Wednesday, July 21, 2010

Eliminate Recurring Expenses to Save Money

Reducing expenses has always been a tactic and strategy to improve one's financial situation. For us, a good approach to reducing expenses has been to focus on costs that occur on a monthly basis. Here are some examples:

  • Subscriptions and memberships. We've tried to eliminate products and services that have recurring monthly fee. For example, we do not subscribe to a local newspaper, cable/satellite TV, or a cell phone service. We have joined my company health club, but only pay for the months we actually use it. Also, I have a free subscription to The Wall Street Journal and Barron's through airline miles awards. Our only current recurring monthly subscription is our land line phone and Internet service.

  • Mortgage or rent. Our largest recurring payment used to be our mortgage, which was about 24% of our monthly expense. A little over a year into retirement, we paid off our mortgage and significantly reduced our monthly expense.

    When I first started working, I rented an apartment for about 11% of my monthly salary. Keeping my rent cost low enabled me to begin saving part of my salary immediately.

  • Debt payments. After graduating from college, we've both had student loan debt, which created a regular monthly payment for 10 years. Fortunately, we've never carried a credit card balance that required a minimum monthly payment.

  • Additional car. Now that I've retired, we probably could become a one car family. That would eliminate the license, insurance and maintenance costs for a car. At this point, we still like the convenience of having two vehicles. We'll seriously consider going to single car if we should ever need to replace a vehicle.
  • Overall, I consider eliminating recurring payments an effective way to create a sustainable reduction in monthly expenses. The decision can be made one time, and is often easier to maintain than a expense reduction that may be reviewed on a monthly basis.

    For more on The Practice of Personal Finance, check back every Wednesday for a new segment.

    This is not financial advice. Please consult a professional advisor.

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