How do I manage my expenses?

This page was last updated on March 22, 1999.

Exercising effective control over your living expenses greatly enhances the likelihood you'll be able to Retire Early. Often, being frugal doesn't mean doing without. It just means buying the things you normally buy more efficiently. Instead of buying that VCR today, why not wait until it's on sale next week. Plan ahead and buy all your groceries at the supermarket instead of going to 7-Eleven several times a week and getting the shaft. Retire Early's list of the six best money saving ideas should give you something to think about.

1) Do you really need a house? Buying a home is the largest investment most people make. Conventional wisdom tells folks to buy a home as soon as they've saved money for the down payment. The logic here is to build equity and avoid "wasting money" on rent. Some "experts" even advised buying the largest, most expensive home a family could afford. All the better to "cash in" as real estate prices increased year after year.

This strategy might have worked during the '70's and early '80's when inflation was high, but it's not necessarily true today. In most parts of the country today a home isn't an investment - it's a consumer purchase just like a stove or a blender.

The smart thing to do is to consider the smallest, least expensive home that will meet your needs and then save and invest the balance of the funds you would have otherwise spent on housing. You should also carefully analyze the question. If you're in a low tax bracket, the widely publicized "tax advantages of home ownership" really don't amount to much. Renting may also make sense for families with young children who are forced to live in affluent neighborhoods in search of good schools. Instead of buying a $500,000 house in Greenwich, CT with $4000 to $5,000 in monthly expenses maybe a $1,500/mo. apartment in the same town will do. Your kid gets to attend the same schools in either case. (Important Note: Surprisingly, it's easier to become affluent if you don't live in an affluent neighborhood.)

2) Why not consider a used car? A recent study commissioned by financial planner Jonathan Pond revealed that you could save over $300,000 in a working lifetime (40 years) by purchasing a new car once every 10 years instead of trading in every 3 years. That kind of serious money would allow the average American to retire 5 years earlier. Better yet, why not pay cash for a used car and really save. (Note: Obsessively frugal readers might want to consider sleeping in a used car to escape the high cost of a home or apartment. You know what "they" say, "You can sleep in your car, but you can't drive your house.")

3) Save like a celebrity. A recent article in a March 1997 issue of the supermarket tabloid The Globe detailed NBC television anchor Katie Couric's frugal ways. My favorite was an insiders account of when Martha Stewart cooked a ham on the Today show and Ms. Couric insisted on taking it home after the show. Reports indicate it lasted three days. I wonder if it was any good?

4) Is Kellogg's giving you the shaft? There's a wide difference in price between name brand cereal and the generic store brands. For instance, where I shop an 18 oz. box of Kellogg's Corn Flakes is $2.49, while the store brand is $1.38. There's the same ten cents worth of cereal in both boxes.

I know, you say "my kids will never eat the generic stuff." Here's a solution. Buy a generic box and remove the plastic air tight bag containing the generic cereal and place it in the cardboard outer box the name brand cereal comes in. The kids will never know the difference since it tastes the same. "Snap, crackel, pop!"

5) Let's not do lunch. If you bring your lunch to work instead of eating out it might save you about $5.00. Let's say you do this one day per week, that $260 saved in a year. If you invested the money at 10% over a 40 year career, you'd have over $115,000 at the end of that period. Small savings really add up - it's the miracle of compound interest.

6) Coffee, too? What if you decide to skip the $3.00 cup of Starbucks Coffee and instead make your own at home before you leave the house for work? Using the same investment assumptions in our lunch example above, that's a $15.00 per week savings that could grow to $350,000 over 40 years. This gives new meaning to the "rich aroma" of instant coffee.

Related Web Sites with useful information.

New Road Map Foundation - An interview with Joe Dominguez and Vicki Robin, founders of the New Road Map Foundation. Their book (Your Money or Your Life, Penguin Books, 1992) offers many suggestions on saving money and simplifying your life. Its probably available at your local bookstore.

How to Change Our Spending Habits, by Patricia Horn - More ideas on saving money and changing your lifestyle.

The National Center for Financial Education - NCFE Spending Profile - how to get control of your expenses.

The Frugal Corner Lots of links, including the frugal tip of the week.

The Dollar Stretcher A weekly column on family finances, by Gary Foreman.

The Center for Financial Well-Being, by Grady Cash. Healthy Finances = Better Health and Productivity and other folksy aphorisms. A very comphrehensive site on all things healthy and financial.

The Link Connection - Personal Finance Links to various financial planning and investment sites.

Center for Debt Management Start here if you are carrying a lot of credit card debt.