Cutting expenses isn’t too hard if I’m doing it for the right reasons. Having the right reasons keeps me on track and makes me keep my eyes on the long term goal rather than focus on the short term deprivation I feel at the time. Having a deliberate approach to spending will (I hope) pave the way to my family’s financial freedom, prosperity, and security. In particular, setting aside money will help me:
1. Simplify my life: Having fewer bills to sort through and pay each month has become one of the major benefits of cutting back on my household and other routine expenses. It has reduced some of the stress I felt with staying on top of too many financial obligations and drastically simplified my life. It has provided peace of mind from knowing things are under control. We used to have half a dozen credit cards, a mortgage, 4 student loans, two car payments, two cell phone bills, insurance payments, dentist bills, hospital bills, gym payments, book clubs payments, private school payments, aaarrrrrrggghhhhh! Trying to keep up with all this was almost impossible. At least every 6 to 8 weeks, something would fall through the cracks and we would be hit with late charges, fees, or bounced check fees.
2. Pay off debt: The amount of consumer debt I used to have was ridiculous. Being shackled with high-interest credit card debt caused me to have a complicated life. Other people today have failed to build up substantial equity in their homes and are finding themselves upside down (owing more than the home is worth) as a result. When I started spending less on everyday items I was able to free up cash to pay down my car loans, my credit card balances, and so many other debts that kept me from getting ahead financially. I cannot explain the joy it gives me to pay off a debt.
3. Build up emergency fund: By carefully examining my purchases and cutting expenses, I was finally able to have additional funds to stash away for those inevitable rainy days. I remember when the upstairs heater went out in our first home. It cost several thousand dollars to replace and I just didn’t have it. In desperation, we were able to get the gas company to finance it. At 18% interest, they were more than happy to help! I didn’t learn my lesson though, the downstairs heater went out the next year! Now that I have a healthy emergency fund, I can take care of emergency expenses that pop up without paying a huge interest rate.
4. Make my money count: Finding ways to cut expenses isn’t about deprivation. Even mild frugality or snowflaking, here and there can add up to a large amount that’s available to spend on something larger or more important, such as a home remodel or a child’s college education fund. It all boils down to priorities and your time consciousness. Once I realized that I had to think longer term about the impact of my financial decisions, I was able to eliminate expenses that didn’t help me reach my goals.
5. Save for retirement: It doesn’t look like a distant relative will come through with a million dollar estate and with the uncertainty of Social Security, I’ll have to fend for myself with disciplined contributions to my individual retirement accounts. In the face of expensive housing, rising health care expenses, and other costs I anticipate during retirement, economical everyday spending is helping me build my nest egg. When I consider that I probably won’t be able to withdraw more than 3-4% of my total retirement savings without running out, the amount of money I’ll need can be staggering. If I anticipate needing $50,000 per year to live the retirement life I wish, I’ll need between $1.25 and $1.67 million dollars, not accounting for inflation. If you account for inflation, the number balloons to almost $3 million. No matter how you figure it, saving money by cutting expenses is simply sending money to myself in the future.
Cutting expenses isn’t all that hard, well, it is a little hard if you have teenage daughters, but it can be done! The key is to keep your goals in the forefront of your mind and make them important to you.
[tags]money, financial, reasons, retirement, spending, pay[/tags]