One simple yet useful budgeting tip that I feel gets overlooked too often is: be efficient.
What do I mean by that? In a previous post we talked about identifying wants versus needs. In other words, figuring out what goods and services we really should have in our lives and giving them priority over less important purchases. Purchases we really should buy include housing, food, clothing, transportation (in many cases), and some form of communication like a cell phone.
Now that we’ve identified the items and services we should prioritize for purchasing, the next step is to figure out how we can best afford these items. This is where being efficient comes into play – deciding how to get the our needs met at affordable costs.
As an example, I need to eat to survive, making food a high-priority need. What I choose to eat will greatly affect my budget, especially since I plan to eat every day. My food costs will vary greatly depending on whether I go out to a restaurant to eat lobster or stay in and cook a cup of rice with some spices. Eating Mr Noodles might cost me less than a dollar per meal while steak and fresh vegetables could easy run me 20 times that amount.
Likewise, if I realize I need a car to run errands and get to work, a new vehicle might cost me $40,000 while some used cars and trucks in my area are being offered for under $6,000. For most practical purposes, setting aside a few maintenance costs, both vehicle options will get me where I need to go, but one option costs six times more than the other.
The same guidelines apply to smartphones. Buying a new iPhone every year might cost $900 per year. Buying a used phone every three years might cost $120 each purchase, which averages out to $40 per year. The first option is over 20 times more expensive than the second.
The above three examples are extreme, but I feel they demonstrate how two people can achieve similar practical results with some key differences in how they approach their purchases. Usually all it takes is a little comparison shopping – visiting the websites of two competing brands or marketplaces and seeing what options are available.
As another example, I went looking for a new laptop last year. I found one I liked at one store, but took ten minutes to walk literally across the street into another electronics shop. They had the same laptop with the same specifications for half the price. That ten minute trip across the road saved me about $500.
It can take a little time to compare what is offered by one phone company with another, it can take some effort to browse real estate listings looking at similar homes or apartments in an area. Often it’s worthwhile though because people often end up saving themselves dozens (sometimes hundreds) of dollars per month by comparing two similar items.
When this sort of comparison shopping becomes a habit, it can lead to saving $20 here, $30 there, and $50 on something else each month. And it might not seem like a lot to save $100 in a month for the amount of work that’s involved. However, the savings are cumulative over time. Doing the leg work up front to save just $100/month on bills and food purchases might not seem worth the effort, but over the span of a year it’s $1,200 which could go toward something you really want. After a decade you’ve saved over $10,000, just by taking an hour to make a few smart choices when it comes to food and utility bills.
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