By Daisy Luther
Lots of financial experts give tips about reducing your discretionary spending but what about those fixed expenses? You can free up some large sums of money by reducing your monthly output.
Most of us have a set of fixed expenses. Some of these are vital, some are not, and what is vital for me might not be important for you.
What fixed payments come out of your bank account every month?
- Home Insurance
- Car payment
- Car insurance
- Gym membership/Exercise classes
- Loan payments
- Cell phone bill/Home phone bill
- Child support/alimony payments
- Extracurricular activities for the kids
Some of these, you can’t do anything about. However, some of these payments can be reduced or gotten rid of altogether.
The real question is, if your financial circumstances changed dramatically, could you afford your current lifestyle? If the answer to that question is “No” then you need to figure out how to reduce your regular monthly output.
Keep in mind that what works for my family may not work for your family. It will depend whether your spouse is on board, how dire your situation is, and with how much importance you weigh your frugality makeover what you opt to change. Some of these measures would be drastic, and others would only cause a minor change in your lifestyle. Some are expenses you probably should not cut. Let’s take a look at each of these expenses individually and ask some important questions.
- Mortgage/Rent This is often the biggest expenditure that many families make each month. When you buy a house, realtors will nearly always show you homes at the top of your price range. When you are looking for rentals, most people search at the high end of their budgets. That’s fine in good times, but if things go awry, you’re stuck at that same level because banks and landlords don’t care that you lost your job or took a financial hit. Sometimes moving to a less expensive place is your only option if you wish to make big financial changes. This can free up as much as a thousand dollars a month for some families. Moving is expensive, though, and you have to figure that in to the potential savings. If you are only going to save, let’s say, $50 a month by moving, it will be more than a year before you recoup your expenses, and that is going to do little to change your overall outlook. If you are moving to drop your expenses, it needs to be a substantial monthly savings to make it worthwhile. If you own your home, consider refinancing at a better interest rate.
- Home/Car Insurance You have to have insurance so this is not an expense that you can cut out of your budget altogether. However, you can shop around for better prices. You can look into changing your coverage. Do you have duplications in coverage? For example, my insurance company offers roadside assistance for about $40 per year, but my vehicle came with 3 years of free roadside assistance. You can drop your rate further by increasing your deductible, but if you do that, be sure you have access to the deductible amount should an accident occur. If you have several cars in your family, you might not need to have rental car coverage on your policy.
- Car Payment As with a home payment, most people push the envelope and get the nicest vehicle that they can afford. What you drive is a status symbol in North America, and practicality doesn’t always come into the decisions. The best option is to get something that you can afford to pay for in full so that you don’t have a payment. Consider trading in the vehicle you are making payments on for one that you can pay for outright or make payments on for a short period of time. But if you made the decision in less frugal days, you might be what car dealers call “upside down” in your financing. That means that you owe more on your vehicle than it is worth. If that is the case, then you will basically have to pay someone to take it off your hands and that is not always worth your while. If you find yourself in that situation, the best thing you can do is use some of your freed up money to pay off your loan as quickly as possible. At least then, the bank gets less interest from you. If you have more than one vehicle, is it possible to become a one-car family? This will drop your automotive maintenance costs, get rid of an insurance payment, and take away a monthly payment if both vehicles are being financed. If one of your vehicles is paid for, consider getting rid of the one that is being financed.
- Cable/Satellite/Internet This is an area in which cuts can almost always be made. We don’t have cable or satellite, but we do have the best internet available. In our home internet is vital for my job and also for my daughter’s school. Since we have internet, if we have the urge to watch something we can stream it for free online. For your entertainment needs consider something like Netflix. It’s a fraction of the price of a monthly cable or satellite bill and you can choose what you want to watch commercial-free at any point in time, not just when it’s on network television. You have the added bonus of avoiding those pesky commercials too. Expect an outcry if you get rid of these services, but also know that your family will get used to it quickly. Trust me, they’ll live.
- Gym membership/Exercise Classes Being healthy is a top priority if you want to live a frugal lifestyle, but that doesn’t mean you have to spend high monthly fees to do so. You can kill two birds with one stone by coming up with some productive active things to do: chop wood, build, garden or farm. If you live in a place where it’s reasonable to do so, walk instead of driving – you’ll get some exercise and save gas money and wear and tear on your vehicle.
- Loan Payments Look at paying off your debts as quickly as possible using the snowball method. Instead of just making your regular monthly payment, take the smallest debt and pay it off as fast as you can while still making your minimum payment on other debts. Once the smallest payment is paid off, take what you were paying on that and apply it to the next smallest debt, and on and on until you are beautifully debt-free! Then, once you have no debt, commit yourself to staying that way.
- Phone Bills Most people do not need both a home phone and a cell phone. One or the other will nearly always suffice. I actually don’t have either one. I use internet phone service which costs $2.99 per month for the odd telephone call I have to make and email for everything else. It takes some getting used to but you might find that you welcome the peace of people being unable to interrupt you just as you sit down to dinner. You can free up a lot of money each month by getting rid of the phone, but expect people to look at you strangely when they ask for your number and you say, “I don’t have one.”
- Child Support/Alimony Payments There really isn’t a lot you can do about this kind of monthly expense. (And in many cases, they should not be cut.) These numbers are set by the courts and you will go to jail or have assets seized if you don’t make them. As a single mom, I can tell you that there were times when we depended on child support payments to buy our groceries, so the argument can be made that if you have children, it’s your responsibility to make these payments.
- Tuition If your child is in college or a private school, tuition payments are a fixed expense that you can’t really do much to reduce. You can apply for scholarships, but aside from this, the price is the price. You don’t want your child to start off adult life in debt if you can help it, so if you can find a way to make these payments instead of using student loans, you are giving your son or daughter the biggest possible gift: financial freedom.
- Extracurricular Activities for the Kids This one really depends on your family. If your child is just killing time, then the extracurriculars may not be of high importance. On the other hand, if they are a talented athlete or budding musician, you may find this is a very worthwhile expenditure. Some families who homeschool look to extracurricular activities as a way for their kids to socialize with their peers, and that is also very important. If the activity is not a serious pursuit, sometimes it can be replaced with lower cost activities through the local community center or YMCA. Some children are really over-programmed, with an evening activity every day of the week and two on weekends. Kids need downtime and the freedom to just go outside, climb a tree, and look at the clouds floating by.
It’s far better to make these changes before you’re forced to do so by circumstances. If you can reduce your fixed monthly expenditures, you’re less likely to default on things that are true necessities, like keeping a roof over your head and food in the cupboards. I would prefer to control the cuts myself rather than have the decisions made for me by foreclosures or repossessions.
Have you made any dramatic changes to your fixed expenses? What advice can you give to people who are just beginning to make these changes? Please share your suggestions in the comments below.