Do you want to know what hardcore frugality and bodybuilding have in common?
I will tell you in a bit later.
Cutting your expenses is easy to do but hard to master. You can spend as much time on improving it as you can on everything else. It’s an endless and often tedious task.
Tightening your belt is the first step of my financial system. You can read more about the system here. It’s a required and fundamental step if you want to conquer your finances. But how to overcome your inner laziness and finally start saving?
Get rid of the clutter
There is one thing most people overlook when it comes to budgeting and cutting your expenses. It’s not just helping your wallet. You will also melt down some of your unnecessary little time wasters.
Let me give you an example.
2 years ago, I was spending 300 EUR/month (about $350) on going to clubs. I was going out 1 or 2 times a week. At that time this was roughly 60% of my income (I was still studying). Was it emotionally important to me? Not really, but Mrs. Budget and I used it to meet each other regularly.
As I was close to being broke, I decided I had to quit doing this. After a conversation with Mrs. Budget, we both noticed that it wasn’t even important to us. We just wanted to spend time together. Do you know how often we go to clubs now? Not more than once or twice per year. This saves 3.600 EUR annually for me alone.
But what about saving some time? I assume we were going out for about 5 hours, 6 times a month for 12 months a year. This means we save 360 hours/year (5 * 6 * 12 = 360)! Think about it, now I have approximately 1 hour per day (360 hours/365 days) for doing something I actually like!
Mrs. Budget and I also have much more quality time and fun. I’m pretty sure, you also have some of these time and money wasters!
What has bodybuilding and hardcore frugality in common?
Okay, now you have seen why cutting your expenses can save you a decent amount of money AND time. That means you have to cut on everything that is fun and stop going out, right? Well, you could. However, let me first come back to my initial question.
What has a bodybuilder and a hardcore frugal person in common?
A bodybuilder spends an incredible amount of time on improving his fitness. He has to stick 100% to his workout plan and has to adjust his meal plan, his drinking behavior, his sleeping cycles and in general his whole life. He pursues his one dream and sacrifice everything else to it. The one goals he wants to achieve is crafting the perfect body.
What about hardcore frugal people? They cut back on everything. They have to adjust there life in the same way. The cannot do all the stuff they did before. They have this one goal. Save more money, so they can retire early, work less or just live a minimalistic life. They often have to track there expenses in a great detail and think about stuff like how to use coupons perfectly or what ingredients are healthy and cheap for the next meal.
Why there are so many people struggling with finances and fitness?
Let’s go back to the bodybuilders for a second. Why doesn’t have every person a sixpack and ‘the perfect body’? Think of your surroundings and I bet some of them have a gym membership. I am also pretty sure not all of them have a sixpack. According to the numbers of Statistic Brain, 67% of the gym memberships are unused! So first of all, this is a lot of money they could cut, but that’s not the point!
There must be a reason why they get this membership and then don’t use it at all! It’s pretty simple. They really want to lose some fat or build some muscles, so they start by getting a membership. Maybe they even start working out in the gym. However, after some workout days, they see it costs them a lot of time. You need a good amount of energy and motivation to keep doing it. Some will never have the energy to do it once.
How about penny-pinching and cut your expenses to the bare minimum? It’s exactly the same. It works for some people and they will have great results by doing it. Though for a lot of people, it’s just an idealistic approach that leads to doing it for 1-2 months and after the first hurdles, they throw in the towel and fall back into their same old spending patterns.
They will get memberships and subscriptions that they don’t need and spend money on things that they actually don’t want.
My system prevents you from falling back into your old patterns.
Cut your expenses in a reasonable fashion
I told you, you need to cut your expenses. But I also said that hardcore frugality doesn’t work for most people. So how could this work for Sir Average who just wants to save some money for some nice stuff later?
I will give you a hands-on 4-step-process.
1. List all your expenses
First of all, take a piece of paper or open up a spreadsheet tool like Microsoft Excel, Numbers or Google Sheets. The latter is highly recommended because you can easily calculate the overall costs later. Write down all the monthly expenses you can think of, one below the other. Initially, just write the things down, you will add the dollar values later. In a spreadsheet tool use one row for one entry.
As soon as you have written down all the monthly expenses, think of all the quarterly and annual payments. Attach them below your existing entries. It’s just important that these are recurring payments and their interval is less or equal to twelve months. As a result, you should have written down nearly all your expenses. You will probably miss some in the first iteration, but we’ll come back on that later.
Here are some good examples of things you want to cover:
- Subscriptions and memberships (don’t forget your gym, Spotify, Netflix, Amazon Prime, etc.)
- Phone costs
- Going out
In the next step look into your bank account for the last month. And try to write down the dollar values as accurate as possible in a second column. Also, estimate the monthly costs of your quarter (total amount / 4) and annual payments (total amount / 12). You don’t have to be perfect here in the first iteration. At the beginning, you should look back on a monthly basis and adapt the values accordingly. After 2-3 months you will be pretty fine.
Some things like food or going out are pretty hard to estimate. Just try to be realistic and correct the values later.
2. Kill all the ‘zombies’
The next step is not actually to cut your expenses in general. You just want to remove all the zombies of these payments.
What is a ‘zombie’? All the things you pay for and don’t use it often enough. You don’t want them or use them anymore. They are dead. However, you still let your money flow out of your pocket directly into the zombie’s mouth.
Think of gym memberships. Yeah, I know, I know. You really want to start next week. You just took this 6 months break and soon your recent project is finished. But believe me, there is always something that eats your gym time away.
If you really want to get fit and don’t use the gym more than once a week you should probably consider to workout at home. This saves you a lot of time and money. You can also start a little challenge. If you workout for 3 straight months at least 3 times a week and you really think you need the gym to get to the next level you can go for it. But for now, if you haven’t seen a gym from the inside for a while or don’t go into one more than 3 times a month you should cut your expenses here.
I paid 3 months for an insurance that covers software damage on my mobile phone. Unfortunately, I didn’t use it anymore. What a waste of money!
Be brutally honest and accurate here. This stuff is dead already so get rid of it!
3. Find out what’s emotionally important to you
Right now, we have done the most basic step. We killed all the stuff that we don’t use at all. You know, I am not the biggest fan of hardcore frugality. Though, I think being frugal in general is a good thing. We just want a way of saving money that works for us.
As a software developer with some user-centered-design knowledge, I know if you try to solve the problems of every single user, you will not solve the problems of any user. Your application has too many features, the navigation gets blown by items and every task cannot be achieved without frustration. So you start focusing on one persona (a hypothetical archetype description of a real user) and solving this persona’s problems. You ignore the needs of the rest of your potential customers.
When it comes to finances it’s pretty the same thing. If you try to have an expensive car, the biggest house, an incredible collection of watches and go out 5 times a week, I can tell you, you will probably fail on everything. Even if you are the richest man in the world, you cannot afford everything.
This means we have to find the few items we want to spend money on and only spend a bare minimum on the rest. There is just one question you need to consider:
Is this emotionally important to me?
How to do it with the spreadsheet
Revisit the spreadsheet or list you have done in step 1. Add a third column to all the rows with the priority of that specific item. Use values between 0 (totally not important) to 10 (very emotionally important and lifetime goal) accordingly. You may really like to have premium food products and so you give this a solid 8. However, you don’t really care about going out so you will give this a rating of 2.
Do this for all the items you have written down. Now on the last step, we can finally cut your expenses.
Note: The amount of money you’re spending right now has nothing to do with the priority. Just ask yourself for every item how important it is for you to have premium stuff on that category.
Note 2: You have to pay back loans. Just set them on 10 for simplicity.
4. Cut back on the expenses that have a low priority
Cut your expenses on recurring payments
Let’s start with the recurring payments we’ve already written down before. You may spend a lot of money on your apartment. If you’re at home a lot of time this makes sense. But if you have to travel for your job very often, it maybe is a good idea to start cutting there.
You can cut easily on things like insurances by simply comparing them to others and there will probably be a cheaper one. You have to consider two points here.
- The more you save on these (not emotionally important) payments, the more you can spend later on things you actually love.
- Are you paying that amount of money for an item because it makes sense to you or only because of laziness? You don’t have to have the cheapest insurance. You want to be secured in an emergency. However, this is always a trade-off and a cheaper solution is not always worse.
Now take a look at all the monthly expenses and be pretty harsh. You want to cut back as much as possible on things that are not important to you.
Cut your expenses on one-time payments
Cutting your expenses on recurring payments is very important but for one-time items, this is equally true. Don’t just think of big items here. A new smartphone, a weekend trip or a small decorative item for your home are one-time payments, too.
You don’t need to create a spreadsheet for them. Though, I recommend doing a small evaluation.
Ask the following questions:
- Does it benefit one of my top 2-3 hobbies?
- Will I use this item often (be honest to yourself)?
- Do I need to buy this item (e.g. a suit for your new job)?
- Is it a once-in-a-lifetime moment and you will regret it later if you don’t buy/do it now? (I’m not talking about ‘wow, there is a 20% discount’. I’m talking about stuff like fulfill the childhood dream of a family member that is about to die soon).
- Will this make my working life easier, more productive or more convenient?
If you have answered at least one question with ‘yes’, ask another final question.
Is this item more important to me than buying an asset (like stocks or a rental property) earlier? These assets will build your future. The item will probably don’t. However, if you have enough money for it and it’s really that emotionally important to you, go for it.
What to do next and when to revisit your system?
At the beginning, you have to revisit your findings pretty regularly (once a month) as there will be some costs you haven’t thought of or the values are simply too high or low. After some time, you got the juice and only need to update it once a quarter/year. You don’t have to check for cheaper solutions all the time. Use your time reasonable. Just do it once a year or so.
However, use some form of notification on your smartphone or computer or even better both devices. You will fall slightly into old patterns from time to time and your hobbies will change, so get rid of the clutter you don’t need in your life at least once a year.
For all one-time purchases, the questions above should help to verify if it’s legit to buy a new item or better save the money for short-, mid- and long-term goals.
Hope you enjoyed this guide and can make it work for you. Tell me, if it works for you!