Posts Tagged ‘spending reduction’

You’re not alone

Tuesday, June 30th, 2009

Anyone might conclude that they are alone in drastically reigning in spending this year, but the truth is talking about one’s personal finances is not always socially acceptable. Fortunately, economic data on consumer behavior tells all. The U.S. Commerce Department recently released data showing the although consumer spending rose .3% in May, incomes jumped 1.4%. More striking was the savings rate, which, at almost zero for parts of 2008, reached 6.9% — the highest since 1993.

For the sake of financial health, saving money is half of the battle. The next step should be setting up a financial plan, prioritizing debt amounts for aggressive paydown, and deciding on an appropriate amount for emergency funding.

What steps are you taking to cutting spending? How will you plan to use your funds saved?

Raj Patel writes for DebtGoal.com, a do-it-yourself system for getting out of debt and lowering your interest costs.  DebtGoal.com incorporates all of the techniques discussed in this post and can help users understand and get visibility to and manage their debt finances.

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Cutting Back on Discretionary Spending

Sunday, March 1st, 2009

Each of us makes choices every day about how we allocate our money and most of us chose to spend a portion on discretionary categories like morning coffee or going to a movie. The US Bureau of Labor Statistics estimates that we spend approximately 17% of our after-tax income on such purchases.

Based on government statistics, here how discretionary spending breaks out by category for various income bands. You can use this information to benchmark yourself against others in your income bracket and identify areas where you may be able to reduce expenses.

Average Household Lowest 20% Second 20% Third 20% Fourth 20% Highest 20%
Number of consumer units (in thousands) 118,843 23,738 23,773 23,765 23,770 23,796
Annual income before taxes 60,533 9,974 26,657 44,933 70,975 149,963
Annual income after taxes 58,101 9,969 26,346 43,799 68,497 141,738
Discretionary Spending Categories
Food away from home 2,694 1,055 1,660 2,404 3,292 5,058
Alcoholic beverages 497 213 294 474 534 971
Apparel and services 1,874 845 1,193 1,680 2,101 3,548
Entertainment 2,376 879 1,271 1,898 2,720 5,105
Personal care products and services 585 262 385 513 713 1,050
Reading 117 51 73 98 131 232
Education 888 505 295 477 879 2,281
Tobacco products and smoking supplies 327 266 345 367 374 282
Miscellaneous 846 454 510 674 939 1,652
Total 10,204 4,530 6,026 8,585 11,683 20,179
Percent of After-Tax Income
Food away from home 4.6% 10.6% 6.3% 5.5% 4.8% 3.6%
Alcoholic beverages 0.9% 2.1% 1.1% 1.1% 0.8% 0.7%
Apparel and services 3.2% 8.5% 4.5% 3.8% 3.1% 2.5%
Entertainment 4.1% 8.8% 4.8% 4.3% 4.0% 3.6%
Personal care products and services 1.0% 2.6% 1.5% 1.2% 1.0% 0.7%
Reading 0.2% 0.5% 0.3% 0.2% 0.2% 0.2%
Education 1.5% 5.1% 1.1% 1.1% 1.3% 1.6%
Tobacco products and smoking supplies 0.6% 2.7% 1.3% 0.8% 0.5% 0.2%
Miscellaneous 1.5% 4.6% 1.9% 1.5% 1.4% 1.2%
Total 17.6% 45.4% 22.9% 19.6% 17.1% 14.2%

Source: 2006 BLS Consumer Expenditure Survey

Since this is a large portion of spending, it’s easy for personal finance authors to recommend this as an easy category to cut, but it’s not always so easy. For some people, discretionary spending is so tight there’s not much to cut. And for most of us, discretionary spending is closely associated with the activities that add color and fun to our lives.

We recommend that you take a realistic approach to your discretionary spending. Rather than trying to eliminate all of it, try to make focus on the activities that truly matter to you while reducing those that don’t. For example, if you enjoy movies with your spouse, can you eat at home before the movie rather than doing movie and dinner? Can you reduce fast food convenience dining while keeping date night at a nicer restaurant? The trick is not to eliminate all spending, but to make your spending count.

The 2006 Consumer Expenditure Survey estimates that the median household with about $45K in pre-tax income spends about $8,500 per year in discretionary categories. Reducing this by 20-30% can free up $150-200 per month to apply to debt.

Actions:

  1. Identify five categories of discretionary spending that you feel you could reduce. Here are a few to consider.
    1. Entertainment (movies, concerts, magazine subscriptions, books, video rental)
    2. Clothing and apparel
    3. Dining (convenience meals, work lunch, morning coffee)
    4. Other (alcohol, tobacco, etc.)
    5. Personal case (hair styling, manicure, etc.)
  2. Estimate your current monthly spending in these categories
  3. Determine a realistic reduction for these categories and calculate a monthly total that you can save. Keep this realistic-you won’t be able to keep a promise to reduce all discretionary spending, so start small with some goals that you can achieve.
  4. Take a few minutes to write out your goal and think about how you will monitor it to make sure that you’re staying with your plan. Post your goal in a place where it will remind and motivate you.

When you have identified an amount that you feel comfortable that you can save each month, increase to your DebtGoal Monthly Commitment that you will apply to debt.

DebtGoal.com can help you create and track to a personal debt reduction plan.

Scott Crawford is CEO of DebtGoal.com, a do-it-yourself system for getting out of debt and lowering your interest costs. DebtGoal.com incorporates all of the techniques discussed in this post and can help users understand and get visibility to and manage their debt finances.

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Dining out with Debt

Tuesday, January 20th, 2009

A classic budget-wrecker is the ubiquitous restaurant. This is so much the case that most tip lists for reducing cost-of-living expenses argue for drastically reducing and/or eliminating dining out. For someone debt-laden, this is excellent advice. However, even when minimizing trips, the occassional restaurant will be tough to avoid, in part because eating out is such a cornerstone of our social culture. When working to pay down debt, consider these strategies to limit the amount spent.

  • Look up the dining establishments’ menus on the Internet. If Googling the restaurant and location doesn’t produce results, check it out on a site like Yelp, which may have links to more information. To reduce the chance of getting hit with surprising charges and to identify budget-conscious items on the menu, this a no-stress way to reduce expenses before the split second that passes between seating and placing the order.
  • Skip appetizers, drinks, dessert, and coffee. If drinking, dessert, and/or coffee are important parts of your eating ritual, swing by a bar, ice cream stand, or coffeeshop afterwards. The prices will likely be cheaper than at the restaurant. Better yet, if you’re out with friends or significant others, take the party home. There you can laugh, play games, and consume things bought from the market.
  • Consider eating at a restaurant that serves larger entree portions and split a plate with someone else.
  • Decide before arriving at the restaurant on a personal spending limit for the trip. This will help you to keep tabs when ordering.
  • Simply dine out less. Each time you hit up a restaurant, it will feel more special.
  • Student spots. Eating at restaurants that cater to students typically have more options for those on a budget.
  • No small plates! Eateries that define their experience as “small plates” will cost too much for too little. This is because you typically need 2-3 “small plates” to become satisfied, and each plate may run from 40-120% of the cost of a typical entree elsewhere. Even at the lower end of the small plates universe, a regular or large plates restaurant may come out more budget-friendly when considering total dining satisfaction.
In short, it is possible to enjoy time out eating and still fulfill a budget. Regina Lewis provides additional tips on dining, including links to sites where, if you reserve a table ahead of time, you can reap significant savings on the total bill.                                                                                                                                                                                        
Raj Patel writes for DebtGoal.com, a do-it-yourself system for getting out of debt and lowering your interest costs.  DebtGoal.com incorporates all of the techniques discussed in this post and can help users understand and get visibility to and manage their debt finances.

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