Step 14: Limit one Expense

Step 14 of the 100 steps mission to financial independence: limit one expense
Step 14: Limit one Expense

In the last few steps we’ve laid all the groundwork to set ourselves up for success to achieve our mission. You should by now have a great overview of all your expenses, how much comes in, how much goes out and very soon you will be setting yourself some more detailed, time bound goals to work towards to. But to get you truly started, create momentum and feed the desire – that hopefully you are feeling by now – to see some positive results, now is the moment to take a very first step towards change. Therefore from today onwards you will by limiting one expense consistently for a whole month.

Does that mean cutting it out all together? Maybe, maybe not. You need to decide what works for you (I know! as always…). It might be that looking at your expenses you have suddenly become aware of how much you spend on your smoking habit, and since you’ve always wanted to give up smoking, now might be the moment. So yes, that would mean eliminating that expense altogether. Or maybe you’re surprised at how much you spend on nights out in the pub on Friday nights with friends. If you don’t want to give up those nights of fun, maybe you can make a commitment to staying in once a month, or going home just that one drink earlier and reducing the expense without cutting them out completely. Continue reading

Step 12: Identify your Savings Expenses

Step 12 of the 100 steps mission to financial independe: Identify your Savings Expenses
Step 12: Identify your Savings Expenses
So one last one to go: your savings expenses. Saving expenses are any expenses that you have that are related to improving your financial situation now or in the future. They are payments that you make towards your financial goals and include debt payments that you are making to pay off a loan, savings plans that you are paying into, investments that you are making and any emergency or rainy day funds that you have.

When you were looking at your fixed expenses you might have been wondering what to do with these savings payments already, or you might have even included them, as many of these can look like fixed expenses that you have monthly. The reason why we want to take these out and identify them as a different category however is that they are generally very different in nature to a fixed, variable or discretionary expense, as they are focussed on achieving a financial goal, as opposed to the other categories. Continue reading

Step 11: Identify your Discretionary Expenses

Step 11 of the 100 steps mission to financial independence: Identify your Discretionary Expenses
Step 11: Identify your Discretionary Expenses

Discretionary expenses are expenses for thing that you don’t absolutely need in order to survive or run your household. They are often optional (some would even argue unnecessary) expenses that mainly enhance your day-to-day life and make it more fun. Think about dinners at the restaurant, holidays and a trip to the cinema. To give a definition of a discretionary expense, it:

  1. is an expense of a variable amount that you have more or less complete control over;
  2. might or might not have a regular time interval;
  3. is not needed for day-to-day living;
  4. you can cut out all together relatively easily.

Discretionary expenses are usually the type of expenses that people cut back on first during tough financial times, and also the first ones that increase again when their economic situation improves. That coffee you get every day at Starbucks on your way to work? That’s a discretionary expense: you have complete control over it, you don’t need it for day-to-day living, and you can cut it out all together and make your own coffee when you get to work or bring one in from home in a thermos flask. Continue reading

Step 10: Identify your Variable Expenses

Step 10 of the 100 steps mission to financial independence: Identify your Variable Expenses
Step 10: Identify your Variable Expenses

In step 9 we looked at fixed expenses, but apart from these regular payments of a set amount, you most likely also have regular expenses which vary from one month to the next: your so called variable expenses. Indeed a variable expense generally:

  1. is an expense of a variable amount that you have some control over
  2. has a regular time interval
  3. is needed for day-to-day living
  4. you can cut down by making small lifestyle or behavioural changes.

An example of variable expenses include groceries: you need to eat for day-to-day living, they have a regular time interval, as you probably go to the supermarket several times a month but contrary to your fixed expenses, you have some control over the amount on your grocery bill. Continue reading

Step 9: Identify your Fixed Expenses

Step 9 of our 100 steps mission to financial independence: Identify your Fixed Expenses
Step 9: Identify your Fixed Expenses

From the previous step you should now have your base expense categories identified. In the next few steps we are going to dissect these expenses and classify them into three different types, starting here in step 9 with having a closer look at your fixed expenses. Typically a fixed expense:

  1. is a set amount that you have little to no control over
  2. has a regular time interval (e.g. monthly or yearly for example)
  3. is needed for day-to-day living
  4. you cannot cut down without making a big life change or running substantial financial risk

(I classify insurance as a fixed expense, hence the addition of “without running a substantial financial risk”.) With fixed expenses you can tell at the start of each month they will be coming up and how much you will be charged no matter what you do. You know that every month you’ll be charged rent, or that you have to pay your mortgage.

Continue reading