« Get $50 Free For Your HD-DVD | Main | Where Your Tip Goes »
My Monthly Expenses
By JD Bluefield | March 26, 2008
With a recession on our hands and a looming housing foreclosures, I’m looking to reduce my monthly expenses to save money and increase my cash on hand to pick up stocks or properties at depressed values. In order to do that, I’ll have to reduce my monthly expenses. Below is a table showing a close sample of my monthly expenses in increasing amounts. Before I get into how I plan to reduce my monthly expenses, I’ll explain some of the blank spots and missing expenses. Water, sewer and TV are not free, but are included in my Townhouse Association Maintenance fee. My truck is paid off, although it is typically a heavy expense. Also, I don’t factor in daily necessities like soap, toothpaste, paper-towels, etc. because I’ve already engineered that monthly expense as best I can by Buying In Bulk.
| Expenses | Current | Scenario 1 | Scenario 2 | Scenario 3 |
|---|---|---|---|---|
| Water/Sewer | $0 | $0 | $0 | $0 |
| TV | $0 | $0 | $0 | $0 |
| Haircut | $25 | $0 | $25 | $25 |
| Electricity | $30 | $20 | $30 | $30 |
| Internet | $37 | $37 | $37 | $37 |
| Food | $75 | $65 | $75 | $75 |
| Car-Insurance | $90 | $90 | $90 | $90 |
| Cell phone | $100 | $100 | $100 | $100 |
| Fun/Entertainment | $100 | $50 | $100 | $80 |
| Gasoline | $150 | $150 | $150 | $20 |
| Car Loan | $0 | $0 | $0 | $0 |
| Townhouse Maint. | $270 | $270 | $270 | $270 |
| Mortgage | $800 + $400 to principle | $800 + $400 to principle | $800 + $100 to principle | $800 + $0 to principle |
| Total | $2077 | $1927 | $1777 | $1527 |
| Savings/month | $150 (7.2% savings) | $300 (14.4% savings) | $550 (26.5% savings) |
Now what would be the best way to cut back on my my expenses?
Scenario 1 (Cut back on Luxuries): I could cut back on haircuts, food, electricity and fun from $230 down to $80. This and only save $100/month. This drastic 65% reduction in the above expenses pared my total budget by 7%. On the other hand, it is a major hit not only to grooming and wellness, but moral as well. (I left the internet expense as its pretty critical in keeping this page up and running.)
Scenario 2 (Reduce payments to principle): Saving $150 is great, but your biggest savings will always come by reducing your highest expenditures. According to the table, my greatest expense is my mortgage. Since purchasing my townhouse, I’ve been paying extra straight to principle to reduce the length of the loan and total interest paid to the bank. Reducing this payment to principle will increase the length of the loan, but will not require a draconian change in lifestyle. A 25% reduction in payment will produce a 14% saving to the monthly budget. This is twice savings as Scenario 1 without the hit to daily living. The best part is the extra $400/mo on hand to invest.
Scenario 3 (Scenario 2 and reduce driving): To take my savings full-bore, I looked higher up the ladder for places to cut. Maintenance fees are set and unavoidable. My truck and college loans are paid off, so the next up is gasoline. For three months, I rode my bike and caught the bus to work (my office subsidizes monthly bus-passes and VanPool to encourage car-pooling). This was great as it practically reduced my gasoline bill to zero and forced me to exercise daily. Taking entertainment down to $15/week and reducing the mortgage to the minimum monthly payment produces an extra $140/mo. The drastic cuts amount to a total of $550/mo in savings or 26.5% of my previous budget! With gasoline prices expected to hit $4/gal, this savings can only increase. A couple I know is taking this same biking/less-driving approach to the extreme by selling one of their two vehicles. This eliminates the loan, insurance, gas and maintenance, for a projected savings of $750/mo.
Make a table for yourself. This is an over simplified budget and everyone’s expenses are different, but when you tabulate them in hard numbers it is much easier to see where your money is going. If you’d like to cut down on your expenses and save more, keep a log of one month’s spending. It will put into perspective the price you pay for necessities (rent, utilities, food, transportation) versus the price you pay for luxuries (entertainment, flat-panel TV, shopping, large vehicle, new furniture).
Topics: Engineered Living, Entertainment, Goals, Investing, Net Worth, Personal Finance, Travel |
Comments
You must be logged in to post a comment.