In business, there’s a concept of fixed expenses vs. variable expenses. It’s a key part of maximising profit and forecasting performance in coming years and quarters. It works like this:
- Fixed expenses are those that will be the same month after month (e.g. rent, insurance, average payroll, static utilities or supply orders, etc.).
- Variable expenses are those that, with management, you can take steps to reduce on a monthly basis (e.g. variable utilities, cost of cleaning supplies, overtime expenditures, shipping costs, etc.).
You can use the same concepts to help yourself get a handle on your personal finances, allowing you to focus hard on the places you can make the biggest difference. The key to this is understanding that many things we consider fixed expenses are actually more variable than we might think. Here are the seven biggest culprits, and what you can do to reduce them.
1.Your Subscription Costs
Every home has several recurring monthly payments for something like a gym membership, magazine subscription, website membership, delivery box deal, online streaming or similar service that hits your account regularly and automatically. Most homes get little value out of at least half of these.
Go through your bank statements and cancel half of your subscriptions. Chances are you won’t miss them and you’ll spend the money on things you want to do on purpose.
2. Communications Fees
These include your mobile phone, landline, cable bill and all the other things connecting your home and yourself to the outside world. You won’t find a 50% reduction by handling just one item, but a combination of approaches can slash this ever-escalating bill to the bone:
- Shop the competition to find better deals for comparable services.
- Cut off premium services like big-name channels or mega-data plans you aren’t really using.
- Consider killing your landline altogether. It’s a decade out of date!
- Negotiate with sales agents saying you plan to cancel — they might offer you a better deal that way.
- Cancel memberships to streaming services you no longer use.
- Combine services when possible to take advantage of bundle deals.
Not every one of these will work for every household, but you’ll be surprised how many companies will offer serious savings for yours.
3. Car and Petrol Payments
In many households, the car payment is the second-largest bill after mortgage or rent. It can sometimes be higher, if you have expensive insurance or a petrol-guzzling auto. Consider getting a new-to-you car by trading in what you have. This can save money in three ways:
- Buy an older (yet still reliable) car in a less expensive model to reduce your car loan payment each month.
- Take advantage of the lower insurance costs for covering that less expensive car.
- Make sure it’s more fuel-efficient than what you’re driving, to reduce your petrol costs.
Combining these three factors can save you hundreds of pounds each month. Bonus points for using some of that to pay off your car loan early, further reducing your monthly expenses.
4. Your Garbage Bill
This isn’t the largest item on your monthly expenses, but it’s one of the easiest to cut in half. Most garbage companies offer several different sizes of containers for your curbside pickup. Most homes do not choose the smallest size.
Step one of this plan is to order the smallest bin size you can reasonably manage. Step two is to reduce your waste until your stuff fits inside of it. A few steps to consider for doing this:
- Get aggressive about your recycling, pulling out recyclable refuse even when it’s a hassle.
- Put food waste down the garbage disposal, or in a compost bin in your backyard.
- Donate anything reusable to the local thrift shop.
- Compress and smash everything that does go out in the bin.
Half your garbage bill isn’t huge money, but it’s still money!
5. The Grocery Bill
Shop using a list and a weekly budget every week. According to Paco Underhill’s book The Science of Buying, impulse purchases account for as much as 70% of your shopping bill. That’s an average of £4,050 per person in a year. Cutting that out for two years can buy you a reasonable used car.
By making a meal plan and accompanying shopping list, then buying only what’s on the list when you go grocery shopping, you can cut your grocery bill potentially to 30% of what it once was. This is especially possible if you get smart with your meal planning by using in-season produce, sharing ingredients between recipes and using what’s still in the fridge at the end of each week.
Of all the items on the list, making this one happen will give you the largest savings yield for the lowest amount of stuff you miss.
6. Your “Latte Factor”
Your “Latte Factor” is that one thing you spend money on unnecessarily and unconsciously, that you don’t really derive that much pleasure from. For some people, it’s literally that latte from the coffee shop next to where you work (when you could be bringing perfectly fine coffee in from home). For others, it’s cigarettes or that second beer with dinner. Other folks go book shopping or clothes shopping a little too often.
You know your “latte factor,” even if you don’t want to admit it.
The solution here is simple: Cut it in half. Buy that corner latte every other day. Have just one beer with dinner. Cut down your smoking from a pack a day to half a pack (or none!). Cut your book or clothes splurges in half. That way you get to enjoy your treat, but you’re still saving money.
Insurance costs are like the communications costs we discussed earlier. You have to have some of it to function in modern society, but you’re almost always paying for more than you need, and probably paying more than you should for all of it. Cut your insurance bill with two steps:
- Step One: Cancel all unnecessary policies. No matter what your insurance agent says, you really only need the following: homeowners/renters insurance, liability insurance on your car, life insurance on adults with children, and health insurance
- Step Two: Shop aggressively on what’s left. Even threatening to leave can net you a discount of 15% or more, and moving to a new provider (except for life insurance) can save you even more.
We encourage you to set aside one month — maybe next month, maybe the one after that, but no later. Spend that whole month trying out each of the eight things on this list, maybe at a rate of two per week. Look at what that does to your bottom line. You’ll be pleased enough with the results that you’ll never go back.
Van Tufts is a self-taught savings expert who’s now made a career out of it, helping clients budget themselves to make their lives easier while paying off debt and being more responsible about money coming in.