Like a good Financial Slacker, you are diligently tracking your expenses with Personal Capital. But even so, you don’t seem to be saving much money. Maybe that’s because you are focused on the wrong things. Save thousands more by focusing on the right things.
While it’s easy to see savings opportunities in all those small expense categories, you can’t ignore the big-ticket expense items. At first glance, those smaller expenses look like low-hanging fruit because they are easier to reduce and require very little behavioral change. The problem is that no matter how much you reduce the smaller expense items, if the large expenses are too big, you cannot make up the difference.
Instead, start a systematic approach of evaluating what’s important to you, prioritizing your spending choices, and having a willingness to make hard choices. It’s not an easy process, but the rewards are worth it – saving thousands of dollars per year, financial independence, early retirement, higher quality of life.
Ignore Big-Ticket Expenses to Your Own Detriment
When it comes to personal finance, many find themselves getting bogged down in the details and losing track of the big picture. This is especially the case with expenses. It’s easier to cut small expenses than to cut larger ones. Giving up going out to eat once a month is much easier than moving to a smaller house with a smaller mortgage. As a result, most people ignore trying to reduce the larger expenses and instead focus on the smaller ones.
The problem is that while those small expenses certainly can add up and become a problem, only cutting back the small expenses without also focusing on the large expenses won’t get you where you need to be.
I am not suggesting that you forget all those frugal spending habits you’ve been developing over the years. If you regularly spend $7 for morning coffee, another $12 at lunch, and $20 at dinner, you probably have a spending problem. And while that’s bad, if that’s the biggest of your financial problems, then you’re probably in pretty good shape. So while you’re busy cutting back on your small expense item spending, if you want to save thousands more, don’t neglect the big-ticket items.
The Elephant in the Room
When we’re talking about big-ticket expenses, what we’re referring to are those that really have an impact on your ability to save and reach financial independence. If you have big expense items such as a large mortgage, luxury car payments, private school tuition, a country club membership, and an annual vacation budget larger than the salary from your first job, you will have trouble reaching financial independence.
For many, these relatively fixed expenses can easily consume more than 50%, 60%, or 70% of their spending budget. And changing your pattern of only going out to eat once per week might make you feel good, but it’s not going to help offset the big-ticket items where you really spend your money.
But it’s hard to talk about reducing these big expenses, because unlike changing smaller expenses which may only require a behavior modification, changing big expenses will require a lifestyle modification. Are you ready, willing, and able to make that change?
Reduce Your Big Expenses and Save Thousands More
There is only so much time in the day. And we only have so much willpower. So just like any other resource, your time and willpower must be managed and allocated efficiently. Cutting small expenses may feel productive, but to get the most bang for your buck, you need to cut the big-ticket items.
Take the following steps to get started managing those large expenses:
Evaluation of what’s important. Like any analysis, start with a plan. Decide what is important to you. It doesn’t matter if it’s important to someone else or if you read about it here or anywhere else. What matters is what’s important to you. Without an honest assessment, you will never be able to do what comes next.
Prioritization. Once you have evaluated what’s important to you, start prioritizing. When it comes to spending, it’s less important what you buy than how much you spend. If you like cars, buy a nice car. But realize that if you are spending money on a car, you may need to cut back on your housing costs. The real key is realizing there are trade-offs. Take in one area and give in another.
Willingness to make hard choices. This is the tough part and why it’s easier to save money by cutting small expenses. Changing homes, selling your car, cutting out the luxury vacations takes willpower. But realize, if you save the money today, you can reap greater benefits tomorrow. Start building your delayed gratification muscles. Once you get them in shape, it will get easier. But that first time you decide to downsize, you will feel the hurt.
Perfectionism is a polite way of saying procrastination. No matter what you do, there is probably a better way to do it. Depressing? It shouldn’t be because there is probably also a worse way to do it. Perfect is not a realistic goal. Instead of seeking perfection (in which case you will never get started or you will be disappointed), do as best as you can and keep making things better. How many technology products launch with glitches and bugs? Most of them. Hopefully, the glitches and bugs don’t prevent the products from actually being used, but by launching and getting something out there quickly, you know whether what you have is worth additional effort.
Activity drives more activity. When you find yourself spinning your wheels. Or you are listening to the voice in your head too much. Stop listening and start acting. It’s called behavioral activation. And the simple explanation is that by doing something positive, by taking a step forward, your perspective changes, and that will lead to more actions. To get started, you must overcome the initial resistance and once you are moving, it’s easier to keep going.
Following through on these steps will move you from feel-good saving to hard-core saving. And not only will you save thousands more, you will come out of the process with a greater appreciation for what’s important in your life and what’s not. That should help guide future purchase decisions.
Readers, where does your money go? Could you save thousands more by focusing on your big-ticket expenses?