Expenditure

Reducing Expenditure or Spending Less

How You Can Spend Less

How much money you have in your bank account today is determined by the amount that goes in, and you guessed it, by the amount that goes out. Through a combination of capitalism, consumerism, marketing, greed and envy we seem to be really good at getting into debt. By simply reducing the amount that you consume or spend, you will reduce the required income that you will need to generate to support your consumption.

Most websites and gurus primarily focus on income and profit, but often neglect or overlook the equally important part of the equation… expenditure and spending as simplified in the equation below;

Net Position = Income – Expenditure

If we look at Australia as an example, the median gross household income is currently $80,000 and the average household spends $25,000 on living expenses per year. However the ratio of household debt to income is currently 212% with the average Australian household on average owing $250,000. When examining this debt, 92% is considered ‘good debt’ (home loans and investments) and 8% considered ‘bad debt’ (credit cards). So to go back to our simplistic equation and use simplified numbers in our example; Household income is $63,000 ($80,000 after tax), and expenditure is calculated by adding debt repayments ($25,000) and living expenses ($25,000) to give a final Net Position of $13,000. Whilst this example is extremely simplified it illustrates that after your household has paid all its bills you will only have approximately $250 per week to spend on ‘luxury items’. It is no wonder that credit card debt is increasing at an alarming rate in Australia.

passive income business

Like all households across the world, Australian’s like to buy nice things and go on holidays and so are always conducting a weekly monetary juggling act. So, in order to get ahead, individuals try to get a better paying job, but inevitably buy more nice things and go on more extravagant holidays and you are now on the debt roller coaster with most of the people in the street.

So, if you would like to get off the debt roller coaster (or even better not get on), then your first step is to sit down and work out your household budget. There are a number of templates that you can utilise online and these will help prompt you to items that you regularly purchase and your regular insurance, loan and credit card payments. It is important to include all your spending in this budget including entertainment (movies) so that is as accurate as possible.

passive income ideas

Once you have worked out your monthly budget, then subtract your monthly household income from this number. This will likely give you a bit of a shock but will encourage you to start seriously exploring passive residual income ideas and start thinking about your household’s future.

There are number of ways to spend less and the first place to start is by looking at the highest costing items in your budget and how you can either eliminate or reduce these costs. Another thing to consider in the future when thinking about purchasing new items are functionality test questions;

  • Will I use this item regularly (at least weekly but ideally daily)?
  • Could I utilise something that I already own instead of buying this product?
  • Could I purchase a comparable product second hand?
  • Is there are cheaper version that is just as functional?
  • Have you researched at least three different vendors of the same product?

Ideas to Decrease Your Spending

Suggestions for Reducing Your Spending on Items You Would Normally Purchase
Paying less or no rent

Are you living in an area where there are more rentals than tenants? If so, then you are in a position to negotiate your rent. With a little bit of online research you will likely be able to reduce your rent by 10-20% depending on your negotiation skills.

If you are renting a property and you have a spare room (or couch) then you will be able to list your room on AirBnB or other site so that you can get a longer term tenant in.

Is your lease coming to an end soon? Do some online research of room/properties in your neighbourhood and you will likely find a cheaper room/property.

There are a number of websites that enable you to be matched with property owners that require house and pet setting for a number of months whilst they are on holidays. You will be amazed at the locations that people require house sitting in your neighbourhood and around the world. If you would like to travel the world and not pay for accommodation then these sites are for you! com

Refinance your Mortgage

You will be amazed at how much money you will save each year by refinancing your mortgage every 2 to 3 years. Most people when asked actually don’t know what the interest rate on their mortgage is. If you do, then you are in the minority and with this information go to the Google machine and find a website that lists and compares mortgages in your country. Calculate the difference in interest that you are paying with the new interest rate that you found and then multiply this difference by your total mortgage. Hazarding a guess, this number for you is between $5,000 and $10,000.

Reviewing your Insurances

If you are like most people then you have been paying your insurance premiums diligently for years without really looking at the cost of premiums as they have been sneakily been increasing over the years. Start with the insurance premium that costs you the most and get on the Google machine that provides a comparison between insurance providers for similar products. Hazarding a guess, I wouldn’t be surprised if you saved 20% of your premium by changing providers with exactly the same cover.

Reviewing your Credit card debt

If you are not paying off your credit card each month then you have a debt problem and you are likely paying a ridiculous amount of interest each month. There are a number of credit card companies that enable you to transfer your balance to them and pay no interest for an introductory period of six months or more. Whilst you curb your spending and debt, this balance transfer may save you a significant amount of money.

Free or cheap WiFi

Do you currently pay an exorbitant amount for your internet? There are a number of places that offer free WiFi in your neighbourhood like your library, local café, and fast food restaurants. There are also a number of sites that will show you where you can access free wireless access points like https://wifispc.com. However, if you require fast internet at home, have you considered asking your neighbour for a WiFi share arrangement. You could halve your internet bill overnight.

Travelling and holidays

Before you book flights and accommodation, do some research on websites that compare airlines and hotels and you will be amazed at how much you can save on booking through these sites.

Utilise your loyalty program points for flights and accommodation.

It is actually cheaper to have one longer holiday than lots of shorter holidays.

Promotional Codes

Once you have found a product that you would like to buy online, then spend a few moments looking for a promotional code for that retailer/website. In time this will become second nature and you will be amazed at how many times you will save 10-20% of the advertised price.

Entertainment

This is a broad category that encompasses all your vices including but not limited to; alcohol, gambling, smoking, restaurants, movies, hobbies, special interests, and sports. Most people could not tell you how much money that they spend on entertainment per month. Once you have determined what you spent last month on ‘entertainment’ then try and reduce this number by 20% next month and use your savings to finance your passive residual income ideas. You will be amazed at how easy this will be to do through a small behaviour modification like having coffee at home instead of buying it out, or instead of eating out 4 times a week, eating out 3 times per week.

Minimalism

It is estimated that 1 out of every 10 Americans rent offsite storage to store additional items that don’t fit in their homes. As a society, we have become excellent consumers and are very good at purchasing items that we don’t need or use extremely infrequently. Have a look around your home today… what items do you really need? When you go shopping next time, think about whether you really need that heated towel rack and whether that money could be utilised for your next passive residual income idea.

Budgeting

If you don’t have a detailed family budget then I am reasonably confident that you are spending the amount that is in your bank account every week and not really saving or investing in your passive residual income future. There are numerous sites on the web that offer free budgeting templates that you can readily download and modify for your individual circumstance. Once you identify how much money you may be spending on non essential items then you can modify your behaviour so that you can invest more of your money into passive residual income ideas.