Expenses are the services, goods, things we received, consume or keep by exchange with giving away our money.
Before we able to reduce expenses, we need to understand the nature of expenses, generally, the expenses can be divided into passive expenses and discretion expenses.
Passive expenses refer to daily expenses we pay for ourselves and our dependant, such as food for living, sufficient cloth for keeping warm, a shelter (via rent or mortgage), school fee, transportation expenses and etc that the basic requirement that we need to have and cannot be delayed.
Whereas for discretion expenses refer to expenses that can be incurred or not to be incurred and do not affect our basic life, such as luxury watches, luxury car, jewelry, expensive holiday, luxury house, branded cloth and etc that if we delay the purchase, our basic requirement will not be affected and life go on as usual but emotionally may be affected or demoralized.
Thus, the first step to reduce expenses is to identify and list down the type of expenses and its amount incurs every month and understand passive and discretion expense. Refer to income and expenses tracking and of course, you may need to scarify your current enjoyment for not owning an “discretion expenses” stuff.
Normally, for discretion expenses, this is the areas that will affect how fast we are able to achieve stage 5 , financial freedom and also an areas that we can control.
One concept of “value buy” we may want to understand, you can get one bottle of dish washer with volume of 250ml at Giant supermarket for RM 3.50 versus a bottle of dish washer from one popular direct selling at RM 15.30 for the same volume but the later can be used and last for 5 times more than the one from Giant supermarket due to its condensation. I believe all of us can gauge ourselves that the later is more worth to buy ,i.e. “value buy”.
I like to use a real example to elaborate the discretion expenses, this good friend of mine come from same home town and we know each other for more than 30 years. He is making handsome monthly working income from one stable listed company. He is always looking for an expensive stuff and life style stuff for hobby. For example, a normal people will standby one touch light in the car for emergency use and probably will cost about RM 15.00 whereas for him, he will buy one with most recent fancy style with plenty of functions (I doubt other than providing a light as what a touch light do, he really use the rest of the function for his whole life) with a price of RM 450.00. Thus, we do spend money for functions but only function that we really required.
STEPS TO REDUCE EXPENSES
1. Determine where you spend your money.
If you don’t know where your money is going, you are most likely spending too much. You can get a solid idea in as little as one month and as you continue, you’ll see patterns develop that you can address. Write down everything you buy down to the last dollar. Don’t stop at the obvious things like rent, utilities, gasoline and food – include the ancillary items like sodas and snacks as well as or cigarette. What about happy hour? Did you rent a movie? Use a Row-by-Column ledger, spreadsheet or other software to keep track every month.
2. Eliminate unnecessary routine purchases.
While it’s likely this won’t be the largest savings area, it’s important and easy. Is the coffee shop on your way to work really necessary? How critical are the three sodas or snacks a day you buy from the office vending machine at RM1.50 each? A cup of coffee that you made at home is only 25-35 cents. This is quick and most of it is habit. There will be some psychological pain at first but when you add up the dollars you’ll see a big difference instantly.
3. Address your utilities.
Air Conditional versus ceiling fan: buy energy saving air conditional if air condition is real required. Alternatively, consider investing in ceiling fans, you can get these for as little as RM 150 and they dramatically reduce cost of cooling by circulating the air more efficiently.
Lighting is expensive. When you leave a room, turn off the light. The idea that it takes more energy to turn on a light than to keep it on is completely false, as turning on a light only burns as much electricity as burning it for fractions of a second. Energy efficient bulbs really work, this is an investment that will pay off over time but there is a significant savings to be gained. Consider to invest in electronic stablizer devices such as E2Saver to reduce the electricity bill.
Turn off your computer/laptop when you’re not using it – (probably) the only reason you leave it on is convenience. Any voltage adapters (including the ones in stereo components) still use electricity even if they’re not charging or plugged in to the device.
Water, save money. Invest in a shower-reduction kit – they cost nearly nothing and will start saving you money immediately. They work by reducing the flow to the shower head and the change is barely noticeable
Repair leaky toilets and Fix a Leaky Faucet– this is an enormous waste of water and easy to fix. Reduce your lawn watering to minimum needs. Also if you’re not using the faucet turn it off—e.g., when brushing teeth do not leave faucet running.
4. Cable and Telephone
Do you really need a thousand channels and every single premium channel available including the high definition packages? You can save the full RM100 on your cable bill every month by watching TV for free online. If you want to save money take a close look at your priorities. For your telephone, shop around based on your use. If you make a lot of long-distance calls to family and friends, perhaps one of the unlimited plans would save money. If all your calls are local you probably can get by with a bare-bones option. Consider that your cell phone may have free long distance; therefore, removing the necessity of having long distance on a land line. Look into the Voice-Over-IP (phone over the internet) for your telephone solutions. Some services, such as Skype, Yahoo messenger, and Windows MSN! allow you to make free video calls to other users as well as make low cost calls to cell phones and land lines from your computer - including international calls.
5. Cut Down on Entertainment
It’s astounding how many people complain about money then describe the latest release of a movie along with the cost of theater popcorn. Also, professional sports event, a music concert or tickets to a play can run hundreds of dollars for a couple on a date. Seriously, can you really tell the difference (blindfolded) between a RM150 bottle of wine and a RM 20 bottle of wine? When you do dine out, actually think about the prices on the menu first. Consider a meal share if the restaurant offers that option. Avoid order delivery, look for vacation bargains – consider taking the kids camping instead of one of the super expensive amusement parks. Consider to go for vacation during off peak period, you will save a lot of frieght fare and hotel charge during off peak period.
6. Focus on Food
Consider taking your lunch to work instead of buying lunch each day. Even an inexpensive lunch out is several dollars a day – do the math.
When purchasing meat items, aim for pieces where you can identify the body part from which it came. Ground beef, although cheap, is processed which increases its price. Tougher cuts of meat can be slow-cooked and made incredibly tender. Also larger pieces can be cooked in bulk and used for several different recipes. (Cook one large piece and when tender, tear it up for use in enchiladas, sandwiches, stews or soups, etc. Simply store in individual portions, labeled with the type of meat and date, for later use.) Organ meat (chicken hearts and gizzards, beef hearts, tripe) are often far cheaper than normal cuts, and can be used to make tasty and filling stews.
Avoid large packages of fresh produce to avoid spoilage; frozen produce will extend the shelf life of all your fruit and vegetables.
Measure product use carefully (like soap powder); don’t be wasteful with the products just because it comes in a large container.
Buy products you will actually use instead of substituting just because it’s on your list and the only item available. Are you really going to enjoy that box of cereal that’s not your regular brand, or is it going to sit on your shelf?
7. Address your insurance costs
The fastest way for some people to reduce monthly expenses will be in the area of health, auto and life insurance. Companies that sell those are incredibly competitive. Get some bids from different companies. When you do this, bear in mind that lower initial premiums will not always be the most cost efficient!
Save Money on Auto Insurance, don’t jump to increase your deductible – analyze the entire plan based on your needs and expectations; do a risk analysis first. If you have an inexperienced driver in your house and you don’t have savings, having a high deductible might not be the best choice – also if your car is financed you may have minimum insurance requirements. However if you have a long history of good driving and you own your car, outright, you might consider a high deductible to save on premiums.
Health Insurance: Investigate alternatives. Shop around for plans that are consistent and cost efficient with your lifestyle. Consider your actual needs vs. what you have. A single man in perfect health in his mid-30’s might choose a plan with a higher copay or co-insurance and lower premiums, whereas a married couple wanting to start a family might do better with higher premiums but more extensive coverage. In other cases, prescription benefits might be the most important. The point is to look at what you have.
Choose Life Insurance, There is no question that this is important – for many people. The rule of thumb for someone with a family is three to five years’ replacement income. However, if you’re a at twenty single consider carefully and determine if you’re over-insured. We all would like to leave our loved ones wealthy in the event of our demise, but not at the expense of your quality of life right now.
8. Actively manage your credit
A poor credit score costs tens of thousands over the years in increased interest rates and insurance costs. You may even lose your job or lose out on a job application. Pull all three reports; challenge everything that appears incorrect. Pay all bills on time or early. Pay off revolving debt (credit cards) and put those cards away.
9. Avoid the overdraft and rely on debit cards
An overdraft may seem like a good idea, but it is simply one step nearer to a pricey pitfall. Even if the bank you are with doesn’t charge you for using the overdraft, they will definitely charge you if you even toe the line over it. The good thing about debit cards is that you are not using money that you don’t have, and an overdraft will most definitely weaken your discipline over your finances.
