If you keep doing what you’ve always done, you’ll keep getting what you’ve always got. If you apply this saying to the way in which you manage your money, the equation reads something like this: if you keep spending the way you’ve always spent you’ll keep getting what you’ve always got – which is probably precious little disposable income, a whole lot of debt and zero retirement funding. Having focused on budgeting and consumer behaviour in my previous blogs, you’ll appreciate that many of our money problems are direct results of our own behaviour and attitudes towards money rather than the fact that we don’t earn enough money.
When it comes to consumer behaviour, another interesting phenomena is how habit-forming our spending behaviour can be – to the point where, even though we go through our budget with the finest of tooth combs, we are unable to recognise unnecessary or excessive expenditure. As financial planners we’re often asked by clients to assist them reduce their expenditure, and it’s something that we gladly do. With years of experience in fine-tuning budgets, here are our top tips on cutting back costs that have often crept into the monthly budget through force of habit.
- Home entertainment: Whilst everyone enjoys going out to a restaurant for a meal once in a while, the cost of eating out has reached a point of almost being financially unjustifiable (let alone unaffordable!). A bottle of wine that costs R60 at your local supermarket will cost you about double that at a restaurant. A 300g steak is nothing less than R100, coffee arrives at R15 a cup and before you know it, a meal for two people can easily cost R500 including the tip. Entertaining at home is significantly more cost-effective, especially if you all club together and share a meal. We regularly have friends around for a meal where one friend brings the salad, the other brings a chicken dish, someone whips together a potato bake and everyone brings a bottle of wine. While R500 for a meal doesn’t sound like much, if you’re eating out once a week, you’re spending R24 000 per year on dining out.
- Reassess your bond insurance: A common misperception in this country is that home owners are obliged to purchase their home loan insurance through their financial institution. This is absolutely not the case. Whilst your bank can insist that you have home loan insurance in place, you are free to purchase your insurance through a provider of your choice. If you’ve purchased your home loan insurance through your bank, there’s a strong likelihood that you’re paying excessive premiums. Also, as your home loan reduces, make sure that your life cover reduces with it. Chances are you haven’t checked your home loan insurance in a while. Get your financial planner to run some quotes and get your monthly premiums reduced.
- Accept the gift of a tax-break: South African tax legislation allows you to invest 15% of your pensionable income into a retirement funding tax-free. If you’re not investing for your retirement, you’re effecting compromising your future financial freedom and paying too much tax at the same time.
- Quit it: A box of cigarettes costs around R25 for a pack of 20 cigarettes. If you smoke 20 cigarettes a day, it means you’re spending at least R750 per month supporting your deathly habit. That’s about R9 000 per year that you’re paying for the pleasure of having your lungs damaged, excluding the medical costs incurred treating your upper respiratory tract infections, allergies and other smoking-related illnesses. To put the cost of smoking into perspective, the cost of your smoking habit is equivalent to half the cost of one child’s education at a good Model C school . If both of you smoke, the cost of your habit is the equivalent of putting one child through school.
- Box office: Reducing your expenditure often means changing your habits and undoing the psychology behind what allowed us to create the habit in the first place. If you order take-aways for lunch or buy ready-made lunches, you’ve probably developed the attitude that your life is too busy to prepare your own lunch or that you deserve the luxury of not having to make your own lunch. Another interesting purchasing phenomena is that we sometimes tend to close our eyes when making certain purchases. We also become insensitive to the relative cost of items. Retailers rely on this aspect of marketing, and trade on the fact that, over time, we’ll become numb to the excessive cost of basic items. Take the innocent ready-made sandwich for example. How is it possible that while we’re accustomed to paying R5.00 for a loaf of bread, we find it perfectly acceptable to pay R19.00 for a single sandwich which contains only 2 slices of bread and a few slices of over-processed cold meat. A ready-made sandwich and soft drink every day, and you’ve just blown R900 on ready-made lunches for the month. Now calculate the cost of purchasing your own bread and fillings, and taking your own sandwiches to work in a lunchbox. If you get creative and use left-over meat, chicken or salads, you will literally save yourself hundreds of Rand per month.
- Pay it off: Yes, pay off your credit because it’s costing you a fortune in interest charges. But don’t cancel your credit card outright, because it’ll benefit you if you ever need to prove your good credit record.
- The not-so-convenient store: I’m as guilty of this one as anyone else. Whilst these stores may be convenient for shopping, they’re entirely inconvenient from a financial perspective. Yes, they run regular specials on milk and bread, which are clever marketing tactics designed to make you feel justified stopping there in the first place. The problem is that the costs of their other goods are unjustifiably inflated. And once again we’ve become desensitised to the exorbitant costs. So you stop to pick up bread and milk, and leave having purchased the latest Car magazine, a cooldrink, a packet of chips and some chewing gum – all of which are severely over-priced comparison. Daily stops at your local convenience store can result in hidden expenses that eat away at your disposable income very rapidly.
- Meal planning: I can personally attest to the value of this piece of advice. When life gets entirely frantic, I often fall into the trap of popping into the shops on a daily basis to buy something for supper simply because I haven’t taken the time to plan the week’s meals. I’ve had to really discipline myself to assess the week ahead and work out the meals for the week. I also take into account what I need for the kids’ school lunches and then I shop accordingly. I stock up on bread, rolls and milk and keep them frozen until they are needed. By doing this, I avoid having to pop into the shops for a ‘top-up’ shop during the week or having to visit the not-so-convenient shop.
- Cancel your landline: This is something that we did about 7 years ago, and we’ve probably saved ourselves about R1 000 per month. We both have cell phones which we carry with us religiously and we eventually realised that the only person using our landline was our domestic! There’s no doubt that we’ve saved ourselves at least R12 000 per year by cancelling the landline.
- Check your package: If you’re on a cell phone contract and have been for some time, you’ve probably grown into the habit of upgrading your phone every two years and never really assessed the type of contract that you’re on. New cell phone packages are being released all the time, and it’ll pay you to get a good cell phone assistant to assess your cell phone account and give you advice on the most appropriate, cost-effective package for you. A colleague of mine has just changed his cell phone package and is saving himself about R400 per month – a result of getting expert advice from an educated sales assistant.
- Mad magazines: I used to throw magazines into my shopping trolley as a matter of pure habit. The new Marie-Claire, Fair Lady or Femina was regarded as an essential item – in the same league as soap and loo paper. The cost of magazines is another price pitch that we’ve become completely numb to. R25 (minimum) for a monthly magazine and R15 for a weekly one and it’s easy to see how your monthly magazine habit can easily cost you well over R100, if not much more (depending on what you read). If you’re anything like me, most magazines lie on the table next to my bed waiting to be ready for weeks on end. If you’re serious about a particular magazine, then rather subscribe to it.
- You’re rewarded: While some people remain sceptical about the plethora of rewards programmes out there, and rightly so, there are some really good programmes out there that are well worth using. Programmes such as Discovery Vitality, Clicks Club, Pick ‘n Pay Smart Shopper and FNB’s e-bucks really do work. As a word of warning, though, make sure you don’t fall into the trap of forced spending to take advantage of some ‘special offer’.
- Closed the clothing accounts: This is probably the most over-stated but least followed financial advice on earth, and yet it still fascinates us that so many people struggle with the noose of shop accounts. Excessive interest rates and compulsory monthly minimum payments are compounded by the fact that the retailers regularly (and often without your knowledge) increase your credit limit, leading you blindly into more debt, higher monthly repayments and a tighter noose of debt. Do yourself a favour – close all your clothing accounts (and any other retail accounts). Cash is king. If you don’t have the cash, you can’t afford it.
- Bank online: Besides for decreasing your banking charges, you’ll also earn more points on the rewards programmes of your bank. Discipline yourself to do your banking on-line. Using autobanks is expensive, so limit your cash withdrawals and rather draw larger amounts less often.
- The sale fail: Unless you know exactly what you’re looking for, shopping at a sale can result in you spending money on unnecessary goods that you didn’t even know you needed in the first place. Let’s be honest, most shop sales are stocked with out-sized garments and goods that nobody else wanted to buy. So why on earth would you want to buy the stuff? Just because the price of something is good in relation to its original price doesn’t mean you need it. Practice the art of discernment.
- Pampered pets: For the price of some pet food you could cook your pooch free-range chicken and basmati rice for dinner every night. I’m being absolutely serious. Check on the costs of some of the top-end gourmet dog foods and you’ll realised that we’re being robbed blindly by pet-food companies trading on our over-developed desire to pamper our pets.
- Click through the news: If you consider how much of a newspaper you actually read, you’ll know that it’s precious little. Most major newspapers are available on-line and you can be selective about the articles that you read for free.
- Bottled beverages: South Africa has some of the highest quality tap water in the world, so there’s really no need to buy bottled water at a cost of about R20 per litre. That’s more expensive that the cost of petrol! If you’re want filtered water, buy a water filter and filter your own. And of you think you’re drinking some specially formulated magic mineral water, check the label. Most bottled water attests to being just that – bottled water.
- No luck: If you’ve ready my previous blog, ‘So you want to win the lottery?’, you’ll know that your chances of winning the lottery are 1 in 14 million. Quite simply, stop buying lottery tickets and focus your time, money and energy on curtailing your expenditure and generating more income.
- Satellite holiday: If you’re going away for an extended period of time, arrange with Multi-choice to cancel your DSTV for the period that you’re away. You will then only be charged pro-rata for the days that you used your DSTV, saving you a few hundred Rand.
In these economic times we are being challenged to be more cautious, clever and discerning with our money and our expenditure. I challenge you to give consideration not just to your spending, but to your spending habits. Identify those spending habits that are chewing your disposable income, attack your budget aggressively and strip out the expenses that are all but wasting your hard-earned cash. It might be a cliche, but it really is true to say that a penny saved is a penny earned. Keep earning those pennies!