We are in the midst of a global pandemic and there is a lot going on around us. One of the unfortunate realities of this is a lot of folks have had to deal with lost jobs/incomes or reduced incomes/furloughs. A popular saying is ‘Focus on what you can control’ and whether we like it or not, we don’t control the external environment. One of the things we can and should be looking to control is our expenses and our budget. The title of this article is a salute to Marie Kondo, a Japanese tidying expert (yes, that’s apparently a thing and she’s made a lot of money doing it! ?) who has made a living helping people focus on keeping the things that matter most to us and getting rid of the rest. For more about her, you can go to her site: www.konmari.com or if you are more interested, watch her Netflix series ‘Tidying up with Marie Kondo’. So, what does a tidying expert have to do with managing our expenses? Let me explain.
Before we dive in, let me explain the obvious for a moment – why does this matter? If you read some of my earlier articles, I talked about the gap between income and expenses and the savings rate. There are only two ways to increase that savings rate. Either increase your income or reduce your expenses. We can and should try to do both. But in times like we are in now, increasing our income may be hard. In fact, most of us may be faced with reduced incomes or lost incomes. In that case, to continue your path to whatever financial goals you laid, you need to focus on reducing those expenses to either maintain your savings rate or in some cases, having any savings at all. A negative savings rate is definitely a situation for being very aggressive on cutting your expenses.
Side note: By the way, looking at optimizing your expenses is something you should always be looking to do – not just in uncertain economic times. These savings compound over time. It is a form of continuous improvement.
Let’s get back to Marie Kondo. Her underlying principle when she helps people tidy their houses is to pick up every item, ask yourself whether this brings you joy and if it does not, then say ‘thank you’ to the item and set it aside to basically get rid of it. I would like to compare this to the things we spend money on. Take a hard look at each of your expenses (as I have mentioned in earlier articles, it is important to keep track of these using either a spreadsheet or an automated tool like Mint.com), and ask yourself these 2 questions:
- Is this an expense I truly need? Does this bring joy to me and do I feel it’s important? Does this align with my values? If the answer is yes, then proceed to question 2. If not, lets put this in the parking lot and ask a few more questions.
- Is there a way to reduce this expense in a way that still continues to give me the joy and support my values?
If you answered No to the first question, then the obvious question is whether this is easy to eliminate right away or is going to require some effort. These are likely the low hanging fruits and generally don’t move the needle a lot but still every bit counts. Let me explain – an easy-to-eliminate-expense example may be a subscription that you totally don’t use and simply go online or call them and cancel it. A more difficult one would be something like a cell phone subscription that you have a contract on, that prevents you from cancelling it right away. When I started looking at this a couple of years back, I was shocked to find out all the different subscriptions I had that I was not even using! Eliminating all those unwanted subscriptions helped me instantly save $100/ month – with such minimal effort! In my quest to become healthier, I decided to stop eating lunch out every day during work. This was hard because I enjoyed eating at the restaurants near the office. But with the motivation of being healthy, I pushed myself to eat out only when I needed to. My health and pocketbook were both very happy at the end of it. This was harder but something that I thought was important to me (eating out) no longer feels important to me because I am now used to it.
If you moved to question 2, these are the expenses that require more thought. Again, you will have examples that are easy and then those, that are harder. One example I have – during the lockdown, we had 2 cars essentially parked in our garage gathering dust. We were hardly using them. One phone call to the insurance company helped me realize I had all sorts of options to reduce my car insurance every month – with minimal effort. A friend of mine was renting a 2-bedroom apartment and he said while he enjoyed the additional room, he realized he did not need it. So, he made the choice to downsize and reduce his rent by a few hundred dollars each month.
Sometimes the answer to question 2 is very simply – this is important to me and I am consciously making the choice to spend the money and cannot reduce this expense. And no judgment on that! As long as you have taken the time to be intentional about it and are aware of the implications, you are moving forward eyes wide open.
How do we move the needle? Often, the top expense categories for most households are Mortgage/rent, transportation, food (groceries, eating out) and for those who have little kids – childcare. Typically, moving the needle involves making a dent in one of these big categories. These are generally hard categories to make dents on, without making some sacrifices. But below are some generally discussed ideas on how to consider making reductions in these categories. I am not advocating any of them just sharing them in the spirit of offering ideas.
- Rent / Mortgage – refinancing your mortgage, downsizing your house, house hacking (finding room mates in your house – yeah that’s a crazy idea ? but there are some people who do it)
- Transportation – downgrading to a used car (makes most sense if you are still paying off a loan on this), shopping for car insurance
- Food – go to the grocery store with a list so you avoid impulse purchases, buy more private label food, eat out less.
- Childcare – not too many options here unless you have the flexibility to reduce the # of days you send your kid(s) for childcare.
At the end of the day, personal finance is personal. What that means is everyone makes decisions for what makes sense for themselves. Nobody can judge that. Where you spend your money is your decision – there is no right or wrong. The only thing I would advocate for is having some intentionality and not allow yourself to be passive in where your money is spent. After all, you have worked hard to earn it. Author Vicki Robin in her book, ‘Your money or your life’ provides a framework on thinking of this in terms of trading your life energy. Think of your hourly rate based on your salary, and next time you buy something, ask yourself how many minutes/hours/days/weeks’ worth of your life energy did it consume? When you think of it like that, you want to make sure it was absolutely worth it.
I hope you enjoyed reading this. I wish everyone all the success in their financial wellbeing journey!
Disclaimer: I am not a financial advisor and all the information in my articles are from my personal experience and are for informational and educational purposes only. Please consult with a financial advisor or CPA for professional advice.
