Doing More with Less – Increasing disposable Income through Cost Reduction

Fri, Oct 15, 2010

Whether you are a senior executive or an entry level worker, we all have to prioritize when spending because our income is limited. This is the fundamental economics problem of scarcity. We have unlimited wants and needs, but limited resources to be used for their satisfaction. Of course there are many ways one can go about increasing their income, legally that is, but we will focus on a few easy tips and techniques which anyone can use to reduce costs and increase disposable income.{{more}}

Debt Management

Avoid falling into the dreaded “debt trap” because once in, it can prove extremely difficult to get out. Firstly, we should all have a structured budget in place which is used from month to month to clearly identify our income and expenses. The budget will highlight what areas we may be over spending such as that weekly lime, and also what areas we can allocate more money towards such as the rising credit card bill. Making minimum payments to your credit card is the surest way to fall into, and stay in that debt trap. Credit cards are designed to keep you in debt with their attractive minimum payments and the occasional, ever so timely offer to skip a payment, not to mention the surprise increase in your credit limit you have been “rewarded” with for being a “good” customer. Skip a payment, and interest is added to the balance at a rate between 21% to 22.5%. Credit Card debt is some of the highest cost debt that is available, but because of its convenience it is likely to be abused. Where possible we should pay off credit card debt, if not all at once then at least a lump sum should be placed towards part payment of this debt. Pay more than the minimum requirement and this can accelerate the payoff and reduce the amount of interest paid.

Super Markets

We are all guilty of it every now and then. We go to the supermarket without a list, and before we know it we have ice-cream in the freezer, snacks in the pantry but the baby has no diapers. Shopping with a list of what is required after doing an inventory check at home is the best way to remain focused at the supermarket. Where sensible, purchase in bulk. It makes no sense to buy that nicely packaged set of hot dog condiments unless you plan to open a hot dog stand outside your home. How much relish can one person eat? There is a high probability these items will expire before they are completely consumed. Take advantage of reward cards where ever possible. Be aware of all participating stores where the card can be used and USE IT EVERY TIME. When there is a sale on necessities take that opportunity to stock up. Consider no name brands when brand is not important. However, do not sacrifice quality where it counts.

Clothing

Stay away from trendy fashions that will go out of style quickly. Stick with the basics and mix and match as you see fit. Take advantage of sales on clothing that will be used often such as work clothing. When shopping overseas visit brand outlet stores for big bargains on quality brand name items on sale. Never purchase expensive items on impulse. Think over each expensive purchase for at least 24hrs. Compare local prices with online prices but remember to pay off the balance of the purchase if your credit card is used.

Insurance

Shop around each year before renewing your Home and Car insurance. Insurance Brokers are good at finding deals where you can benefit from cost savings. Reassess your need for whole life insurance coverage e.g. if your children are on their own, your spouse is working and the mortgage is almost completed, you may not need as much life insurance coverage.

Vehicles

Keep tires inflated as under-inflated tires make the engine work resulting in poor fuel economy. Keep your car tuned as clogged air and fuel filters and old oil significantly impairs the performance and fuel economy of your engine. Purchase fuel injected cars as opposed to carbureted cars. Avoid keeping your car below a quarter tank of gas since gas evaporates out of the gas tank faster when the tank is low and in high temperatures. Instead fill up when at _ tank on a morning when temperatures are cooler. Where possible and sensible avoid purchasing general car parts from the ‘dealer’. Instead purchase from auto parts suppliers as there are significant savings one can benefit from.

Utilities

Practice conservation wherever possible, not only does it benefit our environment but also our wallets. Utilize energy efficient light bulbs. The upfront purchase price will be higher than that of regular light bulbs. However, you will realize your cost savings in a lower electricity bill. Turn off lights and electrical appliances when not in use. The same applies to water usage; do not keep the tap idly running while showering or washing dishes. Take advantage of our seasonal rains and utilize rain water catchments for tasks such as watering plants and washing vehicles.

Mobile Phones

We cannot do without our cell phone. Some of us have two or three or more. However, the majority of us have prepaid phones, and this is no surprise since the majority of commercials and promotions are geared towards the prepaid customer. The reason is that prepaid is more profitable to the mobile phone providers than postpaid plans. On average the per-minute rate of prepaid plans is more than double and sometimes more than triple the per-minute rate of post paid plans. Even when one goes over their cheaper post paid minutes, additional minutes are then charged at the more expensive prepaid rates. Post paid even offers the additional benefit of cheaper rates for international calls to nominated numbers. Therefore, to avoid giving away money to the phone companies, consider the amount of time spent on the phone on average and purchase a post paid plan which suits you.

There are many cost savings techniques we can use to make our hard earned dollar “stretch” which we all are capable of practicing. We may not be able to practice all the techniques all at once, but if we plan appropriately we can implement a course of action to reduce debt and expenditure cost and increase our available disposable income, so at least we can satisfy more of those unlimited wants and needs.

Submitted by Norlann Gabriel
Caribbean Money Market Brokers (CMMB)
To mark Financial Information Month October 2010