Could You Cut Your Spending by $1,000 a Month?
As a newspaper columnist in Detroit, Brian J. O'Connor didn't feel like he had much job security. "My paper had been sold, which automatically makes everybody nervous, and clearly Detroit was not doing well," O'Connor says of the bleak period in October 2009 when he launched his money-saving experiment.
That experiment involved cutting $1,000 a month from his budget, largely by focusing on recurring expenses. "Partly I wanted to fail as much as succeed because I wanted to illustrate how tough it can be if you really have to make big cuts in a family budget," O'Connor, 53, says. If parents went to work in the morning and came home unemployed, or suddenly lost overtime pay - as many workers did in Detroit during the recession - then they similarly needed to immediately transform their spending in order to stay afloat, he says.
His series of humorous columns on the experiment were so popular that he turned them into a book, "The $1,000 Challenge: How One Family Slashed Its Budget Without Moving Under a Bridge or Living on Government Cheese," which will be released this week.
Trimming $1,000 a month, which he managed to do, might sound overly ambitious, but O'Connor says that's the point. "It had to be a high-wire act, or there'd be nothing at stake," he says, adding that even cutting a grand each month wouldn't be enough for him, his wife and his son to survive if he suddenly lost his job. Still, it would be a start.
Ready to replicate O'Connor's strategy? Here are five categories where you're most likely to gin up some serious savings.
[See: 12 Steps to Designing Your Financial Roadmap.]
1. Phone, cable and Internet
"The easiest savings I got was cutting the utilities," O'Connor says. After spending an afternoon making a handful of calls to his cable, phone and Internet provider, he slimmed down his bundle of charges by about $140 per month. Part of that was removing services he didn't need, such as a $15 monthly charge that allowed him to use his cellphone as a modem (he forgot to cancel that service after a vacation), and a third-party voice messaging service on his home phone.
He trimmed down his cable service to a 200 channel package, which generated about $30 in savings. When he similarly downgraded his Internet service based on the amount of data his family actually used, the provider rebated him for the previous two months, since he had been paying for a more expensive data plan than he needed.
The total savings came to $140 a month plus $653.80 in refunds, temporary discounts and a $200 gift card. "That's more than a month's worth of groceries plus ongoing savings for just a couple hours on the phone," O'Connor says.
"Some of it was just dumb, which is a recurring theme in the book," O'Connor says. In other words, if he had paid attention to his bills, he would have had the charges removed long ago. But it's easy to never get around to it, or to overlook those superfluous expenses. That's why O'Connor recommends taking a close look at every household bill once a month, so you can eliminate the services you don't even realize you're paying for.
[See: 10 Ways to Live Green On a Budget.]
2. Unusual expenses
Do you have an oddball expense that's eating away at your bank account each month? For some people, it might be an expensive hobby; for O'Connor, it was his 30-year-old boat. It was costing him several hundred dollars in repairs some months. He saved almost $100 a month by creating a separate annual fund that served as a cushion for boat-related expenses, instead of scrambling to come up with the money whenever something broke.
3. Child care
If your employer offers flexible spending accounts, you can set aside pre-tax dollars to pay for health care, child care and commuting costs, up to certain limits. O'Connor saved more than $100 a month by paying for his son's speech therapy through a flexible health spending account. He points out that for two working parents, taking advantage of child care flexible spending accounts can also make a big dent in monthly expenses.
4. Home
Refinancing when interest rates are low can help reduce monthly mortgage payments. When O'Connor refinanced, he opted to slightly increase his monthly payment so he could switch to a 15-year mortgage and make sure his home was paid off prior to retirement. For monthly savings, O'Connor drilled into his home maintenance spending. He cut $60 a month by stopping maid service and an extra $10 from regular home maintenance.
[See: 10 Saving Strategies That Can Backfire.]
5. Groceries
Food shopping is an area ripe for savings, since it's easy to overspend on name-brand pasta sauce, organic apples and prepared meals. O'Connor invested some time into comparison shopping and coupon hunting - on his first trip under his new regime, he spent 2.5 hours at the grocery store -- but it paid off. "You spend 10 minutes walking up and down the frozen meat aisle looking for the special on frozen turkey breast," he says.
Subsequent trips, though, did not take nearly as long because he developed his system (and gained familiarity with the store's placements). He saved about $40 for the month, and he didn't feel like he was sacrificing much. "Store-brand tomatoes don't feel any different to me than premium," he says.
Still, it's hard to spend the time to maximize deals every week, O'Connor acknowledges, especially with two working parents. He and his wife have to skip their coupon-maximizing efforts some weeks, especially when one of them is traveling for work.
The biggest takeaway from O'Connor's $1,000 challenge is to focus on recurring expenses, because when you cut them once, you keep them off the books the following months, too. So if you do nothing else this month, make a few calls to your cable, Internet and phone provider.
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