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.
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.
Pinyo is the owner of Moolanomy Personal Finance and a Realtor® licensed in Virginia and Maryland. Over the past 20 years, Pinyo has enjoyed a diverse career as an investor, entrepreneur, business executive, educator, financial literacy author, and Realtor®.