In my last post I told you about the ERR budgeting strategy I came up with to optimise our spending and make out money go further.
Today I’ll share a bit more about the first element of it – eliminate. This is about eliminating waste and deciding what you absolutely want in your life.
Let’s get back to the time when my husband told me about the enormous, obscene amount of consumer debt we had. Now, I’d love to tell you that I kept my cool and calmly went on following the commandments of personal finance.
It was not to be!
I survived the next couple of weeks on a diet of misdirected rage, very long runs and meditation. Then I exhaled and let go of the anger.
Next I decided that only using my strengths will get us out of this mess; and analysis and research are two such strengths.
What my research showed was that every month we were spending about $3,400 more than our income. That’s a lot of money.
It was time for elimination. Here are the three areas where there was a lot of waste in our household.
What we eliminated?
When we looked at our spending patterns it was clear that three areas were responsible for about 80% of the waste in our lives and household. These were:
- Insurance; and
Waste on food
You can do a simple test if you’d like to know whether you waste on food or not. Get up, go to your waste bin and look inside. Can you see any of the food you bought last weekend inside?
If your answer is yes, you waste on food.
‘Oh, but it is not very much’ – you may think.
This is what I thought. It turned out that we wasted close to $700 per month buying food we never cooked and/or ate.
We brought this waste on food down to acceptable level – you know, the occasional limp salad – within couple of weeks.
All it took is turning the cycle of shopping for food and cooking on its head: we started planning our weekly meals and shopping for these instead of buying food and then deciding on the meals.
One simple change – eliminating waste on food – brought about a very large saving.
Waste on insurance
Being insured is prudent. Overpaying for insurance is plain silly.
This was the other large area of waste in our budget. We were overpaying on all kind of insurance: life insurance, house insurance, car insurance; you name it! There was only one reason behind that: we hadn’t bothered to shop around for insurance in a very long time.
Some may call it financial laziness!
By changing our insurance(s) – after all insurance is a very competitive area – we managed to shave off another very large chunk of monthly spending.
Waste on entertainment
I come from a hedonistic culture; I love having fun. I believe that you shouldn’t forget the Cinderella rule of personal finance: have fun and budget for it. But entertainment can become a lot like hard work.
We, for instance, were spending far too much on eating out and package holidays.
You don’t need to go to restaurants to see your friends. I thought we do; then started inviting friends around for dinner.
You know what? This is so much more fun! Even when something goes wrong with the menu – like serving ice-cream soup for desert, for example – it is healthier; you can also talk to your friends and hear what they reply.
How about the other 20%?
The rest of the waste is in ‘little’ habits you’ve developed and don’t even notice. It is in buying:
- your forth coffee for the day;
- another pair of shoes (yeah, I like my shoes just as much as the next woman)
- new clothes and designer items at that.
You see, the other 20% of waste comes from all the stuff you buy but don’t value; all the things you do but don’t notice; all that you could happily live without.
What I absolutely wanted in my life?
Successfully eliminating the waste in your life and budget is also about deciding what to give up and what to keep.
Deciding what you absolutely need in your life, and therefore will keep, is a very personal matter. So, I can just tell you about the three things I kept.
Books and learning
I buy books; I’ve always bought book; and I’ll always buy books.
The only thing that changes is the format: I haven’t bought a paper book for a very long time now.
Books and learning rank very high in the hierarchy of my values. So even when we were paying off debt I allowed myself to buy books and to take advantage of opportunities for learning.
What would you say if I told you that even in the debts of debt we had a lady who cleaned and ironed for us once a week?
Well, you could tell me what you think in the comments; now hear me out.
We continued buying in many services and cleaning is only one of these. We also had a gardener, we paid to have our bathrooms done up and for decorating.
Why we did it?
There are two reasons for that:
- I’m very frugal with my time; by continuing to pay for services we were about $900 per month better off.
- Well, some things are plain dangerous and can cost more in medical bills, physiotherapy and osteopathy. Building work, decoration and moving heavy stuff around qualifies.
Running races is one of the things that ‘makes my heart sing’. I love the whole thing: the early morning start, the excitement at the beginning and the pain of the finish line. I even love the queues for the toilets!
I wasn’t going to give this up!
By eliminating all waste in our lives and budget, and deciding what we absolutely need in our lives we managed to shift from $3,400 overspend to being able to make the monthly debt payments ($1,700) and save about $800 per month.
We still do a periodic inventory of our spending and find things to ‘eliminate’.
What about you: what would you eliminate from your budget and what would you absolutely keep?