Although I want to reduce my expenses as much as possible this year I’ve decided that it might be better to tackle a few categories at first so that I can gradually change my behaviors that tend to be the root cause of higher expenses. On the chopping block for 2013 are the following: food, electric, and transportation costs. The goal will be to reduce these as much as possible without entirely eliminating them. I’ll look at what the current cost for each item is, a goal for where I would like it to be, and possible ways of reducing the expense. I will then do a quarterly follow-up for the year to gauge progress.
Before digging into the nuts and bolts of this project, let us consider why it should be undertaken. Some of the expenses may not seem extravagant to some and the possible means of reducing them may seem radical to others. This is a reflection of two main factors; the variability of experience amongst individuals and values. It would be difficult to take my situation and extrapolate that information to another. For example, being a single male is very different from the married man with three children. The number I use for what qualifies as a reasonable expense for food may be very different to the person who is married and feeding a household of five; there is a degree of relativity involved in comparing the two. The second point I made has to do with values. People view food in different ways. Some see it as merely a means of sustaining ourselves, others see eating as a social function, and still others have exotic palates that require expensive ingredients. I think that most would agree that despite the difference in circumstance and values there is such a thing as a reasonable expenditure of resources for something like food, electric, or transportation costs. That reasonableness is what I’m after, considering the resource I’m trading for these items is non-renewable; my time. The credit for this idea comes from the book Your Money or Your Life.
Now that we have taken into consideration individual difference let me answer the original question; why should I worry about reducing expenses? My old self was fond of stating that a minor isolated expense really wasn’t that big of a deal. I could justify little expenses as not being that much, but failed to consider the cumulative impact these minor expenses represented. Things like food, utilities and transportation cost are reoccurring so even though they may not seem like a lot on a monthly or even yearly basis looked at in terms of decades it adds up. Add in the compounding you would get from saving that money and you can quickly see that those little amounts turn into significant amounts given enough time. Do I want the utility company or grocery stores to get that money? Not really. At least in my mind it is worth the effort to restrict costs when it can be done.
For the past two months my spending on food has been right at 400.00. I think this is too much to be spending on feeding myself. Would I notice a reduction in my quality of life by cutting my food budget? Not likely. I enjoy cooking and the more I cook at home the less I eat out. That is the culprit, eating out. I tend to eat out due to the convenience of it. Now that I am settling into the apartment I find myself cooking more and craving eating out less. If this trend continues it should be easy to reduce my food bill from 400.00 to 100.00. That is my goal going forward: 100.00 or less in food costs.
My apartment is a little under 800sf. It’s inhabited by me alone and there are few electronic gadgets sucking a lot of electricity. I was shocked to get my first bill for Jan. and see that it was 84.70. This doesn’t sound like much, but I can’t figure out why it is even this high. Where is the usage coming from? I keep my thermostat around 64 so the heat is not always running. Besides the hot water heater, washer, dryer and refrigerator there is not much energy being used. There were 34 billing days last month and with this month only having 28 it should naturally be lower. I’m going to keep an eye on how many kw are being used daily. I would like to cut this down to 50.00 a month or less.
Update: After investigating this a bit further I believe the usage is coming from the furnace. I turned the heat off for 24hrs and the kw usage was 9kw in that time period. Last month the average per day usage was 24.7kw. That is a big difference.
What is the best way of reducing this expense? I could lower the thermostat even more. Turn it off. I have no problem adding layers of clothing when I’m at home. It seems to make more sense to regulate the loss of body heat versus trying to increase the heat of the space surrounding that body. I could also reduce the duration of my showers. If you guys have any suggestions let me know, I would love to hear them.
My transportation costs are comprised of two vehicles: a truck and motorcycle. Although there is no loan associated with either one of these there are still costs associated with owning them. Consider the following:
- Storage (motorcycle)
Owning one motorized form of transportation is a luxury, but having two seems to border on extravagance. Considering I went without a vehicle overseas, why do I feel like I need one here? Part of it was because in Saudi I was responsible for getting rid of a vehicle before I could leave. I didn’t like that kind of commitment to a possession. The other reason is that by living in a company sponsored community everything was in walking distance. I walked to the gym, work, movies, library, pool, and groceries. To do that here I would need to plan my residence in relationship to where I work much better than I currently have. Housing is an expense to be dealt with in 2014 and its proximity to work will certainly be taken into consideration.
The motorcycle is a pure luxury and is held for no other reason than the fact I love riding. The question is how can I reduce the cost associated with holding both of these modes of transportation? I’m still estimating what the holding cost for these two vehicles is, but so far here is the breakdown of the above items:
My first approach will be attempting to reduce each of these items. The next phase will be the serious consideration of going to the motorcycle full-time. That is a big step and one I need to think about quite a bit more before I jump into it. Besides getting rid of the truck entirely I see these being other options that might be worth looking into:
- Selling the truck and getting something more fuel-efficient
- Moving closer to work cutting fuel costs
- Planning my driving more carefully
All of these would reduce the biggest holding cost of all which is fuel consumption. I will also be looking at insurance and shopping around for better price.
Early in the article I talked about how small amounts can add up to big amounts over time. I think for myself I’ve always been guilty of justifying my emotional wants with the phrase, “It’s not that much, what is the big deal?” For me it’s useful to see what a change in behavior could save me in spending and what kind of return I would see over the course of twelve years. The expenses I’ve discussed in the post will still be with me in twelve years so it’s helpful for me to see what not changing would cost me over a period of time. Why twelve years? That is when I hope to be retried or at least semi-retired, at the age of 50.
Her are the assumptions:
- I’m successful at cutting 300.00 off the food expense
- I’m successful at cutting 44.00 off the electric expense
- I’m successful at cutting 185.00 off transportation costs
- I save this money each month
- A consistent 6% yearly return over twelve years is achievable
Wow!! This is amazing to me! How can such seemingly small cuts add up to such large amounts? The answer can be found in the power of consistent savings and compounding. Saving 113k by cutting three expenses; what happens next year when I reduce the housing expense? What about other areas that I have not even mentioned? Looking at the cumulative impact of behaviors that cost money is extremely motivating to make changes. None of the reductions I mentioned above taken individually seems to be that much, but taken together and infused with the power of compounding you can easily see what kind of difference is possible.
This is my goal for the remainder of the year. I’m using January as my starting month to compare expenses to and will provide an update at the end of first quarter. Wish me luck!
If you guys have any suggestions on ways of cutting the expense above that I have not mentioned please don’t hesitate to share. I’m always open to new direction.