Overcoming the Money Crunch

With the housing market crash, the price of oil rising, unemployment increasing, and incomes staying stagnant, money is tight for most of us. Everyone is cutting corners to make the house, rent, or car payments. But obviously everything is a trade off and sacrifices come with a cost. If you find yourself “tight” and dipping into your vacation money to make the monthly payments, it may be time to make a few changes in your lifestyle to make things work rather than sacrificing your sanity.

The easy answer is to sell your car, don’t use electricity, never go out, and eat from the McDonald’s $1 menu every day, not to mention you can no longer spend money on yourself. This could probably work, but instead of living life so drastically you can make a few lifestyle adjustments to produce similar results. Ultimately, we all want to live a reasonable lifestyle, and more importantly we don’t like extreme change. It’s interesting how much money you can save by putting a little extra effort or changing the way you think and live.

Exercise regularly

Proper health and nutrition leads to better health in the future. With the cost of Medicare and price of medicine the amount of money you can save will astound you. Prescription medicine for diabetes can range from $30-$40 per month out of your own pocket! Now imagine if you were required to take 3 different prescriptions! Keep healthy and exercise regularly to avoid spending unnecessary money on medication due to deteriorating health.

Quit bad habits

Smoking and excessive drinking are factors that can lead to bad health, not to mention they are extremely expensive bad habits! The money saved from bad habits can be used toward your mortgage payment. So take the first steps to cut back or completely cut smoking and excessive drinking out of your routine. With the price of cigarettes at $5-$6 a pack, you can easily spend $50-$80 per month just on smokes.

Buy in bulk and shop smarter

If you insist on still smoking, at least consider purchasing in bulk. Purchase a carton at a time rather than purchasing one pack at a time. Costco and Sam’s Club are great wholesalers which allow you to purchase food, house products, medication, and electronics in bulk or at a discount price. But keep in mind, purchase what you need. If you are unable to finish 2 gallons of milk prior to the expiration date, it may be smarter to spend the extra $.50 per gallon at Safeway than throwing away 1 gallon of expired milk from Costco’s 2 gallon pack! Shop smarter, buy in bulk, and stock up when it makes sense to. Also, you can shop smarter by not always reaching for the brand name products and purchase less expensive alternatives. Quality and taste are generally the same as the original, but store brand items generally go on sale much more frequently and are priced less. Safeway=Select. Costco= Kirkland. Macys=Alfani.

Be second best

Even though things are cheaper online, from Costco, or a warehouse wholesaler, it’s obvious that prices are higher for the latest technology. Technology is always overpriced when it’s released. But when alternatives become available, competition hits the market, and the cool factor slows a bit, then prices quickly decline to keep consumer interest. If you love electronics or toys, pick and choose the items that you “NEED” to have immediately and separate the items that would be okay to purchase 1-2 months after they’re released. A great example is the Apple iPhone. When first released it was priced at $500. Within 2-3 months it decreased to $350 dollars, and Apple actually began to issue refund credits to certain people who overpaid. As we speak, the New 3G iPhone is anticipating release in July for only $199!

Latté factor (concept taken from the book “Automatic Millionaire” by David Bach)

Change the way you indulge. Coffee is probably one of the most overlooked daily expenses. My old daily routine included a coffee run on the way to work and an afternoon coffee run with coworkers to help get through the day. At Peet’s Coffee, a small latte is priced between $3-$4. At a minimum I would go to Peet’s or Starbucks once, if not twice, a day! That’s equivalent to $7 per day, $35 per work week, and $140 per work month. Instead, I have dug out my old coffee machine and brew my own coffee in the mornings. The average cost per cup is substantially less, and if you prefer Peet’s or Starbucks coffee you can purchase the beans for $8-$15 per lb. In my home, 1 lb of coffee generally lasts between 2-3 weeks and serves 2 adults every morning. Imagine the amount of money you save every month from just making your own coffee!

Set a budget for yourself

Starbucks runs and other unnecessary expenses can be easily minimized when you set a budget for yourself. Let’s imagine that you no longer work as the operations manager for your company. You now work at McDonald’s earning approximately 50% of your current salary. You obviously can’t live the same lifestyle you’re accustomed to, right? You drastically change your lifestyle and reduce your monthly spending budget to make it work with your new pay. You cut out the luxury items and focus on necessities to survive. Now think about it, we just proved you can live on half of your current salary if you really needed to. The thought process is that most people spend what they have, and if they had an extra $300 “lying around,” they could probably think of 5 items they wouldn’t mind purchasing. Now, doesn’t it sound practical to set a spending budget each month rather than having all your money just “lying around”?

Saving the right way

I feel the best way to save is to set a budget and limit your visibility to only an “allowance” account. Once you’ve set a budget each month, directly deposit that amount into an “allowance” account. This will give you X amount to spend and manage. Initially set your allowance to be reasonable. Then as you become more accustomed to spend less every month, reduce the monthly allowance accordingly to reach your saving goals. Assuming we all put a percentage of our pay into our 401k or IRA account, can you ever think of a time where you took the money from your retirement savings? When it’s out of sight, it’s out of mind. Working only with your allowance will make you feel like you have a McDonald’s salary again, which makes you less inclined to spend, spend, spend!

It’s understood that men don’t like to make sacrifices, especially the things that they like. For my electronics itch, I always reach for the coolest gadgets regardless of price. Everyone has a different priority in life. In my instance where electronics and toys define my personality, I’m much more bullish on saving in areas that aren’t as big of a priority. So I’m okay with brewing my coffee every morning to afford the latest gadgets. Life is all about balance. Manage your money smarter to pay the bills and to save for the next vacation!

Photo by: mil8