The Ghost Of Christmas Past

The upside of the New Year is that we can easily transfer the energy wasted on ranting about our increasingly high cost of living to the more practical exercise of figuring out just what to do about it. There are very simple ways to ensure that your valuable money is better directed to what’s really important to you and your family. You enjoy eating out? Vacations abroad? Or feel that a little nip & tuck is what you really need? No problem! Just follow these easy steps and you’d be surprised at what you can afford.

First, calculate your necessary monthly expenses. These are strictly limited to health, dental, education, childcare, home payments and savings for emergencies (at least 2 month’s income) and the future (retirement and possibly kids’ university tuition). Then, calculate your average monthly energy bill per month (your BELCO bill). Add these two together and subtract it from your monthly income. The rest is your total funds for discretionary spending- the amount available for dining out, and other personal activities.

You may be surprised to see that I have not included food, clothing, telephone and cable on the list of necessary expenses, much to the dismay of most financial advisers. The reason that I do this is that the vast majority of consumers do not treat food and clothing as necessities (in order words, buying only what they really need), but as fun things to buy. If you don’t believe me, look in the grocery cart of the next shopper you see at the grocery store. Are packaged cookies and chips essential food? Diet coke? One-person frozen entrees? Unfortunately, no, they are not. Same goes for the average retail shopper. Do you really need another little black dress, a new tie, or those trendy shoes to survive? Again, unlikely.

Likewise, while a landline phone is widely considered necessary in order to contact the authorities in case of an emergency, the average consumer dramatically takes it up a knotch to include a cell phone with texting, gaming, and a myriad of other applications. Basic cable covers the major networks’ programming and the occasional video rental is enough for our usual entertainment needs, but most of us have over 100 channels and at least one movie tier.

Now that you have calculated your monthly discretionary funds, calculate your current expenses by keeping track of every dime you spend for one week (keeping track in a little pocket-size notebook). By writing down everything from grocery bills to your dinner out to the pack of gum you pick up on a whim for just one week you can multiply this figure by 4.5 and to see how much you’re using of your discretionary spending per month. Don’t forget to add your cable, telephone, cell phone and internet bills to this figure. If this month you don’t get your hair done or visit the spa like usual, then add those usual monthly expenses into your monthly total. The amount will most assuredly surprise you. It doesn’t leave much for vacations to Paris or saving for your kids’ university tuition, let alone your retirement, does it? Perhaps you even regularly go way over budget and you’re relying on credit cards at the end of each month.

The good news is that it doesn’t have to be this way. That tally of average monthly expenses will alert you to dangerous trends such as buying lunches (when you can pack your own leftovers in a reusable container); packaged, disposable and single-serving sizes at the grocery store (when you could buy bulk, plan your meals in advance, and buy store brands); using cell phones and other gadgets when you could easily be contacted at work or home 90% of the time; and your need to carpool or use public transportation rather than spend close to $100 each week on fuel. Even your BELCO bill, which I have somewhat erroneously categorized as a necessity, can be substantially cut by making smart and easy consumer choices such as installing a timer on your water heater, using CFLs rather than incandescent lightbulbs and buying energy-efficient appliances, to name a few energy-reducing options.

In preparing your family’s money management plan it is key to review your findings with other household members so that they can understand the reason that you came to the conclusions that you did about better allocating your funds each month. Cutting down on entertainment, clothing, energy bills, and miscellaneous expenses such as magazines may be a big adjustment for all of you is easier done as a family.