Sometimes, it’s all too easy to monitor and manage the details—to sweat the small stuff, if you will. What I mean by that is there’s no shortage of books, articles, and other literature (including some of my previous articles) about how details matter. And details do matter! But when you translate that into personal finance, it can manifest as a tendency to focus on small, daily behaviors that impact your personal savings rate through reduced spending.
The classic example is a daily cup of coffee. How many times have you read about the amount of money you could save by skipping a daily cup of coffee from your neighborhood coffee shop (or any other number of daily indulgences)? Right…there are enough of those articles to wallpaper your entire home. While it is crucial to learn how to alter or maintain certain behaviors to derive financial benefits, I would argue making those changes to daily habits or routines pay off further into the future because they’re usually small expenses repeated frequently. Yes, they do add up over time, but that doesn’t do much for you in the present.
So, if sweating the details isn’t productive in the here and now, how do we make a major impact? Instead of crawling, how do we get up and run? The answer is to think big! Rank your monthly expenses highest to lowest and then develop a list of strategies to lower the top five to ten line items. In the Sow a Dime & Reap a Dollar household, here are the top five expenses, including the percent of our total spending for October 2020:
- Mortgage (including property taxes and insurance) = 20%
- Day Care (for two toddlers) = 18%
- Groceries (family of four) = 12%
- Car Loan (SUV) = 7%
- Insurance (vehicles) = 5%
My guess is the top five expenses for most households are similar to the above list—except maybe day care for those who don’t have children or other dependents in the house. In that case, maybe you could include something like: dining out, entertainment, fuel for vehicles, etc.
Once you’ve got a grasp of your top five or ten monthly expenses, develop creative ways to reduce each item. Set a goal for yourself; for instance: reduce my top ten expenses by $250 per month. Maybe you could focus on reducing one or two expenses per week for the next few weeks. If you’re successful in doing so, you have made a nearly immediate impact to your savings rate instead of waiting years for the savings to add up. It may not be easy or enjoyable to set aside time to tackle these expenses, but it will certainly pay dividends—and likely sooner rather than later!