Lesson 2 - Cost Cutting Ideas

Objective: Identify at least two realistic strategies to reduce flexible or regular spending.

Now that we’ve identified some spending leaks, we’ll talk about how to plug these leaks, as well as some other cost cutting tips so that can you develop strategies to reduce flexible or regular spending. Let’s look at some of the spending leaks we highlighted last lesson. 

The first spending leak we mentioned was sales. To help reduce spending leaks from sales, it’s important to ask yourself a set of critical questions. Are you buying this because it’s on sale, or because it’s something you had already planned on buying or something that fills a necessity? Does this purchase help you meet your goals? Can you afford to purchase this item, and still pay your bills and save for your high-priority goals? Lastly, if you bought this on-sale item, what would you have to forgo to make up for that purchase? 

With the payday syndrome, one possible approach is to avoid making any non-necessity purchases (so not including paying bills or buying toilet paper if you’re out) for the first 24 hours after you receive your paycheck. This way you can reflect on where this money really needs to go – towards your bills, paying down debt, or your savings goal, and if there’s still some extra money after that, you have some planned spending the next day! 

For overspending at the dollar/value store, one idea is to park at the far end of the store’s parking lot, leaving all of your credit and debit cards secured in your car and out of sight, and walk in with just a couple dollars more than you expect you’ll need for those needed items, or things you had planned to purchase. This way, once you’re presented with those impulse buys, you won’t be able to make those purchases while also buying what you need to purchase, unless you walk back outside, all the way to your car, which is now at the far end of the parking lot! 

The last spending leak we discussed was the impact of emotions. The biggest part of addressing this leak is to document how you feel emotionally, and if you see any trends, see if you can make a positive change. For instance, if you notice that you're spending more shopping online after a rough day, if you’re able to, it might be beneficial to avoid being on the internet until you’re feeling a little better.

The other way to reduce spending is to look at tips or strategies to reduce regular spending. This publication covers 20 ways to save at the grocery store – we’ll highlight just a handful of these now, but take a few minutes to look through this form. We'll also covers some additional ideas. For saving money at the grocery store, one big one is to avoid shopping hungry! Ever notice how much more tempting those donuts can look when you’re hungry? Do the best you can to grab a quick, healthy snack before shopping for food. Another important consideration is to pay attention to the unit price – the price per pound, per ounce, etc. Packaging can be deceiving, so be sure you’re getting a good value for the amount of food you’re actually buying. A general trend you’ll see in the 20 grocery tips – the more work you’re willing or able to put into your food, the cheaper it will be. In addition to cooking typically being cheaper than pre-made meals, things like block cheese will often be much cheaper than pre-sliced cheese, per ounce, and getting plain yogurt or oatmeal and flavoring it yourself, may be noticeably cheaper than flavored yogurt/oatmeal. Another area to save is with your proteins – most white meats will be cheaper, and healthier, than your red meats, but your beans and legumes will be even cheaper and even healthier…as long as you don’t add a bunch of bacon and brown sugar!

Moving on to utilities, if you want to lower that power bill, there are a number of things you can do. For one, avoid too much phantom load. What is “phantom load?” A number of devices you have in your house draw a considerable amount of power when they’re plugged in but not being used. What are some examples? Cell phone chargers are often a major culprit, particularly if you leave your cell phone plugged into your charger when it’s already fully charged. Other devices with standby power can have an impact as well – such as computers, laptops, TVs, DVDs, cable boxes, stereo systems, video game systems, DVR, speakers, coffee makers, and microwaves. The average home has around 20 of these devices, and that can account for as much as $500 or more per year in standby power! If the idea of going around your home and unplugging all of these devices seems a little exhausting, you may notice that many of these devices are close to each other, near the TV, in the kitchen, or in your bedroom. You can set up a power strip in these locations, and when you’re not using any of these devices, simply turn off the power strip to prevent this empty draw! Also, during the warmer months, setting the thermometer on your air conditioning just a few degrees higher and using fans instead can save quite a bit of money with lower energy usage. Lastly, if you haven’t already, consider switching over to CFL bulbs. While they are more expensive initially, the can last up to 10 times longer, use about 75% less energy than incandescent bulbs, leading to close to $45 in energy savings over the life of the bulb! 

A couple somewhat unknown financial tips involve the impact of your driving on your wallet, and the impact of your diet on your medical expenses. Even if you never get in an accident or receive a speeding ticket, your driving can still have a substantial impact on your wallet. EPA studies show that your car requires considerably more fuel when you accelerate heavily, and the Department of Energy states, as a rule of thumb, for driving on the interstate, you can assume each 5 mph you drive over 60 mph is about the same as paying an additional $0.21 per gallon for gas, assuming gas costs about $3.00/gallon. Driving conservatively and safely will help prevent speeding tickets and accidents, will mean fewer trips to the gas station, and help keep you and those around you safe. Also, eating healthy may have a financial benefit as well. You may think that the fast food dollar/value menu may be saving you money, but if it leads to obesity, it may cost you in the end. A CDC study from 2006 showed that, on average, an obese adult spends nearly $1,500 more per year in medical expenses, than someone at a healthy weight.

Example

We’ll continue with the example client learner from the previous lesson. One of the spending triggers they admitted was their habit of spending more on Friday paydays. To address this, they took the suggestion of avoiding non-necessity spending for 24 hours upon receiving a paycheck. After tracking their expenses, they also found that they overspent on impulse buys at the dollar store, and had issues with emotional spending on stressful workdays. To address the former, this individual began locking their debit card in the car when shopping, and just bringing in enough cash, and avoiding shopping after stressful days at work, if possible. Lastly, this learner was unaware of the impact of phantom load, and began making a conscious effort to unplug these devices when unused.

Assignment

Identify at least two strategies to reduce regular spending and/or plug spending leaks. These strategies must be realistic applicable to your own personal financial situation, and you may be asked to actually apply these specific strategies you've identified in future lessons.

Complete this assignment in Microsoft Word - if you do not have access to Microsoft Word, contact your course facilitator. Once you've completed the assignment, email the Word document with the assignment to your course facilitator, who will provide feedback via email.