Actively pursuing a financially independent lifestyle will require you to understand your financial situation in detail. You need to understand your personal balance sheet and financial net worth. I have written a blog post about that here; Family Net Worth Update #1.
Additionally you will need to understand your income statement, and especially the cost side of your income statement. Once you understand this, and know where your money comes from and where they go, then it is time to get planning as well. Introducing – THE BUDGET.
Once you understand your financial budget then it is time to take those drastic measures and decisions that will improve upon this budget in order to preserve more of your income, increase your saving rate, and build that much desired WEALTH.
My wife and I went through our budget roughly 6 months back, and here are our 19 most important improvement items.
1. Tv channels.
Cut it. Just cut it. If you don’t feel comfortable cutting it completely, then at least reduce it down to the lowest possible package. Here in Denmark, cable packages usually comes in three sizes, small, medium and large, with pricing from roughly 30 to 90$. Just cut it down to the small package. Find something else to do, and spend your time on.
2. Subscriptions – streaming.
Cut it. Don’t have both a Netflix and HBO subscription. Cut it down so that you only have one. We did this, and then switched for watching GoT. Currently we are behind, and will have to switch our current Netflix to HBO to finally see the last season of it. So please no spoilers.
3. Subscriptions – newspapers.
Cut it. Or at least trim it down to one newspaper subscription. We had two. One through my work and a private one on top. We didn’t have time to read it anyways, so we cut our private one away.
4. Subscriptions – magazines.
Cut it. Just cut it away. My wife had at least one magazine subscription on and off. We have cut them away. Also my weekly dose of The Economist. 😢.
4. Union membership for dad.
This one is not recommended for all, but I used to pay to the union of Danish lawyers and economists. As a contract employee in the private sector it didn’t really do anything for me, other then a monthly news bulletin. Savings are 120$ a quarter
5. Unemployment insurance (mom)
This one is definitely not recommended to cut away for most people. But my wife is an M.D, and unemployment risk for her is basically zero, so she actually wanted to cut it away herself. Savings are approx. 100$ a month.
6. Reduce eating out.
The classic one that will also take away a bit of quality of life. We are activately trying to reduce the amount of times we eat out. Having a toddler in the house definitely helps with this one. Plus we save the nanny.
7. Reduce take away
Trying to justify that take away meal now that you just went full austerity on not eating out. Don’t. C.U.T. I.T. A.W.A.Y. Prepare your own food. This one is where you have to apply your stamina and all the spineless worms will buckle. We fall in now and then.
8. Biking to work
If your commute is below 10 km. then get a bike and start biking to work. This will reduce your gasoline bill. (And potentially your medicine bill). Furthermore, it will reduce car repairs and prolong the lifespan of your car. We went 2 1/2 month with out filling up our car from Jan to April.
9. Planning grocery shoppings.
Stamina and habits will be needed here, but if and when you start planning your grocery shoppings, then your overall cost will come down on food and other amenities. It also helps against that itch of ordering take away. We struggle, but we try.
10. Plan cheaper vacations.
One of the big ticket items in many family budgets. I won’t preach you to not go on vacation or anything of the like, and I also know a lot of families can’t really afford. But please don’t do charter vacations all the time. Then at least you can cut your cost in half. We have switched to driving and the end destination is a mobile home on a camping site. Our kids love it just as much. And a lot of camping sites are really great – at least here in Europe. I would even go for the tent instead, but that was where the mrs. put the foot down.
11. Switch to LED’s.
Trim your utility cost. Switch to LED’s. Turn off the lights. Turn of you passive power consumption. Also for the sake of the environment.
12. Turn down the heating.
In Denmark this one is an important one. From April to October our heating is completely switched off. From October to April is the important period. Switch off heating when you go away for more then one day. Always. Turn it down as much as you can the rest of the time. I do so with out telling my wife. 😘. She hardly ever notices.
13. Drive nice – fewer fines.
When we did a run through of cost items for the last year, in order to do our budget, one thing someone noticed was the cost of our fines. Speeding fines, parking fines, nd what have you. It was too much. I am a way nicer driver now. At least if I have to say so my self, and I don’t think we have had a fine in roughly a year now. Sweet.
14. Consider your insurance cost.
Go through your insurances. Don’t be overly insured. Investigate the market to get lowered pricing. I think we have the cheapest package we can get. Considering reducing our car insurance level though.
15. Consider your retirement schemes
Employer retirement schemes in Denmark is usually a combination of insurance and retirement contributions. Consider your levels, and contribute as much as possible within the tax deductible level.
16. Don’t buy coffee to-go.
Just stop buying that double foam skim latte with caramel syrup on your way to work. Stop buying them altogether. I know you might think I am overly obsessive about this one, but that is simply because I live in the city of the world with the most expensive coffee prices.
17. Buy second hand.
You don’t need to get everything from new. Please visit a second hand store and buy some of what you need. And Ps. chances are you don’t even need it in the first place.
18. Reuse your items.
Don’t throw your things away, before they are worn out and stops working. Think about your wallet and the environment. If you cannot reuse you items yourself, the pass them on to someone else. Or give it to a second hand store. Don’t throw it away.
19. Resell your items.
When you are done using your stuff, and you have no possibilities to reuse them, then always try to sell them. There is significant scrap value in many items. It will also be beneficial to your finances.
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