by a.b.
Don’t worry. The most brutal part is over. You had, as my father would say, a “come to Jesus” moment and decided to make some positive changes in your life, and involved your financial partners. You took a long (hopefully not too painful) look at where you currently are. Now, we’re getting down to business, and hopefully having a little fun. Because freeing up cash is fun, right? (Tell me that I’m not the only one that thinks so!)
Now, I want you to capitalize on the momentum you’ve built, and be able to see the benefits quickly. The idea in Step 3 is to go for big gains, determining where you will get the most value for your time. Next to each category in your monthly spending allocation from Step 2, write down the percentage each category comprises of total outgo.
Housing is usually the largest chunk, with surprising room for negotiation. Can you take on a roommate? Can you downsize? Can you upsize with a roommate? When I first moved out on my own, I was living in a one bedroom apartment for $650 a month; I got a two bedroom apartment with my friend for $850, dropping my share by $225 a month!
Can you negotiate your current situation? In our apartment complex, the market rate dropped by $165 for the apartment we have (luckily before we moved in). Check the market rate and any advertised specials before you renew your lease; frankly, start checking in the couple months beforehand. Search on craigslist, in apartment guides, online, and in the newspaper for any specials in your neighborhood. An individual manager and owner may have more room to negotiate than a larger company, but it never hurts to ask. Moving might be a hassle, but if it saves you a couple hundred a month over a long lease it might be worth it.
Mortgage holders, before you dismiss the roommate concept, find out what the going rate is in your neighborhood. If taking on two roommates means your payment gets cut to a third, it might be worth it considering you can add certain contingencies as part of the lease for your comfort. (Smoking, drugs, pets, visitors after certain hours, eco-friendly cleaning products even!)
There really are many ways to approach a situation once you open up to a possibility. I have a friend right now living on an organic farm in exchange for a space to live!
One last guideline on housing: Don’t take on more space than you need. Extra space is merely more room to put stuff, more space to clean, and more space to spend money heating and cooling.
If you’re nervous about making some of these changes do a visualization exercise. Close your eyes and invision the worst case scenario, and the best case scenario. Open your eyes and decide what you can do. (But don’t take the opportunity to pull an “I can’t!” just because you’re afraid. Extend yourself and you will be amazed and proud.) Can you see yourself with a roommate? Can you see yourself cooking an extra night a week? Can you see yourself without Top Gear on BBC? or Ninja Warrior on G4TV?
How you get the biggest bang from your buck will be based on how your categories lie. (For more suggestions on the various categories, check out “Frugal Bang for Your Buck: Easy Ways To Cut Expenses.”)
Now we look at the page that lists your total debts and this is what we do:
- Call each and every credit card account and ask for an interest rate reduction. Seriously. If they say no, tell them you would love to keep your business with them, but the interest rate is prohibitive and may force you to transfer your balance elsewhsere. Are they sure they cannot help you? If they still say no, say, “Okay, I’m sorry to hear that. Is there anything else that you can do to retain a loyal customer?” Last time I did this, I didn’t get the reduction, but I got an extra 2500 airline miles (Hawaii here I come.)
- Have you consolidated your student loans? Remember, while a student loan can be put into forbearance or deferment in cases of financial hardship, it cannot be bankrupted. It will follow you if you ignore it.
- If you have greatly improved your credit since it’s inception, can you refinance your auto loan? See how much the refinance will save you over the length of the loan, and weigh it against the hassle.
- Do you have written payment plans signed for your personal loans? It is rare that any of us haven’t owed someone money at some point, even if it’s just $5. It’s generally a very bad idea. Make sure you have a written agreement between yourself and the other party, detailing out how you intend to pay, and sticking to it. Whatever you do, don’t be that person who flakes on a friend because you think they’ll still love you after you shove their kindness and goodwill back in their face.
For little time invested, you can make some big strides on this step. Acknowledge your achievements as you will need them when you have a $5 savings day instead of a $500 savings day.
When you go for big gains, you are tackling the tasks that save you the most money in the short and long term. Cutting interest rates and cutting your housing or dining costs will all get you to financial freedom faster.
See also:
Simple Steps to Frugality: Step 1: Meeting of the Mind(s)
Simple Steps to Frugality: Step 2: Know Where You’ve Been
Photo Courtesy of ground.zero