Freedom Life Planning

The Ultimate Guide to Financial Planning

Spending Effectively: Part II

This article is a follow up to my first article, Spending Effectively: Part 1.

In this part, I will go over some examples of luxury spending and provide examples on how to save. Luxury spending is defined as specialty expenses for treating yourself, an important part of enjoying life. Needs such as food, shelter, transportation, and electricity were covered in part 1. Cutting down on luxury spending is a bit different from cutting down on your needs. For your needs, you try to meet your basic requirements for the best price. With luxuries, you have no basic requirements. By definition, all of this spending is for treating yourself and enjoyment purposes.

Therefore, there are two ways to cut on luxury spending. The first way involves scaling back the amount of spending and enjoyment you get out of it. For example, instead of buying a cappuccino everyday, you buy a cappuccino once a week. The second way of reducing luxury spending involves scaling back the amount of spending, while maintaining the enjoyment. This is a bigger challenge but the main focus of this article. For example, you can use a cappuccino machine to make your own coffee everyday for much less expensive. Now for this case, it does involve buying a machine if you do not have access to one, but compared to 5$+ coffee shop prices for cappuccinos, it will pay itself off quickly.

Eating Out

Eating out and quickly add up and it is one of the hardest budget lines to control. Birthday dinners, friend get togethers, an empty fridge after work… there are a lot of situations that will result in needing to eat out. Here are a few tips I’ve learned to help control this expense:

  • If you plan on drinking wine, choose a bring your own wine restaurant. The savings on the alcohol will be a large portion of your bill.
  • Avoid appetizers and instead split an extra main plate for the table. Appetizers cost a lot for little amounts of food. Sometimes the same dish is offered in meal portion for only a bit more.
  • Check Costco for restaurant gift cards. They often offer a savings of 20% of the value paid (example: a $50 Restaurant Gift Card cost $40 to buy at Costco).
  • For more casual nights, consider take out instead of eating at the restaurant. That will save you a 15-20% tip, plus you can have all the drinks to go with it at home.
  • As described above, invest in a coffee machine and make coffee at home. Check out the Nespresso Machine for those who want it to stay easy. This machine makes excellent capsule espressos.

Finally, the best saving tip for eating out is to learn to become a better cook at home and eat out less frequently. After all, if you make a habit of eating out all the time, it losses its excitement factor and becomes just part of your daily routine. There are a lot of excellent books available to learn how to cook fantastic meals.




Entertainment

Entertainment is a broad category that may require splitting on your budget if you have some regular occurrences. Here are a few examples of saving opportunities for entertainment:

  • Avoid going out to bars and lounges and have a well stocked home bar with different spirits and liquors. Invite people over for a BYOB party or a casual get together.
  • Movie theaters are growing increasingly expensive, especially if you add on popcorn and drinks. Investing in a quality TV, and making your own popcorn or snacks will pay itself off in about 1-2 years if you frequently go out to see movies. Try Netflix, Amazon Prime Video or other movie on demand services.
  • Most big cities have schedules online of all the free activities going on in each area. Be sure to check them out.

The list of possibilities can be very long, but the general message is think outside the box and get creative.

Travel

There are a lot of opportunities to save money when travelling. I can easily write a whole article on them. Here are a few examples:

  • Start planning 4-6 months in advance. Airline tickets, hotels and availabilities are often the best for people who plan early.
  • Compare prices for hotels on different sites such as Expedia, Priceline, Hotwire, Trivago, etc.
  • Consider using Airbnb to save on hotel costs.
  • Rent your car using Priceline or Hotwire. They generally have the best deals. Avoid renting at the airport and choose a location a short cab ride away. Search for the city, not the airport code. Car rentals charge a markup for the convenience of picking up the rental car at the airport. It is often worth the cost of a short cab ride to rent away from the airport.
  • Do not take car rental extra insurance. Check if your insurance company or credit card cover rental car insurance instead.
  • For cruises, avoid booking shore excursions through cruise line. Check online for local tours for a fraction of the price.
  • In general, book activities online in advanced for the cities you are planning to visit. Avoid wasting time during your trip trying to find the best deal at the last minute.
  • Sign up for airline reward programs to take advantage of free flights for frequent travellers.

Shopping

Shopping is another broad category that can quickly eat up your savings if not properly controlled. It is important to set budget limits to shopping instead of shopping by emotion. Stick to buying stuff you need or will enjoy having rather than last minute impulse buys. Shopping online at retailers like amazon, eBay and other sites offer great deals for less than in store. Furthermore, you can often compare different retailers with a few mouse clicks instead of going store to store. Costco’s website is another great place to find good shopping deals.

Other Considerations

Once you’ve gone line by line through all your expense lines of your budget, for both needs and luxuries, it is now time to re-evaluate your budget. Are you now reaching your savings target? If you’ve fully optimized your spending and still need to save more to reach your goals, now it is time to cut back on the amount of luxuries you are spending on. Evaluate the top categories and take the time to consider what is important to you and what makes you happier. Trade offs will need to be made. Should I travel less often or cut back on eating out? Imagine yourself cutting back on a given item and visualize which situation you prefer. In the end, properly balancing your budget will be necessary to reach your savings goal and objective.

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