Budgeting Financial independence FIRE Spending

Are small daily changes really worth the trouble?

I recently listened to episode 91 of Paula Pant’s “Afford Anything” podcast in which she discusses growing the gap between earnings and spending.  She advocates focusing on what she identifies as the 4 biggest expenses:  housing, transportation, food, and taxes.  (For our family, I would add childcare to that list — it is one of our largest expenses and is basically like a second mortgage.)  Little savings, she says, like choosing a slightly less expensive dinner entree at a restaurant or opting not to get a soda at Chipotle, have more of a psychological benefit than a true impact on growing your nest egg.

This got me worried.  As you know, I’ve written about tackling the little expenses as well as the big ones, attacking our spending on all fronts.  Although we’re particularly focused on the biggest categories within our control right now, we’ve been patting ourselves on the back for reducing small expenditures and imagining it’s all adding up to greatness for us.  Have we been deluding ourselves about the aggregate power of these small changes?  If we have, it would be nice to know so we could stop thinking about them so much!

So I ran the numbers.  I compared January through March of this year (before we started this journey) against April through August in several spending categories and…. I’m happy to report that focus on these other expenditures is DECIDEDLY making a difference!!  Let’s have a look:

Avg pre-Greener Pastures (Jan – March 2017) Avg post-Greener Pastures (Apr – Aug 2017) % change Avg monthly savings Projected Annual Savings
Food $1,453 $786 -46% $667 $8,009
Car stuff $77 $91 19% -$15 -$179
Public transport $156 $0 -100% $156 $1,866
Cabs $53 $7 -87% $46 $550
Home goods $404 $159 -61% $245 $2,943
Home furnishings & home improvement $1,600 $1,301 -19% $299 $3,591
Clothing $327 $43 -87% $284 $3,410
Personal care $234 $141 -40% $93 $1,121
Kids $405 $277 -32% $128 $1,532
Entertainment $115 $167 46% -$52 -$629
Gifts $69 $181 163% -$112 -$1,350
Utilities $471 $492 4% -$21 -$254

A couple of Paula’s big categories — food and transport — are at the top.  Then, some smaller categories beneath.

Now, even within the big categories, much of the improvement we’ve seen can be attributed to small daily changes.  Our food costs have gone down by making a big shift from eating fast food for convenience vs. bringing our own food, but that in itself entails many small daily savings.  Should I run across the street and grab coffee and a breakfast sandwich, or spend a few extra minutes pulling something together in my house before leaving for work?  Should I have lunch out while I’m running errands, or wait until I get home in 30 minutes and finish off those leftovers that are nearing their expiration in my fridge?  These small decisions are actually habit shifts that have been making a noticeable difference.

And, in the other (non-big-4) categories, the changes have been significant.  Here’s the breakdown of savings within all the categories listed above:

Total annualized savings: $20,610
Annualized savings on transport and food $10,246
Annualized savings on other categories $10,364

Look at that!  We’re saving just as much in aggregate on the other categories as we are by making changes in food and transport!

As for the other biggies, housing, taxes, and childcare, those are issues you need to address when you’re making those big decisions, and that might take time.  For example, unless your housing expense is completely out of line and should be changed immediately, you may not be ready to make a major change the second you start budgeting and planning for financial independence.  In our case, we bought a house about two years before starting to seriously consider financial independence and turning around and selling it right away would make no sense — we’re in a good walkable location with a reasonable mortgage rate and the other associated expenses are reasonable too.  But you can bet that the next time we’re ready to move or buy a car, we’ll be particularly attuned to getting costs down.  Indeed, with baby number 2 quickly moving towards needing childcare, we’re at one of these big decision points right now — we’re considering whether some other option besides daycare would be as good for our kids and also less expensive, which would make a huge impact on our spending.

So to conclude:  definitely consider what you can do to get your biggest expenses down… but sometimes that means making many small daily changes!  And, don’t give up on the little categories either.  Improvements on those do add up, especially when you’re starting with a typical young professional consumer lifestyle!

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