Cutting your overhead spending

My last post was on how to create a budget. This one will focus on reducing your over all spending. There are alot of things you can do that will instantly reduce your overhead bills. These are things that you need in your life but that you are paying too much on.

Step 1:
Knock over debt.
Debt is just a way for the banks to get more money off your spending. Any debt you have attracts 12-24% interest. That's nearly a quarter of the cost of the item extra that you are paying! Take your car. An average family car, second hand, costs about $20,000. If you buy it out right it will cost you that, just $20,000. But if you get a loan for it, say 5 years with Westpac thats 8.49% interest over five years so the cost of your car is actually $24,600. Would you be happy to give me $4,600 right now for nothing? No, I know I would rather have that money in a high interest savings account EARNING interest. In five years you could have earnt $1,300 interest on that money. But lets go further, do you need a $20,000 car? My car cost me $2,500. Its a 2000 Nissan Pulsar that besides needing a new battery this year ($100) has never had an issue. If I took that $17,500 extra that I could have spent on a car I could have earnt an extra $4,959 in interest from a savings account. (these figures are based on ASIC moneysmart calculator which is a great tool).  After those 5 years i can actually trade my car in and use the interest to upgrade to a nice 2008 Subaru Forester. That's basically a free car for waiting 5yrs...

Credit cards, store cards they all amount to the same thing. You are spending money you don't have. Just wait until you have the money, then buy it. Alot of people want what their parents have, they want the nice house with the new furniture and expensive sound system their mates have. But your parents have had about an extra 30yrs to save up and buy those things. Your friends might have the latest smart phone but it cost them $2000 for something that they will get rid of at the end of their contract in 2yrs for the next one. Which brings me to the next step.

Step 2:
Latest and greatest and surfing the market.
Just because everyone else has it doesn't mean its better. I recently ended my phone contract. It was $120 a month for the newest samsung galaxy phone (which my son broke 2 months into the contract). This time i went in and said i want a phone that wont break. He of course went and got the latest Galaxy s10 which was a cool $2200 for the length of the contract. It was too big for me to hold in one hand and the state of the art curved screen served no purpose at all except making me accidental select things when i was trying to hold it. I said no i liked the look of the one at the end called a Tough phone. It looked robust! He looked doubtful and said oh well its ok but the samsung had 4 lenses so your photos will look so much better! I'm not taking professional photos on my phone, im taking happy snaps to post on my facebook. Eventually he went and fetched my $400 Telstra tough phone. It had a rubber cover which meant it was impact resistant and waterproof for up to 30mins. My phone plan now costs $66 a month ($9 a month of that is the phone). This meant a saving of $648 a year not to mention i wont be upgrading at the end of the contract so my plan will go down to just $57 a month after that which I can even re negotiate to a $20 prepaid month to month.

So step 2 is to go through your expenses and see what you can renegotiate or buy used. Can you pay off your loans faster to save interest. Can you go with a different insurance company? I moved from my old contents insurance to ING and saved $200 a year. Even my old company admitted that was a great deal and they couldn't beat it. Paying annually is also a great way to cut $$ off your policy.

Step 3:
Once you find the best deals raise your excess. In my budgeting post i mentioned you should be saving 10% of your income each pay. This money is your nest egg. Its there incase of emergencies like a house fire or your car getting in a smash. Use this money to cover the excess. Raising your excess lowers your premium on something you might never need, fingers crossed. I pay $21 a month for contents insurance with a $1000 excess. At the lower $500 excess I would have been $35 out of pocket each month, thats a saving of $168 a year. Most of us will never need to claim on our insurance, but its best to have it just incase.

Step 4:

Now that you have lowered as many of your costs as you can you need to sell all your junk. No really, most people have about $2000 worth of unused stuff in their homes. I want you to gather it all up and have a garage sale, put it on gumtree (craigslist in America i think) or your local online market place. Then with the money you make boost your savings to at least $2000 or I think one months income is the best amount. The rest can go to paying off your debts. Not only is it a great way to clean out your home but you make instant cash doing it. Having a uncluttered home will make you feel calmer and less likely to want to fill it with junk again.

So this post has covered paying off debts, finding better deals on your fixed expenses and raising your excess to save on premiums. These tips should save you about $300-$500 a year. Down grade where you can, buy used and save the difference.