It is so easy for someone to say that the path to financial freedom requires you to spend as little as possible and then save the rest. Then keep doing this until your investments are 300 times your expenses. You have the best of intentions when you sit down and look at your budget to save money. All you see is a lot of expenses and you can already feel a headache coming on. It is difficult to determine how to save money. Here are some of the budget items which I have identified that you can delve into. Check whether any of these are applicable to your situation as well.
Review your living situation
Throughout our lives, we require homes that systematically increase in size. As a student, you live in a bachelor’s apartment. Then you start working and decide to upgrade to a one- or two-bedroom place. You meet your soulmate, get married, buy a place and move in together. The problem is that you don’t have kids yet, but buy a place that is large enough for you and 2.4 kids since you don’t want to move again.
In this situation, it is better to rent for a few more years until you actually have kids before buying a place. It is even feasible to rent for the rest of your life to reduce your spending, especially if you will be moving a lot. Ask yourself whether you are using all the rooms in your house effectively. Don’t have a spare room for the one time the in-laws come to stay over. It is much cheaper to just rent an AirBNB close to your home for that one night. So make sure you are just supplying your needs and nothing more.
Move closer to work
Travelling is a massive expense for us. I live 6 km from work and travel an additional 16 500 km per year to site. If you see a white Volvo C30 blasting podcasts at max volume cruising in the third lane on the N14, that’s me.
My wife travels about 45 km to work every day in the other direction (when she is not on maternity leave). If you can move closer to work you will significantly reduce your spending on travel. Better yet, move close enough for you to function without a car or become a one-car family. Travelling is ridiculously expensive. Any reduction in the distance you travel will help you save money on petrol and maintenance costs.
Make food at home
I can see immediately when we spent more time at home. It is reflected in our eating out and grocery bill. Depending on the amount of cooking we do, the eating out line item on our budget can easily vary by 30%. Eating out costs are difficult to reduce to zero, so try to limit it and make the effort to make eating in special.
Save money on your bank account
Get rid of that fancy bank account. I know all your friends think that you are rolling in it when you whip out that Investec card. However, then you need to almost wave it in the air for everyone to notice, and you don’t want to be that guy.
The difference between an expensive and a cheap account can easily be R5 000 per year. If you do not need all the bells and whistles, then it is money down the drain. So switch to a bank account that earns you interest on the transactional account and charges you minimal fees. I did a breakdown of the cheapest bank accounts here.
Buy bulk food specials
The trick here is to make sure that you do not buy things that you will not use. Buying a massive amount of food that needs to be frozen is not a good strategy. But things like canned food, cereal and toothpaste that you constantly use and can easily store, works well. Hunt for specials online to make sure that you do not drive away all your savings while trying to reduce your spending.
Optimise your medical aid
It requires shopping around a lot and contacting numerous suppliers. However, any savings quickly add up to massive amounts over the long-term. For us, it made sense to switch to a hospital plan. It allowed us to reduce our monthly spending and any additional costs we had during the year is tax-deductible. You can read more about it here.
Review your insurance
When I was younger I had a financial advisor provided by my bank and she had me insured through a certain green insurer. The monthly payments for the products added to about R1 300 per month. When I switched banks, I decided to start shopping around for cheaper options. I managed to get the same products from PPS for R780 per month.
Obviously, the other insurance had to be cancelled and PPS took care of that. About two days later I got a call from the financial advisor, asking why I am moving. She added that she can also offer the PPS products and that she can easily move me. My response to this marked a turnaround in my financial journey.
I asked her why she had me invested in a product that does exactly the same but costs twice as much. After a moment of silence, I then asked what her commission was on that product. She never answered these questions and I never heard from her again. The answer was 2.5% by the way.
She still drives her Jaguar F-type and I doubt I made an indent in her income. At least I’m not the idiot funding it anymore. However, that day I decided to start managing my finances myself and have saved thousands.
So take the time to shop around for better deals on your car, home and life insurance. To reduce your insurance costs, you should at least get competitive quotes from King Price, Outsurance and Discovery (if you are looking to get car insurance).
Save money by buying a cheaper car
I did a quick calculation to prove my point here, so hear me out. Option 1 is to buy a new Mercedes C300 every 5 years. If you had to buy the car today it would cost about R750 000. Then after 5 years, you sell it for half the purchase price to buy the latest model and continue with this cycle for 30 years.
Option 2 is to buy a new Toyota Corolla for about R280 000 and drive it for 10 years before trading it in for a new one ( I assumed you would get about a quarter of the purchase price on the trade-in).
If you invested the difference between the monthly payments at 12% per year for 30 years, you will have R28.2 million saved. This is about R6.5 million in today’s money. So you need to ask yourself, if someone gave you the option of receiving R6.5 million now but you have to drive a Toyota Corolla instead of a Mercedes C300, what would you choose? This is the decision we make every time we buy a new car.
Use your phone for longer
When you take out a contract for a new phone, the service provider adds a monthly amount to the contract to pay for the phone. It is not free as they would like you to believe. Once the 24-month contract runs out, they cannot charge you for the phone anymore, so the monthly payment is reduced. If you upgrade every 22 months, like they allow you to, you will never see that reduced cost.
If your phone is still operational, it is financially beneficial for you to use it for longer. If you manage to use the phone for another two years before it breaks, you will save yourself the cost of a new phone. Lately, that cost can be as high as R30 000 that you repay over a 2 year period.
While you are at it you can also look at upgrading to a cheaper phone. Not everyone needs the latest iPhone for day to day communication. I would argue that very few people do. If you would like to read more about this, you can read my article, what does your cellphone cost you.
Cancel unused subscriptions
You had the best of intentions when you started that gym contract, Now, 5 months down the line you’ve gone 5 times, jogged a bit and then went to the steam room. It is time to accept that it is not working. Just start jogging in your neighbourhood, join a touch rugby group and dust off that bicycle. It will save you a lot of money. While you’re busy, get rid of that magazine subscription that you don’t read and all the other useless deductions as well. You can make an exception for charitable donations.
Go to a library
There is something magical about reading a physical book. I love it. Over the years I have bought way too many books and it becomes a problem to store them all. I also do not read books a second time, so I know that I am storing books that I will probably never read again. This is a massive problem and a sad reality for a lot of people.
This problem is easily avoidable. Renting a book from a library is at least 90% cheaper than buying and hoarding books. So, for this December holiday, instead of buying a book, go to a library and rent it for a few weeks. You’ll have the pleasure of reading physical books, without having to store it for years afterwards and at a fraction of the cost.
Buy drinks and cigarettes wholesale
Most of us enjoy a few drinks now and then and although the number is decreasing, a lot of people smoke. I’m not here to judge you for what makes you happy. We all just need to accept it and embrace it. Buying crates of beer for the next few braais work out much cheaper than just buying a six-pack every weekend or going out for a drink.
My wife and I also enjoy drinking wine in the evenings (if there are any spelling mistakes on the blog, please blame the wine and not me). So what I do is go onto the Top Wine SA website and find the wines that are highly rated and interest me. They even have the cost per bottle on the website. Then I buy a few bottles every year and store them for years. This way, we can drink our Shiraz after ageing for 8 years at a fraction of the cost.
There is also a massive difference between buying cartons of cigarettes at Makro vs buying each packet once-off at a garage. None of these items will go bad if you buy in bulk. So, unless you are trying to stop, it just makes sense embracing our weaknesses. It is an easy way to save money.
I hope these tips have steered you in the right direction next time you sit down and want to determine how to save money. I really enjoy optimising our spending as much as possible. I know that if I put in the effort to reduce my spending on the things I don’t care about but need, I can spend more money on the things I do care about. This also increases our savings rate and we don’t even feel like we are compromising on anything.
Article reposted with permission from the Tigers on a Golden Leash blog.