The fundamental rule of personal finance is to spend less than you earn. The two ways to achieving this goal are spending less and earning more. The bigger the positive gap between your earnings and expenditure the greater your financial freedom. This is the essence of the message from Charles Dickens’ character Mr. Micawber in the novel “David Copperfield” when he tells David, “Annual income twenty pounds, annual expenditure nineteen [pounds] nineteen [shillings] and six [pence], result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”
I have produced a Cost Savings book in PDF formate that concentrates on the first of these strategies with the aim of being of fairly immediate value to a wide range of people. It takes a generalist “something for everyone” approach. It can be read from cover to cover or dipped into randomly at any point.
A given suggestion may seem pointless to one while at the same time be brilliant to another. The value of any suggestion may depend on your personal circumstances at any given time.
Most of the ideas concentrate on saving/avoiding cost but some deal with saving time or effort which in many cases comes back to cost saving again.
Sometimes time is money, at other times it can be what makes the difference between been in control of things or under pressure. In general there are benefits if you can make what you consider better use of the fixed amount of time that is available to you. Again the ultimate saving is totally eliminating the need to do something that takes up valuable time. An example approaching this ideal may be ordering your groceries on line and have them delivered to your door rather than spending a couple of hours driving to the supermarket, filling your shopping trolley and driving home again. Another example may be to go to work earlier before traffic builds up and leave before the evening rush and so reduce the amount of time you spent sitting in traffic during the weekly commute. If your work allows you might be able to eliminate it altogether by working from home.
The overriding message is that being thrifty need not be a chore and if a saving is made on something then there is more available for something else. Life is about choices and it is up to you to decide what you consider worthwhile or not.
The first few pages give a few generalisations as to where one might profitably look for ideas if one wanted to indulge in some brain storming. The rest of the book offers more specific suggestions, many of which can be immediately applied without any great effort or investment.
Total Costs and Savings
The two principle ways of reducing costs are to reduce consumption and to reduce the price you pay per unit of consumption.
Your personal circumstances may affect the value of a given course of action. For example the marginal rate of tax you pay will determine the relative value of before and after tax expenditure or savings.
Once off big savings are usually easy to recognise as being worthwhile. But frequently occurring small costs or savings which can add up to significant amounts over time may sometimes go unrecognised.
After reading this book you may consider sitting down and filling in a chart like that in the appendix to get a better picture of your ongoing costs. You might find a few surprises. Add items to the chart that are relevant to you. Remove items that are not.
We all have to make life choices. Each choice may have positive and negative consequences and each of us has to decide for ourselves what is important to us. You may feel that having a car can give great freedom to come and go as you please. Although the people I know without a car manage perfectly well. On the downside car ownership involves costs such as purchase price, tax, NCT, servicing and maintenance, insurance, new tyres not to mention the ever increasingly more expensive parking and fuel costs. Decide for yourself what is more important to you.
Reduce your annual newspaper costs by €500 and spend on a little holiday instead? You might decide to put an extra €500 into a pension and get further tax savings to the value of 20% or 40% depending on your marginal tax rate. Timing can be important. In the last example you can expect ultimately to get a bigger return if you have twenty or forty years to go to retirement than if you are to retire in five years time.
This “book” is being written to help businesses and individuals cut their expenses or save time or effort. Several of the suggestions offer immediate cost reductions. Some Cost Savers can be implemented merely by changing a procedure or habit. Some ideas will require an investment. Some of the suggestions are generic while others are particular to a given set of circumstances. Reading through these ideas will make you think and should prompt Cost Reduction clues for your particular circumstance.
You can dip in and out of this book and try suggestions that appeal to you, but for maximum benefit over the long term it might be a good idea to systemise your cost control activities. Some costs will reoccur at fixed intervals such as insurance contract renewals. Set up text, email or diary reminders at appropriate times to review various activities. If you enter a 12 month contract for reduced utilities bills and the default action if you do nothing after the 12 months is you pay the higher price without any reminder from the utility company set up an automated reminder for yourself to review the situation a week or two before the concession period expires.
It is important to get to grips with the basics of budgeting, planning and learning how to save cash in all areas of your life, so that you get the most from your money. Savings in one area mean more for something else. This publication is produced to help you on your way to achieving that.