Do you ever sit down with your monthly budget and just feel “nickel and dimed” to death. $6.50 for the Sunday paper, $16.95 for TiVo, $35 for the gym membership, $7.50 for travel club insurance. None of these expenses are going to necessarily make or break your financial plan, but when added together they likely represent a sizable portion of your monthly budget. They do for me.
But I Can Afford the Payments
One of the reasons our society finds itself so deep in debt is we have a collective “monthly payment” mentality. Few people stop to think about the true costs of things these days; it’s all about whether or not they can afford the monthly payment. Same is true with our discretionary spending habits. If I asked you if you could afford $960 for cell phone service your response would probably be, “A month?!” When told that number is a yearly figure you would probably justify the expense by telling yourself it is only $80 a month. I made the same rationalization for many years. The problem is that over time $80 here and $20 there eventually start to add up, and in much the same way debt minimum payments eat away at your income, discretionary spending items begin to weigh down your financial plan. Each new membership, subscription or entertainment expense you take on requires a couple more hours of work to pay for each month. Pretty soon you are working an entire day or two out of the month just to pay for these optional expenses.
Offsetting New Expenses
One way to keep a lid on your discretionary spending is to draw a line in the sand representing your current total monthly outgo on non-housing, non-utility expenses. Once you’ve totaled up all expenses in this category make a note of this amount, and agree to never exceed it. Let’s say your discretionary recurring charges currently total $300 a month. You would really like to sign up for an online membership at $13.99 per month, but you can’t add to your $300 budget. Something has to give. You can either cancel an existing membership or subscription, or choose to skip the online membership for now. Whatever you decide, you can’t cross that established $300 a month budget.
A Real World Example
We have been mostly disappointed in cable television viewing options here lately. Few things seem appropriate for my kids, and even less are things I personally find entertaining. We agreed as a family to cut the expanded cable service down to a basic package, and use the $35 a month saved towards other discretionary expenses – things we’ve been interested in, but unable to do because our budget was maxed out. We decided to sign up for a basic Netflix membership for $8.99 per month. This way we can request the movies we want to see (the kids get to pick every other selection). With the remaining $25 we enjoy a once-a-month dinner out at our kids favorite pizza place. The $25 covers dinner for all of us (including a few leftovers) and a few dollars worth of tokens for games. By offsetting expenses we’ve managed to enjoy a pizza night out once a month and a few movies all with no net increase to our monthly budget.