This podcast assumes you’ve created a budget for your family and now want to make adjustments to hit your goal. If you’ve haven’t create a budget you can download my template.
Should You Eliminate an Expense Item?
Before you eliminate or reduce an expense ask yourself these three questions.
- Is the expense really you? Maybe you are paying someone or doing something to impress others, you feel obligated or something else?
- Are you buffering? – This means doing something to escape/hide/avoid another part/aspect of your life.
- Can you truly afford it? This usually relates to bigger ticket items like a home, car or recurring expensive hobbies.
Cons to reducing expenses
1) It can feel very negative. Telling yourself daily that you “can’t afford it” or “I need to eliminate/reduce” this or “I’m not staying on budget” can start to feel very negative and reduce your desire to make the budget work.
2) Harder to maintain over a longer period of time – If you reduce/eliminate an expense you need to do this for the “rest of your life.” It’s really easy to fall back into old habits.
3) As we age our wants and needs become more expensive. We go from wanting a new outfit in Jr. High to a car in high school to a home after college. It’s not realistic to keep reducing all of these expenses to stay in budget. With time all of our expenses will increase. Either by inflation or life’s circumstances.
4) There is no significant overall financial gain. Reducing expenses can help increase your cashflow but it won’t help increase your net worth.
Pros to reducing expenses
1) Immediate results – If your monthly net income is so far in the red that you need to make drastic and immediate changes this is the first place to look. “It stops the bleeding.”
2) It can show you who you really are. A lot of our expenses are things that we think will make us happy or satisfy a need or impress someone else.
In her famous book “The Life-Changing Magic of Tidying” Marie Kondo tells you to hold each item in your house and ask if it brings you real joy. If it doesn’t, you get rid of it.
I advocate doing the same with your expenses. Go through each expense and ask if it is really adding to the quality of your life, does it bring you joy. If it doesn’t eliminate it. It goes back to number 1 above in deciding whether or not to eliminate an expense: Is it really you?
3) You are 100% in control and aren’t dependent on others to make this work. You don’t have to make a raise or sell more good.
Cons to increasing income
1) Slower initial results. Asking for a raise, getting another job, selling more goods or whatever it is usually takes time.
2) It takes more work. To get additional income you have to add value to the world and this usually requires more work. But is work really that bad?
Pros to increasing income
1) You’ll get the biggest results. Expenses can only be cut so much. There is no limit to the amount of additional income you can generate.
2) It’s a very positive experience which generates additional positive results. Positive reinforcement.
3) Personal growth that comes with generating more income. You might overcome personal obstacles like asking for a raise. You might have to work harder or become more disciplined. That’s personal growth. Maybe you push yourself to do something that you never thought possible.
