Canadian Finance Blog

Posted: 01 Jun 2011 02:00 AM PDT

I love how a little perspective can encourage positive changes. I was looking over our last 6 months worth of expenses the other day, and all of sudden, I came to a startling conclusion. Here I was, fretting and stressing and worrying over some of the things that we had bought recently. I had bought myself a new video game, we had bought some new clothes, and we had to purchase some gifts coming up shortly. I was all concerned that these purchases would put us over our monthly budget, and was wondering what I could reduce in order to save some money going forward. I noticed, however, that those purchases were essentially small drops in an ocean of expenses, and were rather unrelated to our overall financial health. Instead, our four largest expenses were consistently our home, our debt, our food, and our car. If I wanted to save money, I really should focus on big expenses, not the small ones.

Home

Keeping a roof above our head is, by far, the largest expense we have right now. We pay a rather significant amount of money each month in rent, not helped by the fact that we live in one of the most expensive places to live in Canada. Every square foot is at a premium here, and we pay for it. Also included in this monthly cost is utilities, including electricity and gas bills, internet, phone, and television. Altogether, we spend a lot of money everyday in the place we call home.

If you are serious about saving money, or paying off debt, or staying out of debt, look into saving costs on housing. You can save significant amounts of money by downsizing, and while it may be a bit more cramped, after looking at your budget you may decide that it is worthwhile. There’s hardly any point in cutting out your bi weekly trip to the movies if you are completely unwilling to cut down on your largest expense. Sell your home and buy a smaller one (do you really need 2 extra bedrooms, just in case?), or consider renting a smaller apartment and putting some of your long term storage in a storage locker or at a friend’s house. Saving just a couple hundred of dollars each month is easy. If you are lucky, you can find a place that is just as good for a lower cost. It may be worth the time you spend checking out new places each month.

Debt

Our second largest expense each month is paying off our debt. We have a fair bit of it. That’s what happens when you each spend 3 or 4 years at a private college. Even though neither of us actually use what we learned at the college, my wife and I found each other there, and as such, was totally worth it. Paying off the debt each month is not something that we look forward to, but the damage has been done and now we must work to repay it all.

In Canada, you have the option of applying for student loan relief. For 6 months, the provincial or federal government will lower your monthly costs if you meet the financial requirements. They ensure that the payments that you make are doable, so as to not cause you to go further into debt. Take advantage of this, and other debt relief options that are available to you. If you can, put all extra money towards your debt. Most lenders will not be happy to see extra payments come in, as they want to maximize the interest payments they receive from you. Find your highest interest debt, and pay that one down first while still ensuring to put the minimum on the rest. Rinse and repeat.

Food

Sometimes it surprises me just how much it costs to keep me fed. What with the rising costs of fresh produce and wholesome organic products, food can cost a lot of money, especially if you try to avoid the freezer aisle. Even with a relatively modest grocery budget, going out to dinner once or twice a month can quickly add up. Throw in a night at the pub once a month and all of a sudden your monthly food costs have doubled. While spending $40 on a nice dinner for 2 might not seem incredibly unreasonable, it adds up. It’s worse when you consider just how many meals you could have made from that $40 as opposed to having one quick meal served to you.

Learn to cook. Learn to love rice, and beans (ew), and all those “cheap” foods that frugal people love to stock up on. Look back over your last couple months of budget, and see just how many times you have gone out to eat. Aim to reduce that number by one for the next month. Then, try to reduce it by one more the following. It may be frustrating on those days you just want to fall down on the couch and order in pizza, but you can save a ton of money over the month by forcing yourself to fire up the barbecue or throw a chicken in the oven.

Car

For some of you, your car will cost more than the food you eat each month. Perhaps you live a long way from your work, or you have a large vehicle that requires a lot of gas, or your monthly car payment is a little more than you remember negotiating for. Because we paid for our car in full, we are blessed to not have a car payment. But auto insurance and gas and car maintenance all add up. Our fourth largest expense over the last 6 months has been our car.

We all already know all the ways that we can save money on our car. Drive less, drive slower, fill up your tires and if possible, buy a smaller more fuel efficient car. Now it is just time to do them. In fact, go one further and encourage the summer to arrive a little faster by getting the bike out of the shed and putting the car away for a month. Bike to work, bike to school, bike to the grocery store (easy to buy less at your local mini-mart when you have to carry everything home), and bike to the pub. You’ll get exercise and you’ll save a ton of money.

What are your largest expenses, and what can you do to reduce them?

Focus on the Big Things originally appeared on Canadian Finance Blog on June 1, 2011.