Managing the Most Important Frugal Living Metric: Monthly Expenses
The most important frugal living metric is management of the category “monthly expenses”. As mentioned in Frugal Fill’s Top Personal Finance Resources post managing monthly expenses (I refer to them as “the monthlies”) is accomplished through budgeting. You can employ tools like the Mint app and Personal Capital (Now Empower as of February 2023) to help you track your cash flow (affiliate link, join and add a qualifying investment account to their tracker and we both get $20!).
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Passive tracking is followed by the active step: management. Follow along as we break down management of three types of monthly expenses.
I also imagine “the monthlies” as a cash strapped cartoon family living paycheck to paycheck. Spending every single penny of income on a payment for something that they flaunt as if they own it outright. If their income goes up, their spending goes up accordingly. I’m not an artist so you don’t even get to see stick figure rendition. Just don’t be like “the monthlies”.
Managing Self-Recurring Monthlies
Self-recurring monthlies are expenses that are not either life sustaining, fulfilling debt obligations, or required utilities. Consider this type of monthlies as the subscription services, nice-to-haves, convenience makers, and time savers. You can most likely cut all these money wasters out of your life easily if you haven’t already.
There are monthly subscription boxes for everything nowadays; recipes, clothes, dog toys, camping gear, electronics, kid friendly science projects, underwater basket weaving etc., you name it! While they may bring convenience into your life, at what cost? Could you replicate that service at a fraction of the monthly cost and still receive most of the benefit? I’m not saying that all of these subscription type services aren’t worth it for every situation.
What value does it bring to your life? Is that truly an area of value you want to focus your spending on?
Another great example is an HVAC system service plan. While there’s a time and place for this type of service, most people can easily get around it by picking up some simple DIY skills. Anyone can change an air filter or wash an AC condenser. I’m appalled at the amount of up sales HVAC companies get by fully competent homeowners that are scared into letting the professionals do these simply tasks. It’s like hiring a plumber to flush the toilet for you after every use because that same plumber said you’re probably not capable of flushing it yourself. You’d be insulted at that statement!
Chances are you can dump all these services off your budget and reap the benefits immediately. There’s no need to keep up with the Jones’s on these expenses. Cancel them all, enjoy learning to do it yourself, and laugh at those who think you’re poor because you don’t waste money every month on a poorly curated box of overpriced wine shipped to your door when there’s 10+ liquor stores within a 5 mile radius.
Managing Long-term Monthlies
Long-term monthlies are the big-ticket items like rent/mortgages, auto loans, school loans, financed goods like furniture, or services like home improvement work, and medical bills. I’m going to come right out and say it, while some of these are necessary evils, most you have complete control over or could also eliminate completely based on need versus want conversations.
Have you ever been to a car dealership and when you ask how much a vehicle costs the salesman responds with “how much a month would you like your payment to be”? As a frugal lifestyle ninja, you need to combat this way of thinking about such a large monthly expense. Think more along the lines of, “if I can’t afford to pay for this vehicle in cash without compromising my long-term financial goals, can I actually afford it at all?” You force yourself into only purchasing assets instead of purchasing liabilities with this way of thinking.
If I can’t afford to pay for this (material item) in cash without compromising my long-term financial goals, can I actually afford it at all?
Here’s an example of someone with a poor credit score buying a $25,000 car with $0 down at a terrible 8% interest rate over a very long 84 month term. Yes, we have auto loans available now for terms that are longer than some cars useful lives or depreciation curves. This person thinks “hey I’m only paying 8% more to get this car now when I otherwise couldn’t afford it”. Wrong, they end up paying almost 18% more through the power of compounding interest, and over $30,000 for a car that was only ever worth $25k at its peak value! But if they can afford the $500 a month, they’re sold this car as it being an affordable deal.
Don’t sign up for a long term payment you don’t need. Negotiate interest rates on the long term payments you do need. Avoid buying liabilities, only buy assets. I’ll let you decide where to draw the line on those terms but in general, a depreciating asset (paid off car) is still way better than being underwater on a depreciating liability (owing more on a car than it’s worth).
Managing Necessary Monthlies
This type of monthly includes your food, utilities, internet, health and wellness.
Food
Food monthlies can be controlled my limiting going out to eat, looking up frugal recipes online, buying things that you normally buy anyway when they are on sale. One pitfall I see often is buying things that you wouldn’t normally buy just because it’s on sale. If you buy a $40 canister of coffee for $20 because it was on sale 50% off but you normally buy a $10 canister of coffee, you didn’t just save $20, you actually spent $10 more!
Utilities
For utilities, you can obviously minimize your total usage and/or peak usage to directly lower your bill. These are the standard tips of turning off lights, running your AC less, and taking shorter showers. I know these seem trivial and the savings seems small, but it adds up over time. Consistency is the key here. Form habits and follow through.
TV/Phone/Internet
Do you really need to have a bundled home phone, 500+ TV channels, and internet plan? Consider going with a bare minimum internet only plan and use free video steaming services like YouTube. Share the expense of other streaming services (or login to a family member’s account on your TV if permitted) to reduce or eliminate TV expenses. I’m going to refer to internet as an essential utility because it enables many of us to produce our primary incomes from home during this ongoing pandemic.
I get nauseous when I hear of people having $200+ a month cable bills. Cut out the un-needed portions, and don’t let your provider off easy. Call them often, negotiate a better price, threaten to talk to their cancellation department and change providers, they almost always offer a promotion to lower your bill. I haven’t paid more than $40/month for high speed internet service in years, my record was $20/month for a couple of years for 100mbps download speeds! Why are some people paying 10x more for the same service?
Phone service is another critical area in the monthlies. You don’t need a home phone, cancel it. If you want a separate “home” number for your “work” number get a free google voice number. Next, avoid all the extra add-ons with cellular providers. You don’t need to pay for caller ID, visual voicemail, insurance, or get a new phone as soon as your current one is paid off or eligible for an upgrade. Get a phone case (on amazon, not from the provider), be careful with your expensive device, and keep it working as long as humanly possible. You don’t need the latest i-thing to show others how rich you are if you are rich on net worth and value in other more important areas of your life.
Health and Wellness
Some of this is out of your control with healthcare insurance plan costs, but be sure to take advantage of healthcare incentives from full time employers including programs to lower premiums, employer matches to HSA contributions, and even on site gyms for some big companies!
Having an anytime fitness membership is only worth it if you are (a) going enough times to make it cost effective versus paying per session and (b) getting just as much (if not more) benefit from the specialized equipment at the gym. Most of us frugalites probably aren’t the greatest bodies in the world to look at, but that doesn’t mean you can’t do body weight exercises, resistance band exercises, and cardio for cheap or FREE at home. Save time, interaction during a pandemic, and CUT THAT MONTHLY.
Not Mentioned “Monthlies”
But Fill you didn’t mention the other common monthly expenses I have like insurance and credit card bills? Well let me enlighten you on these two very important types of not-so-monthlies a bit more.
Insurance
Insurance is a scam. I said it. The premise is a company soliciting a large quantity of people to pay into a pool of money such that in the event of catastrophe(s) the company will always pay out less than the total collected. However, I absolutely urge you to have adequate insurance coverage of your property and life as an effective way to mitigate financial risk. That doesn’t mean you need to spend a fortune, and it also means be careful to not over-insure. A topic for another day.
Side note, you can do some light reading on Actuaries to learn the back story behind insurance. It’s also a great profession for the math majors we made fun of for having “high school teacher” as their only job prospect after college. They now make way more money than us Engineers do, good work!
Because insurance Actuaries use a very advanced calculation of money in vs. money out it makes insurance rates vary wildly and seem arbitrary to the consumer. An insurance company will lure you in with a low starting premium “save up to $500 when you switch” and slowly increase it over time. This is exactly why you should take advantage of that practice and switch companies every few years. Or at least shop around to make sure you’re still getting the best rate.
Insurance is a scam. Sort of.
I recently shopped around my home and auto insurance after staying with one company for 5 years. It took me about half a day and I cut my insurance premiums by 50% for slightly better coverage! There’s no harm to looking around or even letting your insurance agent know that you’d like to see some more competitive rates. There’s no award for those people who gloat about staying with the same insurance agent for 40 years, other than they bought his boat for him.
Another insurance hack that most people aren’t aware of is that there is usually a policy discount for paying in full. The monthly payments include a “convenience fee” that doesn’t add any more value to your policy. It’s the same trick the car salesmen use by selling you a low monthly payment that ultimately costs you more for the same car. This is why I don’t consider insurance as one of the monthlies because I urge you to compare your true total cost and pay it upfront for the best price.
Credit Cards
Someone recently asked me what my credit card interest rate was. I’ve had my longest standing card open for 13 years and I honestly couldn’t tell them. I don’t know what the interest rate is, and I don’t care either because I’ve NEVER paid any interest on it.
Even though I use a credit card to pay for everything I pay it off in full each month. If I’m ever getting close to spending too much on my credit card that I can’t afford to pay it off in full, then I can’t afford whatever I’m looking at and I don’t buy it. This strategy will keep your high interest debt low and your credit score high. This is why credit cards aren’t one of the monthlies, they are just the more frugal way to spend the contents of your checking account than cash or debit.
Bonus side story that should really be a part of a longer frugal credit card usage post, but I’ll share with you now. A long-time friend of mine used to make fun of me for using my credit card everywhere we went “why are you financing that pizza? LOL” as he would pay cash for everything. What he didn’t realize is that restaurants were 5% cash back that quarter. Since I’ve known him, I’ve saved over +$10,000 in credit card cashback rewards! He’s since learned his lesson.
Conclusion
After tracking your spending, there’s no shortage of opportunity to trim your monthlies. Are there many things that show up every month on your statements? Do they REALLY need to be there? Cutting down on monthly expenses is the key metric to kickstart your frugal financial freedom journey. Next up we’ll talk about why it’s these small gains that are the most important. We’ll also figure out what to do with all that extra money you just freed up! Spoiler alert, the answer is not to go buy a car for that same amount per month.
