Provision #190: Cut your Expenses

Laser Provision

Cutting your expenses can be a very high-yield investment: it’s completely tax-free and, when implemented properly, it can produce a sustainable as well as enjoyable lifestyle. Get into the game of cost cutting your way to success.

LifeTrek Provision

In reviewing the literature on the supply-side of the cash-flow equation, I made an important discovery: the demand-side rules the roost. As Andrew Carnegie once said, “If you can’t save money, you’ll never be rich.” Make no mistake about what this means: controlling expenses is fundamental to successful money management and cutting expenses is high-yield investing. Increase the supply-side by a dollar and you’ll either pay taxes or tax-sheltering fees on that dollar. Decrease the demand-side by a dollar and it’s completely tax-free.

An analogy can be made here to weight-management and weight-loss. In 1998, I lost 65 pounds and have since maintained my weight, with only a slight initial increase to a more sustainable level. In the process I learned how much harder it was to burn calories (the supply-side) than to never consume them in the first place (the demand-side). It takes an hour of intense aerobic exercise to burn off the calories in two bagels with cream cheese. And running an entire marathon will not burn a pound’s worth of calories. Once I got this truth, I stopped eating bagels with cream cheese and “calorie awareness” became effortless, second nature, and fun. I didn’t want to gain the weight back again.

So too with money. Controlling and cutting your expenses (the demand-side) is the best financial investment you’ll ever make. For one thing, like those bagels with cream cheese, if you don’t control the demand-side • the supply-side will never produce the life and shape you want. Once you see controlling and cutting your expenses as a high-yield investment, it too will become effortless, second nature, and fun. Instead of feeling deprived, you will rejoice with every positive move to control and cut.

So far in this series we haven’t given too many specific suggestions on how to do this, other than to state the obvious: it starts from within. Without a clear vision of the life you want to live, you will never get a handle on your spending. Coaches often work with clients at precisely this point: getting crystal clear about their priorities and getting motivated as well as organized to do nothing that detracts or distracts from those priorities.

Truth be told, that is the most important suggestion of all: identify your own, unique spending triggers and institute systems that automatically and effortlessly prevent you from pulling those triggers unawares. The point is not to never spend money. The point is to never spend money mindlessly, and to never rationalize spending more money than we can truly afford. Just as we need to know the calorie level that will maintain optimal weight, so too we need to know the spending level that will maintain optimal wealth. From this baseline we can build the life of our dreams.

That said you might want to consider the following suggestions for cutting expenses from The Complete Idiot’s Guide to Investing Like a Pro by Edward Koch and Debra DeSalvo (2000, Click):

  • Track your expenses accurately, honestly, and concurrently. You can’t control or cut what you don’t know. This tracking may identify “money leaks” that we can cut: late fees, daily extravagances, eating out, and keeping things we don’t want. Cutting expenses begins with money mindfulness.
  • Cut your taxes. The options abound for pre-tax expenditures, offsetting gains with losses, charitable contributions, tax-free income, and deductible interest payments. See a good tax advisor.
  •  Buy in bulk, but never more than a three-months supply. In the name of bulk buying • “Look at how much I’m saving!” • many people end up overstuffing their lives and overspending their budgets.
  • Buy rather than lease a car, if you need one at all, unless you need a new car every two or three years or you don’t expect to live more than two or three years. After four years, the economics favor buying. After eight years, you will have maximized your investment.
  • Choose a low-cost bank and eliminate as many demand accounts as possible. Checking accounts, for example, can be replaced with private money market accounts that generate higher interest and charge lower fees.
  • Buy term rather than whole or universal life insurance. Term insurance is the lowest cost.
  • Eliminate credit card debt. The interest charges here are real killers. Robert Kiyosaki in his book The Cash Flow Quadrant (Click) spells out a simple strategy that we’ll talk about in a future issue of LifeTrek Provisions.

Suggestions like these, when properly implemented, can assist anyone to improve their cash flow and financial position. The key to sustaining them over the long haul • like sustaining a new eating regimen after a diet • is turning them into enjoyable new habits. Once that happens you will be well on your way to financial independence.

May you be filled with goodness, peace, and joy.

Bob Tschannen-Moran, MCC, BCC