Lower Your Cost Of Living The Geeky Way

It seems like whenever I write about expense control, I have the tendency to get all geeky. Let’s be serious, how many people would actually use the Pareto Principle and Quick Wins to reduce living expenses? Well, today I am going to show you yet another way to look at your expenses — a good thing to look at considering the poor economic conditions.

The Expense Scattergram

What the heck is a scattergram? Basically, it’s a geeky way of saying a graph that shows objects defined by two characteristics. In our case, we are looking at expenses (objects) defined by their:

  • Frequency Recurring expense versus occasional expense
  • Necessity — Something that’s needed for survival (need) versus something that’s nice to have (want)

Okay, I think it’s a lot easier if you see an illustration.

Expense Reduction Scattergram

Note: In this scattergram, I made the circles for larger expenses bigger — a nice touch that you don’t have to worry about if you don’t want to.

Anyway, when you physically plot your expenses on a scattergram (or simply visualizing it), the process help you understand each of them better and give you a place to start formulating your plan.

Expense Reduction Strategies

There are four basic strategies when it comes to expense reduction, and you can do it in any order you want. Here they are:

1. Cut out the luxuries

When cash is tight and you’re in a dire situation, the easiest thing to do is go after the luxury items — i.e., stuff that you want but don’t need. Make do without them! Some will be easier to cut than others. For example, if you’re in bad financial situation, you may want to forgo the annual ski trip at Killington, hold off on upgrading your electronics, do away with premium channels cable, etc.

Photo by HappyHaggis via Flickr

But there’s a lot of gray area here and no two person define necessities the same way. For example, life insurance could be an essential expense for one person, but unnecessary for another. However, this is a good opportunity to take a real good look your wants versus needs.

2. Go after recurring expenses

Another effective method is to aggressively reduce recurring expenses because the multiplicative effect can turn seemly insignificant expenses into a big sum. For example, I have been taking lunch to work for almost two months now. $6 a day may not seems like much, but I saved $240 over the course of 2 months (about 40 work days). That’s almost $1,500 a year!

3. Reduce the frequency

Sticking to the recurring theme, another good strategy is to stretch it out a little longer between occurrences. Here are some examples:

  • I used to visit my sister in Virginia about once a month. Each trip would cost us around $100 for gas and tolls (not including eating out). Ever since the fuel price went up, I’ve reduced the frequency of visits to about once every two months.
  • My wife and I usually go out once a week to enjoy a nice lunch or dinner. Now we stretch it out to about once every two weeks.

4. Reduce the amount you spend

I saved the most obvious one for last. Once you tackle the three strategies above, you could try to squeeze out a little more savings. There are a lot written about this so I am not going to belabor it, but here are some general ideas:

  • Use/consume less
  • Buy less expensive alternatives
  • Buy more expensive alternatives that last longer (lower total cost of ownership)

I hope you enjoy this different way of looking at your expenses. Perhaps you’ll be able to identify a few things to save you a couple hundreds. Now, let’s hear about the expenses you are able to cut.

About the Author

By , on Jul 23, 2008
Pinyo
Pinyo is the owner of Moolanomy Personal Finance. He is a licensed Realtor specializing in residential homes in the Northern Virginia area. Over the past 20 years, Pinyo has enjoyed a diverse career as an investor, entrepreneur, business executive, educator, and financial literacy author.

Leave Your Comment (15 Comments)

  1. Pat says:

    This is a good idea. But as good as this idea is, do we really need a graph to see the folly of throwing money at “Starbucks?” :)

  2. Suki says:

    There are lots more ways to cut costs. These are just a few.
    1) drop the smart phone and get a “dumb” one. Save about $50 per month. Get a low-priced tablet (e.g., Kindle Fire) or use your old iPhone as a wi-fi only device. Wi-fi is available everywhere; you really don’t need to pay for cell-based data plans
    2) call your car and home insurance company and tell them you want to go through all your coverage because you found another carrier that is cheaper. They’ll probably help you “find” 10% off or more.
    3) speaking of car insurance – An expensive policy from GEICO, Progressive, etc. is not needed. You can find one usually for less than $30/month from a place like Insurance Panda (4AutoInsuranceQuote also has good rates). If you spend too much on car insurance from one of those big companies, chances are you are simply funding their expensive TV ads with cute animals.
    4) compare what your house is really worth to your assessment. Many assessments have never been properly adjusted down to reflect the market over the last 4 years. We cut our property taxes by about 20%.
    5) re-fi your 30-year mortgage to a 15. The interest rate will drop by at least 50-75 bps, more depending on your current rate. The payment may go up slightly, but it is because you are paying off your loan faster. If it’s possible, get the mortgage paid off before the kids go to college. At a minimum, have it paid off before you retire.
    6) review your credit card bills for all the things you are paying $10-20 per month for that you no longer need. I bet everybody has at least a couple
    7) drop all magazine (paper and on-line) subscriptions. Sorry WSJ, but that includes you too. If you look around, you can find comparable content for free.
    8) review your investment portfolio for ways to replace higher fee mutual funds or ETFs with lower fee ones. S&P500 funds/ETFs shouldn’t charge more than 0.10% in fees. Fees may be higher for specialty funds, but they are all coming down fast. If your company 401K uses high-fee funds, talk to the folks in charge. A difference of 25 bps in fees will mean a difference of about 5% in your portfolio value after 25 or 30 years.
    9) and of course the most impactful — never carry a balance on a credit card. If you can’t resist, cut up the cards.

  3. Pinyo says:

    @Dave — I can’t wait until I pay off my house; then again, I might get hit by upgrade bug. My wife and I think we will need a bigger home in a few years to accommodate household member #7 and #8.

    @Avatar — Hmm…3D. That would make one cool graph!

    @Until Debt — Every month might be a bit tough, but I supposed someone can program a spreadsheet to do the job.

  4. Scattergram – its a great way of visualizing your expenses and makes it very easy to spot the problem areas. What would be really cool is if you do it every month and then somehow animate them so that it shows how much each circle shrinks by.

    Okay that is maybe a bit too geeky.

  5. Avatar says:

    What an interesting post! I didn’t expect someone to plot expenses against the dimension of frequency vs. desirability.

    I feel a bit of deja’vu as I blogged about the same topic except I was plotted expenses against the dimensions of necessity vs. desirability. Hmmm… perhaps we’ll need a 3D scattegram next to plot against three factors.

  6. Marci says:

    Cool graphic :)
    Reduce the frequency seems to be my mode :)

  7. Dave says:

    Pinyo,
    Not if you own your own home! Of course you still pay property tax and home insurance. In my case that amounts to $250 a month on my 4 bedroom home. Can’t find a house that big for rent so cheap in California where I live. Of course,it takes time to pay off your home but the freed-up cash flow afterwards more than makes up for it, as I said in my original post.

    Keep up the good work with your blog! I enjoy reading it very much!

  8. Pinyo says:

    @Dave – Thank you for your enthusiasm. The only problem is that green dot will be replaced by a slightly smaller (or may be even bigger) green dot called rent.

  9. Dave says:

    Very interesting graphic! But wouldn’t life be a bit better if one eliminated the largest dot on the map under reoccuring need…..the mortgage. Eliminate that dot as soon as possible and all of a sudden, most of your spendable money moves into the “occasional” and “reoccuring” “Want” columns thereby giving you much more freedom of how you desire to spend your money. Clothing, utilities and food will account for a small part of your budget and more money. What used to be the fat green dot called “mortgage”, can be used to make those green dots labled “vacations, eating out, a larger big-screen TV” bigger, or whatever floats your boat. Let’s just say it worked for me!

  10. Pinyo says:

    Thank you everyone.

    @Jerry — I brew my own coffee at work. I buy coffee ground from Costco and each container last about a month. We brew enough for 3 people, 6 days a week.

    @Mrs. Micah — Watch out for the one-time expenses, because they can get you too.

    @Sam — Yeah it’s nice to be able to sum it up, but sometimes we need to break it down step-by-step to make it easier to achieve.

  11. Sam says:

    Who would have thought scattergram can be used to reduce cost of living..only Pinyo can!*laughs*..The strategies mentioned are helpful, but I would to sum them all in one – that is to Live Simply!

  12. Mrs. Micah says:

    I find that the recurring have been the best for me. Controlling occasional spending desires, of course, but I was already doing that.

  13. Jerry says:

    Clever scattergram. I wish I was organized enough to create a scattergram. I think it is funny how high up you placed starbucks. I seem to be the same way.

  14. PT says:

    you are such a geek. so am i though. i love the scattergram. great points on reduction as well.

  15. Brad says:

    I’ve never heard of the scatter plot method of mapping expenses, but I have to say that I like it. It is very clear and seems like an excellent way to visualize the money that is leaving your bank account each month. My wife and I will have to sit down and work one of these out over the weekend.

    I also liked your point about reducing the frequency of your spending. I do try to spend less when my wife and I go out but the number of times is something that I don’t think I’ve ever stopped to consider. Great points and an excellent post.

Leave a Reply

Your email address will not be published. Required fields are marked *

*

Disclaimer

The information on this site is strictly the author's opinion. It does NOT constitute financial, legal, or other advice of any kind. You should consult with a certified adviser for advice to your specific circumstances.

While we try to ensure that the information on this site is accurate at the time of publication, information about third party products and services do change without notice. Please visit the official site for up-to-date information.

For additional information, please review our legal disclaimers and privacy policy.

Notice

Moolanomy has affiliate relationships with some companies ("advertisers") and may be compensated if consumers choose to buy or subscribe to a product or service via our links. Our content is not provided or commissioned by our advertisers. Opinions expressed here are author's alone, not those of our advertisers, and have not been reviewed, approved or otherwise endorsed by our advertisers.