You may not realise it, but you probably — like everyone else — can live on a much smaller monthly income.
People do settle in financial comfort zones where many luxuries form the norm for their lifestyle. And living this comfortable lifestyle isn’t an issue in itself and probably well-earned for those who achieve it. But knowing that you could scale back on your expenses could give peace of mind if or when you’re about to hit a bump on the road like job loss, illness, etc.
The question often isn’t whether you will be able to cut back or not, but it is by how much. And the answer depends on many factors, including the lifestyle that you and your family have taken to, the size of the problem that you’re trying to handle, and your cushion of savings.
Even before you encounter such a problem, knowing your scale of financial flexibility can be helpful and reassuring. Start with identifying where each of your expenses falls in these three categories.
Big commitments
Debt including mortgage payments and auto-financing payment is top priority. This is probably something that you just won’t be able to walk out of easily. Although you may consider restructuring this debt or even getting out of it completely if you’re hit with a major, long-term problem like disability or extended unemployment, this should never be your first choice. Plus, remember walking out of a huge debt can make your life more costly. A mortgage payment may be smaller than rent, and so is a car payment compared to lease.
Similarly, this category of critical commitments includes any payments that are related to your family or your welfare. For example, tuition for your children should be one of the last items to compromise, just like health care and other types education.
Easy to go
Although these are still personal and may vary widely from one person to another, each of us has a list of luxuries that can easily go without causing a lot of distress. Some may list foreign travel, fine dining, new clothes, etc. Regardless to what you consider an unnecessary luxury, knowing these items can help you when need to come up with some quick money.
It is important, however, to know which items can be monetised quickly. For example, cutting back on summer-vacation travel won’t help you much if you need the money immediately in January — unless you’ve been saving up for a trip. Listing ongoing luxury expenses that can be cut off is a better approach to help yourself when you need instant money.
In between
This is where most of your expenses probably fall. They are not life-and-death items, but you’ve grown accustomed to having them. They are part of your social status, how you perceive yourself and how you feel about your accomplishments. These items may include everything from the help you get for house work to where you go shopping. Making compromises on these items may seem counterproductive, because you probably have already good justifications for why these expenses were necessary. After all, these are totally different from the luxuries that are easy to go.
And these still-critical items don’t always have to be scaled backed completely. In many cases, all you need to do is to think about alternatives and quantities. Back to the house help, if you always got a weekly professional home cleaning, how about making it biweekly? How about setting a smaller budget for your grocery shopping and trying to stick with it, even while you still shop at your favourite store?
Keeping many of these important lifestyle items intact as much as possible can have a positive psychological effect. And you still will be able to make some financial cutbacks as needed. You just need to know where your comfort zone begins and where it ends. In many times, you may find that your expenses can be reduced dramatically by taking a few steps that slightly dent your comfort level.
By Rania Oteify
