I have recently started on the path of frugality. The goal is to create a gap between my spending and income that is then available for investing. At first glance it feels like finding places to save is hard, but with a little work, most middle class people will be able to locate plenty of saving opportunities that will not do undue harm to their lifestyle. In this article I take a look at where I found my opportunities, and what the expenses saved mean over the long run.
A word of advice
Before I list my expenses going to the cutting block, I want to share the realization that I had while working on this:
When looking for expenses to cut, work from bottom up
It is a lot easier to save a little each month, than it is to save a lot at once. You will only find a few expenses of, say $200 (or 200€) each to save, but should be able to locate several expenses worth $20 a month (20€).
Where I found expenses to cut
These are approximate dollar amounts (converted from euro and spread over 12 months if the cost is a one time cost)
- Spotify family plan that my wife was not using, $5 per month
- Insurance that was duplicate to what we already had, $13 per month
- Magazine subscription I did not have time to read thoroughly anyway, $24 per month
- Audible plan I downsized because of focus on podcasts, $10 per month
- Web hosting plan I downsized by replacing LAMP stack with Nginx and Vagrant, $15 per month
- Cut beer consumption by one at monthly beer club meeting to avoid hangover, $10 per month
- Switched insurance provider, $20 per month
- Eliminate one lunch at office, $10 per month
- Replace one pizza night with store bought pizza, $10 per month
- Eliminated evernote premium subscription, $4 per month
That’s a total of $117 per month or $1,452 per year. Compounded over 30 years at 7,5% that comes to a total of $161,396.13.
None of the expenses listed above are anything that I would really miss at all, or even notice.
Take home points
One important thing to note is that every little expense matters. Without that last item, Evernote at approximately $4 a month, the savings after 30 years would be $154,726.87, a difference of over $6,669 over 30 years.
Take home point: avoid incurring monthly costs, no matter how small.
What I find notable in the above expenses is that they were the easy ones to cut. I had insurance I did not need, hosting package I did not need, spotify plan that was not used, etc. But maybe the easiest of them all was replacing one pizza night with store bought pizza. Not a huge quality downgrade. But we eat pizza roughly once a week. What if we replaced our weekly pizzas with store bought ones? Saving a total of $40 on pizzas, or $1,764 per year? Over 30 years, it would make $196,076.29.
In the process I would also be cutting wasteful calories, improving my health. A no brainer, really. What it takes to achieve this is to recognize:
- I end up ordering pizza around once a week
- I order pizza because I’m hungry, want food (= pizza) and am too lazy to cook real food
- Usually the pizza I order is too large for me anyway, so I would gladly eliminate this habit
To combat point 2 that triggers the pizza order, I could stock my fridge with frozen pizzas, possibly buying them when they are on sale and saving a few more euros/dollars in the process. If I had emergency pizza stock in the freezer, Instead of reaching for my pizza app when I become hungry on a friday night, I could just pop pizzas for me and my wife into oven.
The take home point: recognize your habits and combat them pre-emptively and savings will fall naturally.
Photo credit: TaxCredits.net