We ended
Part 1 with, "If we are going to
explore ways to reduce spending, shouldn't we start with the elements
that are costing us the most?" Let's pick it up there.
Most financial professionals say only 28% of our gross income should
be committed to housing costs. Of the average $65,132 gross income, 28%
would mean reducing our housing spending from $20,093 to $18,236, saving
us $1,857 per year. Assuming a 250-day work year, this savings could
allow us to spend nearly $7.50 per day on lunch, enjoying our friends,
and taking a break from the office. More dramatically, reducing our
mortgage payment by $500 per month, saving us $6,000 per year, pays for a
whole lot of dinner and movie date nights.
Similarly, assume we
spend $4 per day enjoying our morning coffee at Starbucks with friends
five times a week, for 50 weeks a year. Annually this would cost us
$1,000. Now suppose we purchase a nice used automobile for $15,000
rather than a new car for $25,000. This saves us $10,000 or 10 years
worth of coffee breaks with friends (plus interest!).
Of course,
everyone has different priorities. I suggest spending your money on what
you are passionate about. For the occasional car fanatic, perhaps
spending more on a car that makes you happy each day is preferable to
other spending options. Likewise, if homes happen to be your hot spot,
heavy spending in this area makes sense. However, I'd suggest that for
most people, the experience of constantly eating with friends or
spending a night out with your spouse is more likely to bring happiness
than the possession of an expensive home or car. After all, would you
rather eat out with friends or clip coupons in a large kitchen alone?
Question to the Reader: Where can you cut your expenses most?
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