversely, generating more revenue involves the additional variable of someone else giving you money for goods or services you provide. And let’s face it, businesses and individuals are not making it rain much these days.
Here are three steps you can take immediately to trim some of the fat from your expenses and apply those savings to either eliminating your debt load, or applying to your savings goals:
Pay Yourself First
I love pay-day. My job pays once a month, and there is no moment that I anticipate more than logging into my bank account and seeing fair compensation for my labor. I also realize that my account balance is short-lived because I have a mortgage to pay, bills that need my attention, and three kids (and one on the way) to feed and clothe. These all are all expenses that I cannot ignore; however, before tending to these expenses, I pay myself first because it is my labor that put the money into the bank.
If you are not doing so already, you should be paying yourself up to 10% of your bring-home salary. Spend that money on whatever the hell you want. You earned it. However, there is a catch: once that money is gone, it is gone until you get paid again by your job.
I list this as the first way to reduce expenses, because I’ve seen too many people not factor in their own wants into their budget. The results are that you either live without indulging yourself for a while and then one day splurge on something ridiculously expensive that you can’t afford, or you spend on yourself regularly ($10 here, $20 there) and you never fully realize how much money you’ve pissed away. Giving yourself a fixed allowance will prevent this and also help you stay on track with your financial goals. I currently live on an allowance of a little less than 5% of my monthly net and I’m happy. I still can afford video games. I can still afford to go to the movies. I can still eat out. All in moderation, of course.
Dine Out on the Cheap
We here at Fatboyfavs love a good meal – after all, this blog is about food and fashion. If you’re reading this, I can assume that you like these as well. While we do have a penchant for enjoying the finer things in life, we recognize the importance of being fiscally intelligent when it comes to making dining choices.
My job sometimes entails long hours and a decent amount of travel, so I dine out often when I’m on the road, or even locally when the wife and I are too tired to cook. I follow a few simple rules when it comes to eating in restaurants.
First, if I want to try something new, I look for a restaurant that has a lunch special. Lunch specials usually run 25% to 50% off the dinner menu price. I’m ecstatic if the food is good; I’m not, I will not be horribly disappointed if the food is not what I expected since I did not pay full price. While we’re talking about price, do not hesitate to ask if the establishment offers a cash discount. Banks and credit card companies charge restaurants an interchange fee every time they swipe a consumer’s card for payment. Depending on your type of card and the overall cost of the meal, the restaurant might save money by giving you a break. I average about 5% off when I request a cash discount.
Finally, limit the amount of alcohol you consume while eating out. Dining establishments charge hefty markups for booze to cover the narrow profit margins of food. Restaurant proprietors also know that the more you drink, the more you are likely to buy, and the more money they will make from you.
A Little Austerity Never Hurt
Humans are creatures of comfort and convenience. The more disposable income we have, the more spoiled we become. If you want to save significantly, I encourage you to redefine comfort and convenience by introducing some austerity into your life. I’m not suggesting that you deprive yourself of all luxury, but I am suggesting that adjust the bar for what separates desire from necessity.
How hot is too hot? How cold is too cold? Perhaps you could consider cooling your home at 78 degrees in the summer, instead of 72 degrees. Do you really need premium channels in your cable subscription? You won’t die if you reduce your subscription or drop cable altogether. There are cheaper alternatives, such as combining local HD programming over the air with Netflix streaming, Hulu, and/or Amazon Prime if you have high-speed internet at home. The possibilities for finding areas to trim are only limited by your willingness to cut.
What other suggestions do you have for trimming the fat from your expenses? What has worked well for you? What has not? How do you balance your desires with your needs? Let’s hear it!