More Useful Stuff
Want to seize control of your money? All it takes is a few (relatively painless) budget cuts.
It’s bad enough talking about the economy, the meltdown, the recession… But it’s even worse when you experience it first-hand. About a year ago I lost my main money-earning contract, and within the next few months my income had dwindled to a small percentage of what it was. Then my wife had a baby, and we got involved with a new start-up that needed some investment. We still had to pay the rent, the cars, medical aid (now for three people) and our cellphone bills. Bottom line: we went from living comfortably to living very uncomfortably, spending significantly more than we were earning, and relying on overdraft and credit cards to make ends meet.
I woke up on the morning of the last day of last month, with my cellphone banging away madly. Whenever an amount is paid out of my business bank account, it activates an SMS on my phone. On this morning there were so many SMSs – and so many payments – that it sounded like an alarm. I checked the time. It was four in the morning. I checked my bank statement, and there were negative numbers everywhere. I’d had enough. I decided then and there that I was going to cut down on my monthly expenses. Here’s what I did… and here’s what you can learn from my mistakes.
EXPENSE: HOUSEHOLD INSURANCE
We met with our insurance brokers and went through our household policy. Seeing as we’re renting (to find out whether this is a good idea, go to www.mh.co.za/wealth) and most of our furniture is still in storage, we managed to drop the insurance for household items slightly. My wife and I have both been driving our cars for a few years, so we also updated the book values of the cars, and changed our insurance accordingly. “It was a fairly straightforward adjust-ment,” says Les Nel, a broker for Mutual and Federal. “There was an opportunity to reduce the insurance on household goods slightly, seeing as a lot of their goods were in storage. Secondly, we adjusted the replacement values of the vehicles according to the latest retail values.” The renegotiation took 10 minutes and the savings kicked in the following month.
Monthly savings: R158
When I started my own business a few years ago, I opened up a new account at a different bank to keep my business and personal accounts separate. I can’t remember who advised me to do this, but over time my
accounts all ended up at the original bank anyway. The business cheque account remained open, with nothing in it. A manager from my old branch actually called me up and told me I was wasting my money (I was paying for an account I wasn’t using) and that it would be a good idea to close the account.
Turns out I was spending R65 a month keeping this account open… and every month the bank debited my account purely for the service of debiting my account!
I went into the bank and closed the account – despite the manager’s claims that I would need the account to get a bond. Having already spent a year trying – unsuccessfully – to get a bond from his bank, that argument wasn’t going to convince me to keep the account alive. It took 30 minutes of standing in a queue, and two minutes at the teller to close the account. The saving kicked in immediately.
Monthly savings: R65
My cellphone bill was out of control. I was spending R2 300 on average every month – and when I was busy that was fine, because it meant I was spending all my contracted minutes and data. But when things slowed down, those minutes and that data piled up – and then fell away.
Then a conversation with with an acquaintance got me thinking. “As a company we are still busy, but not as busy as we were two years ago,” he told me. “Quite simply, I’m speaking less on the phone now. Why waste money on unused minutes that are eventually going to get deleted anyway? It seems pretty obvious to downgrade.” So that’s what I did. I phoned Vodacom, expecting it be a real battle. It wasn’t. It took me 10 minutes on the phone to downgrade my account. The savings kicked in at the end of the following month, but I had to pay a R175 cancellation fee. Thereafter the monthly saving worked out to R375. I also downgraded my phone data package, giving myself a R30 saving there as well.
Monthly savings: R405
EXPENSE: MEDICAL AID
When I was gainfully employed I went big with my medical aid – and when my wife (and then our baby) came along, I simply added them to my top-end policy. I was in deep. To cut back without losing too much coverage, I dropped to a very good hospital plan without a Medical Savings Account. I also dropped my gym benefits, seeing as we no longer live near a gym.
Monthly savings: R1 951
My wife and I both work full days from home. With our one-year-old son needing quite a lot of attention, we were lucky enough to find a wonderful nanny and domestic worker. We employed her five days a week at R100 a day, plus a daily taxi fee of R15. We agreed to cut that down to four days a week, so Wednesday got knocked off the schedule. My wife loved the idea. “We both work from home, yet we never seem to have family time,” she said. “We’ve decided that every Wednesday we are going to do something different – whether that’s a walk on the beach in the morning, a braai at lunchtime or maybe bits and pieces of gardening. Just time together, jolling around with our boy.” The saving kicked in at the end of the month.
Monthly savings: R460
Our monthly grocery bill came in at R9 024. Out of that, R852 went to the bottle store, R2 064 went to restaurants and R1 400 went to fast food joints. Even if we vowed to stop boozing and eat at home, that would still have left us with a R4 708 bill. Admittedly, a lot of that went to buying nappies and other necessities for our baby… but that’s not going to mean anything to the debt collectors. We started by cutting down on dining out, budgeting R1 600 for the month (our plan was to go out once a week at R400 a pop). We had relatives visiting us from out of town, so we ended up going out six times in the month (total cost R2 345)… but at least it’s a start. We saved a small fortune by cutting our takeaway budget down to R650, and allowed ourselves two monthly grocery shops, budgeted at a maximum of R1 800 each (making it R3 600 – a target we managed to hit spot-on). Despite the tighter budgets, we accepted that some things will never change. So the booze account stays at R850 for now.
Monthly savings: R1 579
Total Monthly Savings: R4618
THE BOTTOM LINE
One of the first things we noticed was how stupid we’d been with our finances. After these few simple cuts (and with room still left for more) our total monthly savings amounted to R4 618… per month! And that doesn’t include the R1 000 bonus from the sale of the unused wetsuit. While my wife and I are obviously very pleased with this saving, it’s quite embarrassing to think how wasteful we’d been. Maybe it was laziness, or maybe it was just that we thought we had everything under control. Over and above the money we’re saving every month, what this exercise has really done is give us control over our finances and our future. And that’s a pretty good bottom line.