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Friday, 5 August 2016

Pruning Your Budget

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Money doesn't grow on trees. 
About once a year I sit down with my budget and we have a good chat. She doesn't say much1, and I do most of the talking, but it usually ends up with both of us leaving a lot happier than we came in (her because she lost some weight, and me because I know I am on top of my expenses).

In a previous post, I discussed how I set up my monthly budget. I received a few emails from people who used this to identify where their money is going. This is fantastic! But now it is time to take the next step...

Next up, we dominate our expenses and show them whose boss! You see, despite our best intentions, every now and then some sneaky costs slip past us (like a Gupta plane at Waterkloof Air Force Base) and catch us off guard . So what I like to do every now and then is get out my hedge budget trimmer and start pruning!

Set aside an hour or so, arm yourself with two important questions, and then pull out your budget. Here's how I do it.

Question 1 - Do I need this?

Basically I list all my expenses one by one and then ask a very simple question – do I need this expense? I take a step back, think long and hard, and answer honestly. Now obviously things like my bond repayment might be a good idea to keep paying, but consider for example a gym contract, cellphone insurance, or dare I say DSTV? For each item I ask - do I really need that?

Consider if you are even using the expense in question - for example do you even read the magazine's that you have subscribed to? Do you visit the gym or have you long forgotten about that?

Also consider what your life would be like without that expense. What would you do if you had no DSTV? Maybe you would watch more YouTube? Maybe you would visit a friend to watch the big game? If you cancelled your cellphone insurance and your phone got stolen, would it be a total disaster? Do you have a spare phone you could use?

These days I generally don't have too many of these types of expenses left, but when I first did this exercise I was very surprised how many “easy wins” I ended up with.

Question 2 - Is there a better/cheaper alternative?

Once I am done with that part, I start at the top of my expense list again, but this time I ask – is there a cheaper alternative? Or can a competitor offer the same at a better price?

For example I find the car insurance industry to be an awe inspiring place full of miracles and wonder. On one occasion I phoned my car insurance company (back in the days when I owned a car) to find out why they had increased my premium - especially considering my car was depreciating. Of course I got the usual labour prices have gone up and inflation blah blah blah. I then inquire if there is any way they could leave it at the same price, and they of course respond unfortunately they really cannot and they will have to increase my premium. I then phoned around for quotes from one or two other insurance companies - and here is where the miracle starts to unravel before my eyes. Once my original insurance company finds out I am moving over to someone else, they can miraculously not only lower my premium, but even beat the other quote! (As a side note I moved my insurance anyways - as a matter of principle I gave them a fair chance to give me a good price, they refused, and now they expect me to stay with them just because they can undercut someone else by R5/month? )

Spot the difference...
Something else I don't understand - coloured bank cards. Are some accounts really twice as good just because you pay double the price? I had to laugh when I saw my "Bronze" coloured card looked exactly the same as the equivalent "Gold" coloured card at around half the price with pretty much the same benefits - so if you want status at a good price, then Bronze is the way to go! Of course if you can justify your more expensive account (based on more than just the colour of the card ) then sure - but at least ask the question. Banks like to stroke our egos - "Well done Sir, you earn enough to qualify for our Gold account". Of course they don't say - "You now get to pay us a higher fee for the same services as our Bronze account".

Back to the gym – consider that for the monthly price you pay you could probably add a new barbell/dumbbell to your home gym every month for a few months? And then once your set is complete you never have to pay again. Or even better (excuse my runners bias coming in) jogging is pretty much totally free, accessible to everyone and the benefits are amazing - as Mrs Stealthy Wealth says, it looks like she doesn't feed me :)

Making the Changes

Identifying the changes that need to be made is only one half of the battle - and in fact it is the easier half. Now it is time to knuckle down and implement the changes.

I can appreciate it can be overwhelming attempting to change everything all at once (especially things like moving insurance, or changing banks), but tackle them one at a time. I would normally allocate a few minutes every week to getting something done. And I set myself some goals - for example I declare August 2016 car insurance month - by the end of the month I want to have my car insurance moved over to a better value for money option. In this way I eventually get round to all the changes, and I always find it to be worth the effort!

Also bear in mind that the first time you do this exercise, it takes some time. But each subsequent visit to my budget and follow up actions become easier and faster as I eliminate the unnecessary and optimise the necessary. These days it only takes me a couple of minutes each year to stay on top of my expenses and make any adjustments.

So that is how I try stay on top of my expenses and keep them as low as possible. I would love to hear your thoughts on this or any other tips and tricks you may have!

*Update - for an alternative cost cutting strategy, check out A Better Way Of Cutting Costs



Till next time, Stay Stealthy!

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1 A budget generally involves a lot of money leaving your account and therefore must be female :-P