You can always cut more out of your budget
People choose not to because the next level of cuts requires a lot more effort or a noticeable lifestyle change.
I remember living with seven other people in our little apartment, wearing clothes from the thrift store, and the big sighs my mom made when I grew out of something too quickly. There were no such things as going on vacation, eating out or recreational spending.
I was a little luckier than Sandy, though, because my mom never got permanently injured. She did lose a finger in her factory, but was able to go back to work after a short leave. There was always plenty of food that we were able to get from foraging and/or from her urban garden.
This leads me to my topic of today's post. One of the things I often read in comments at many people's personal-finance sites is a statement similar to this one:
"I'm stuck. I'm already living a bare-bones budget and I still can't save. I don't know what else I can cut." Sometimes it's followed by "It's easy to say you can save money when you earn more than I do. If I earned X, I would be just fine."
There is a group of people who really think they've cut their spending as much as they can and they can go no further. Well, I'm here to tell you that if you're truly income-limited -- i.e., you can't work because of a disability or can't find a second job -- you still can cut money out of your budget.
Most of the time it's not that people CAN'T do it but they choose not to because the next level of cuts requires a lot more effort or a noticeable lifestyle change.
I'm going to give you the immigrant's inside scoop on what it's really like living on a bare-bones budget. Many people would find some of these tactics extreme, but if you're one of those people who wonders how someone can come to this country with nothing and then end up doing pretty well, you're going to be getting a little knowledge about how it's done.
I'm going to take some of the biggest spending categories from this chart on how Americans spend their paychecks and elaborate.
Housing, 34%: Wow. I can tell you that even in expensive cities most immigrants don't come close to that number. It's because we pack ourselves in tiny apartments like sardines and stay that way until we can afford to buy something bigger. Usually we buy a home with a huge down payment and sometimes we buy homes outright with cash. In many developing countries credit isn't readily available, so for many immigrants, going into debt to maintain a certain standard of living doesn't even enter their stream of consciousness.
The other thing immigrants do is live in the crappiest and cheapest neighborhoods. These are the places no one wants to live. Are you scratching your head yet and wondering why immigrants don't care about their safety? Of course we care about safety, but in many cases, the inner-city neighborhoods we live in are a huge step up from the slums of our home countries. When my mom moved to America in the 1960s, she still didn't have indoor plumbing in Poland. Only rich people had running water. So, yes, when she moved to the slums of the city, she felt like she was rich, not poor.
My uncle's first rental property was nestled between a funeral home and the highway in a slummy part of town. Babci (my mother) lived there for a little while and was convinced that ghosts from next door were visiting her at night. My uncle also lived in one of the six units. Due to his handyman skills and his rental income, it wasn't long before he could upgrade to a better part of town. He paid for all of it with cash money. This guy had a grammar school education and was a roofer for a living. Yet he amassed a small fortune in his lifetime.
Thanks to programs on TV that show couples in their 20s buying $1 million to $2 million homes, people think that this is the norm and there's something wrong with them if they can't do the same. Repeat after me: It's OK to have a starter home if that's all you can afford. Overextending yourself on housing makes it very difficult to get ahead financially.
Housing is the single biggest expense most people have and it's often the thing people refuse to compromise on. Just because the rule of thumb says most people spend a third of their salary on housing doesn't mean you have to, especially if you want to get ahead.
Here's what I suggest for those who need to cut deeper but don't have the option to increase earnings:
- If you value your privacy, then move into a smaller place. I mean a lot smaller, so that it actually makes a dent in your rent or mortgage payment.
- If you're social, or work a lot and are never home, get a roommate or several. Splitting bills is SO cool. It's so much nicer in the winter when that $200-plus heating bill comes in and you get to split it three ways instead of paying it all from your own pocket.
- Move to a less desirable part of town. Although this isn't the best option, I've done it once and I could do it again if I needed to.
- Move in with family. This is not always an option for everyone and is kind of like the roommate idea. I'd say this works well if the mover-inner contributes in his or her own way and is not just mooching off relatives.
- Move to a cheaper city or town. I think this is much more common now than it used to be.
Transporation, 15.6%: We didn't always have a car. Taking the bus everywhere was not fun but it can be done very economically. I think many people think a car is a must-have item. Anywhere there is public transportation available, it's actually a nice-to-have item. Babci hated that my dad never let her get her license. She to this day comments on how nice it is to have a car to get from place to place in no time. I love my car, but I don't think I'd go into debt to have a nice one.
If you must have a car to get to work, try not to convince yourself that you need a new one. The last car I bought was five years old and it still felt like a new car to me, but without the price tag.
Entertainment + other (vacations, etc.), 15.5%: These are things people often confuse as must-haves instead of nice-to-haves. Make sure you have your priorities in order before spending here:
- Internet (don't forget the library) unless you need it for your line of work.
- Extra phones (may I suggest a prepaid phone).
- Pretty much all electronics (TV, computers, cameras, smart phones, etc.).
- Movies, plays, magazine and newspaper subscriptions, etc.
- Buying music, books, video games, toys.
- Cigarettes, drugs, gambling, alcohol.
- Taking on new pets.
- Soda and junk food.
- Children's activities -- sports, dance classes, camp. Yes, I said it. This is not a popular one to cut, but I'll tell you a quick story as to why this is on my list. A woman my mom was renting to was behind on rent but in the same conversation started proudly telling me about her daughter's dance recital and how she wanted her daughter to have the things she didn't. Isn't it more important to have a stable place to live vs. getting evicted and running your family ragged moving from house to house every six months?
- Getting your nails done, coloring your hair, going to expensive salons. This may seem self-explanatory, but the same lady above had a fancy manicure. No matter how good her nails looked, it wasn't going to help her keep a roof over her head.
- Buying things new. You can buy just about anything used these days. OK, you may not want to buy used underwear, but for the most part, clothing, furniture, household items, housewares, toys and books can all be bought for a fraction of the cost of their new counterpart. In most cases, it's worth the effort looking for a secondhand item first before paying full price for a new one.
Now, I'm not saying that you have to cut out all of these things to live a frugal lifestyle, but I don't want people to think they're trapped in a certain amount of spending because that's the way they've always lived. There is always room to cut deeper.
One of the worst feelings is hopelessness and powerlessness. You should never feel as if you've done all you can do and are still fighting a losing battle. If you step outside of the box you've built your life around, you may just find another way to reach your goals.
So, in summary, if you're struggling, you may need to remind yourself of the basics needed for survival. They are very simply:
- Nutritious food.
- A way to get back and forth from work and the grocery store.
- Health care.
Did I miss any necessities or luxuries on my list?
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