How I spend my money
Earlier this month, I shared a new financial framework I've been developing, one that stresses earning, spending, and saving as the building blocks of personal finance. Last week, I elaborated by sharing how I make money. This week, I'm turning to the other half of the basic personal-finance equation: spending. Or, more precisely, the lack of it.
Instead of talking about theoretical ways to cut costs, I'm going to share the things that Kris and I do (or have done) in our own lives to put frugality and thrift into practice.
Though I could (and will) list some of the individual tactics I've used to reduce spending, they're less important than the broader strategies I've implemented. These strategies are the guiding principles that frame the way I look at spending. From them, I'm able to develop specific habits to help me pinch my pennies.
Here are a few of the strategies I've developed:
- I practice conscious spending. I write a lot about conscious spending, by which I mean the intentional decision to buy (or not buy) any given thing. I used to be a compulsive spender. I'd just buy whatever I wanted — often without reason. Mostly, I've mastered that. Now when I buy, I buy with purpose. (Or try to, anyhow.)
- I avoid recurring costs. A few years ago, I had subscriptions to three newspapers, a couple of on-line computer games, and a dozen magazines. I had a monthly phone bill, a cable bill, and a bill for the internet. I had hundreds of dollars in recurring costs each month. Gradually, I've cut these costs to the essentials. I've ditched the home phone and the cable television. I've canceled the computer games and most of the periodicals. I've learned to avoid subscription fees whenever possible.
- I try to be patient. It used to be that when I wanted something, I wanted it now. I'm still like this, really, but I've learned the power of patience. I use the 30-day rule to make sure I'm not buying on impulse. And if I really want something, I consider practicing predatory shopping — waiting for the bargains and extreme markdowns so I can save big bucks.
- I avoid the middle. Lately I've come to realize that “the middle” is where I used to waste a lot of money. Mid-quality and mid-priced stuff is often a poor deal. Instead, I try to buy at either end. If I know I'll use something often, I pay for top quality. (I still try to find it on sale, of course.) Otherwise, I try to buy used (or low-quality). One example is my wardrobe. I built much of it from inexpensive clothes found at local thrift stores. The rest of my clothes are more expensive, higher-quality items. (They key concept here? I'm getting great “cost per use” on the things I buy. When I bought from “the middle”, my cost per use was high.)
- I've reduced my exposure to advertising. Though listed last, this may be most important. Radio, television, newspapers, and magazines are all vehicles for marketing. They're there to persuade you to buy. When I was exposed to a steady diet of this stuff, I bought. I couldn't help it. (And neither can you. You, with no training, are no match for corporations who spend millions of dollars learning how to persuade people to buy.)
These are just five of the broader concepts I use to guide the way I spend. In turn, these broad strategies lead to individual tactics I use to practice frugality and thrift. And what are those tactics? Let's look at a few.
Sometimes people want to know if I follow my own advice. “Do you really do all the things you write about?” they ask. Well, I don't do all of them, but Kris and I try to do as many as possible. I've already mentioned the 30-day rule and “predatory shopping”. Here are some other tactics I use to keep costs low:
- I drive as little as possible. When the weather turns nice in Portland — which it will do eventually, right? — I bike or walk for errands. And I'm still trying to make the bus a part of my routine. Biking and walking don't just save me money; they also help me stay healthy. (I just wish we lived in a more walkable neighborhood.)
- We share with friends and neighbors. The real millionaire next door and I have a pretty good system going. I use his pruning ladder; he uses my greenhouse plastic. He fixes our flagpole; Kris bakes him cookies. He mows our lawn in spring; I mow his lawn in summer. And so on. But I do this sort of thing with other friends, too. By sharing tools and resources, only one of us has to own any particular item.
- When possible, I buy used. Not everything is available used. And sometimes I'm not patient enough to wait for what I want. But there are plenty of times that I'm able to find books and CDs and DVDs and clothes and furniture for cheap, either at the local thrift store or on Craigslist. For example, some of my best yard tools were bought for just a buck or two at estate sales.
- I don't watch television or listen to the radio. I don't say this to be “holier than thou”. It's a choice I've made. It gives me more free time, but it also means I'm exposed to fewer ads. (Kris and I do get shows via iTunes, but they're commercial-free.)
- We garden project, you know that Kris and I have berry plants, fruit trees, herbs, and a vegetable garden. You also know that Kris makes prize-winning pickles and preserves. We don't save a lot of money this way — but we do save some. Since we (especially Kris) enjoy this activity, it's also a hobby that gives us back something for our time and efforts.
- When it makes sense, we buy in bulk. There are some things we use all the time. If we can buy in bulk for less — and if the items won't spoil — we stock up. Kris also avoids buying a lot of pre-packaged ready-to-eat foods; buying the quality ingredients to make our meals from scratch is cheaper. To save time and effort, we sometime cook in bulk and freeze portions for later. Again, cooking and baking are a hobby here, so we don't mind the loss of convenience foods as we cut costs. (Plus we think our stuff is tastier!)
- We keep our furnace thermostat at 58 degrees. When I'm home during the winter, I bundle up. (Well, to be honest, I take a lot of hot baths too. But mostly I bundle up.) In the evening, we bump the temperature to 64 or 66. (We don't have air conditioning, so during the summer we simply open the windows and sweat on the really hot days.)
- We use a clothesline — when the weather co-operates. Kris rigged up an improvised clothesline one summer. Then we found a carousel line at an estate sale. (Which I carried home, walking two miles.) When it's warm, this saves us a few bucks per month on electricity. Plus it prolongs the lives of our clothes.
- We're gradually learning more about DIY home maintenance. I'm not afraid to call in an expert, but I'm also learning that there are some projects we can do ourselves. I have a feeling this summer will be full of them, actually. It's been a while since we focused on home maintenance.
- We cut services we don't use. It can be tempting to keep your landline or cable TV, even though you don't use them much. But I found that one of the best ways to improve my cash flow was to kill these services. I've never missed them.
- I self-insure whenever possible. I have high deductibles on our insurance policies, which lowers our premiums. Instead, I have extra money in my emergency fund to cover minor problems. I save the insurance for catastrophic needs. (This also means I don't buy extended warranties — except on laptop computers.)
These are just some of the things we do to keep our costs down. To be honest, I wish we did more. I feel like there are so many ways we could trim our spending. It's tough to keep them all in mind in day-to-day life, though. (Which is why it's so important to develop high-level strategies. It's easier to remember a handful of basic strategies than to remember dozens of individual tactics.)
By using these strategies and tactics, I've reduced my monthly operational expenses significantly, freeing money to be put into savings or used for other priorities. But I'm far from perfect. I still spend money on things that I shouldn't, and I still make mistakes.
I recently subscribed to The Economist, for instance. I love the magazine, and in theory, a subscription is a fine idea. Reality is different. I paid something like $120 for 52 weekly issues. That's a lot of money, and it hurt to write the check. It hurts even more to see that I'm not reading the issues as they arrive. They stack up next to my recliner. Once per month, I spent maybe ten minutes flipping through the stack before sticking the pile in the recycling bin. It's like recycling money. I'd be better off buying the occasional issue on the newsstand.
So, as I say, there are lots of little areas left for me to improve on. And that's fine. I've made a lot of progress, and I'm willing to be patient as I continue to master the art of spending.