“Four years after the recession supposedly ended, people still feel the pinch,” says Brian O’Connor, a personal finance columnist at the Detroit News. “Income is still not back, people are paying more for health care. They are not recovered to where they were before the recession.”
As a personal finance writer, O’Connor realized that, following the financial crisis and during the Great Recession, much of the advice given didn’t reach most “regular” people where they live. “We were past the point where you want to know which credit card gives you the most frequent flier miles,” he says. “I realized that I needed to start writing stuff that helps people a little more when they are in crisis mode.”
In order to provide resources that more people could use, O’Connor decided to write a series of columns for the Detroit News, detailing his quest to cut $1,000 from his monthly budget. The experiment was so successful that he turned the experience into a book, The $1,000 Challenge: How One Family Slashed Its Budget Without Moving Under a Bridge or Living on Government Cheese.
The $1,000 Challenge
O’Connor’s challenge involved looking at his family budget’s top spending categories, and then resolving to find a way to cut $100 from each category. The challenge took place over a period of 10 weeks. One week, one spending category. “I did end up fudging a little on the final week,” admits O’Connor. “I had to dip into an eleventh spending category to make up the full $100 that I couldn’t save from another category.”
What O’Connor learned from his efforts is that there are often-surprising ways to trim the fat from your budget. “There are plenty of people who feel like they are still in a recession,” he points out. “You have to stretch every dollar until the eagle screams.” (In the book, he refers to some of his strategies as “pinching pennies so hard that Lincoln gets a headache.”)
Dedicating time each week to combing through the budget and seeing where he could cut costs paid off in the end. At the end of 10 weeks, O’Connor had managed to cut $1,000 from his monthly budget.
Where to Cut Back
O’Connor started with his top spending categories. However, these were also the hardest categories to cut back on: Housing and transportation. “I’d already bought a house, and I had two paid-off cars,” he explains. “There were no auto loans to refinance, and I couldn’t refinance my home.”
While refinancing the mortgage can be one of the best ways to save money each month, many people find that option closed to them. While government refinancing programs can help some homeowners, there are still plenty of people, like O’Connor, for whom refinancing just isn’t an option. Housing and transportation are “going to be big fixed expenses,” says O’Connor. “You really want to think, when you go into them, about how long you will have the loan. It’s hard to unwind these expenses.”
Even with the difficulty, though, O’Connor found some room to cut back. With transportation costs, he and his wife got creative. On days his wife works from home, O’Connor leaves his gas guzzler in the garage and takes her more efficient car to work. “With the house, there was not much we could do other than tinker with insurance and what we spent on maintenance.”
O’Connor points out that neglecting your home is a recipe for bigger expenses down the road, though. “We decided to squirrel away money from other parts of the budget, and put that into a maintenance and repair fund,” he says. “If you do this, you get a pretty good wad, and when you have that $400 repair, it doesn’t destroy you for the month.”
The easiest category for O’Connor to cut was utilities. “Go home and look at this today,” he suggests. “I made phone calls to the cable and the cell phone, and I was able to save almost $140 a month.” With retention packages from telecom, temporary rebates, and discounts, it’s possible to cut your utilities.
Another good idea is to take out your bill and really look through it. “I had a third-party voicemail service on my phone bill. I had it removed and I got a refund for the months it had been added,” O’Connor says. “If a monthly bill doesn’t surprise you, you tend to pay it,” he continues. “You might not realize you’re paying anywhere between $2 and $15 more than you should.”
Cutting back on the grocery bill was one of the difficult categories for O’Connor. “With grocery shopping, life gets in the way. It’s a behavioral things. You have to pay attention and plan. With things like insurance and utilities, you have monthly, ongoing savings, without the need to do more. Groceries require constant effort.”
In order to cut back on groceries, the O’Connor family employed tactics such as planning meals, eating leftovers, clipping coupons, and buying on sale. “Make a plan, try it, look at the results, and see where you’re at.” He recommends that you keep tracking your spending so that you can compare what you are doing each week. If you start noticing that the food bill is creeping higher again, figure out what you did differently and change your behaviors.
How Much Can You Cut?
O’Connor says that it’s not about the number, but rather about the progress you make. “For some people, cutting $50 a month might be huge,” he points out.
If you want to make progress, you need to set a goal and give yourself a deadline. “I had ten weeks to cut $1,000 from my budget. You need a measurable goal and a deadline to make it work.”
While O’Connor focused on his biggest spending categories, you don’t have to go that route. “Find stupid things you don’t care about that you’ve been paying for, and cut those,” he suggests. “Use that money for things that are more important to you.”