How to Spend More and Be Financially Secure
By Steve Gillman - September 20, 2014
You might make the same income as your neighbors make, spend
less than they do, save more, and yet still be in a much more
precarious financial position. How is that possible? What could
some of your neighbors be doing differently that makes them more
financially secure? It's all about the nature of your expenditures.
(Flickr photo by
It is common advice to try to spend less for the things you
buy and to set aside some money every month. Both are good ideas
as far as they go. Of course how you invest the money you set
aside makes a big difference in how well you do in the future.
But I'm not going to tell you about your investing options
here. That's a topic for another time. I'm going to explain the
difference between your fixed versus your discretionary expenses,
and which ones you need to watch carefully if you want to have
more financial security. I'll start with a simple story...
Penelope Pincher and Reina Lavish lived in the same city.
They both worked for the local school system, making about the
same income from their administrative jobs. Both had a retirement
plan provided through their employer, and they each also saved
a little bit extra on their own. But Penelope saved a bit more
In fact, Penelope was known for saving money and being frugal.
She rarely went out to eat or to see a movie, and had only basic
cable television service. She shopped sales and used coupons,
and recycled jars to use as drinking glasses.
She had bought a big old Victorian home because it was a good
investment, but it cost a lot to heat and cool. It also had a
big yard that needed hours of watering weekly. Her loan payments,
mortgage insurance, homeowners insurance, and property taxes
were very costly. Her home was over ten miles from her job.
Reina watched a lot expensive pay-per-view television, and
ate out every week. She went to movies on weekends and loved
to travel. She generally didn't worry about prices when she went
shopping, but she never put more on her credit cards than she
could pay off when the bill came in.
She lived in a small house for which she had a small loan
that didn't require mortgage insurance. Her taxes, utilities,
and insurance were correspondingly small. In other words she
lived large but had low fixed expenses.
One day the school cut both of their positions to part-time
due to a budget crisis. Penelope and Reina saw their paychecks
drop by 50%. Penelope had more money in the bank than Reina,
but she used that up quickly in the coming months. Then she began
to have problems paying her bills, and soon she was faced with
the prospect of losing her home to the bank. She just couldn't
find a way to cut her expenses enough to balance her monthly
Meanwhile Reina was able to immediately stop going to the
movies and eating out. She took day trips to area attractions
rather than expensive vacations. She stopped buying things she
didn't need. By the time she had spent most of her savings she
had adjusted to living a simpler life that her lower income could
support. She looked for another job to get her income back up,
but in the meantime she was doing okay.
I hope the story makes it clear how important the difference
is between fixed and discretionary expenses. There is a lot to
be said for ordinary frugality and buying generic potato chips.
But pinching pennies on the little and optional things won't
add that much to your financial security. Keeping fixed expenses
under control does that. Here are some things you might do to
reduce these regular expenditures (in no particular order):
- Consider total monthly costs when choosing a home to buy
- Pay off school loans as quickly as you can
- Find a cheaper insurance policy for you home and car
- Pay off credit card debt before you face tough times
- Pay cash for things or use a credit card that you pay in
full every month
- Save to buy a car for cash instead of taking out a loan,
because if you can afford a $400 payment you can afford to save
that much every month until you can pay cash for something decent
- Choose landscaping that requires less water. An example is
a rock garden with a rose bush instead of a huge flower bed
- Install more insulation in your home to reduce your future
- Install fluorescent or LED light bulbs in place of incandescent
- Pay down your home loan until its low enough to cancel the
mortgage insurance, which usually means getting the balance below
80% of the home value, but check with your lender
- Refinance your home loan if the new rate and payment will
be substantially lower, but only if you plan to stay for at least
two more years or your savings will be eaten up by the new loan
There is almost no place you can find total job security any
longer. If you want more financial security you have to be prepared
for whatever comes your way. That's why it's so important to
keep your fixed expenses low. You can be ready
for potential economic difficulties while still enjoying the