This is an ongoing series of book reviews – in parts, on money-related books.
The first is this series is called America’s Cheapest Family – Gets You Right on Money by Steve and Annette Economides. According to them, this is the guide to living better, spending less, and chasing in on your dreams!
Here’s what they have accomplished so far:
- – Paid off a house in 9 years on limited income (average income approx $35k/yr)
– Paid cash for all their cars
– Remodeled kitchen without a home equity loan
– Enjoyed fabulous debt-free vacations
– Fed a growing family (of 2+5) on a grocery budget of $350/mth
– Put savings in the bank!
On Grocery Shopping
J. Jeffrey Inman (U of Wisconsin, Madison) and Russell S. Winer (U of California, Berkeley) did a research that basically discovered:
- – Quick trips to the store, usually ends up buying 54% more than intended.
– Impulse buys account for 50.8%-67.7% of transactions
– Checkout displays accounted for the most!
– (Yes, all those candies placed at easy reach!)
– 47% if shoppers go to the store 3-4 times/week
The more often you go to the supermarket, the more often you’ll walk past displays, offers and advertising, and these will all add up to impulse buys, which are not in your budget. Consolidating your shopping list and cutting down the total number of trips to the store can save you money.
[Editor’s note: Have a shopping list and stick to it!]
The authors also make references to using coupons. However, the coupon culture is not as extensive in Singapore as it is in the US, so it might not be as relevant.
The terms ‘Loss Leaders’ and ‘Cherry-picker’ are mentioned.
Loss Leaders: These are products that grocery stores advertise to sell below their cost, to bait shoppers to shop at their store. They are counting on customers to pick up other full-price items while there.
Cherry Picker: Annette advocates shopping at various grocery stores just to pick up their loss leader items.
[Editor’s note: This doesn’t really work in Singapore, as traveling from store to store for such items would incur traveling costs – be it bus fare or parking fees for cars. In the US, gas is cheaper, and supermarket parking is usually free.]
—–
On Budgeting
Their advise seems to be summarizable to:
1. If you want something, save for it.
2. Save for it every month.
3. Don’t rely on your credit card if you can’t pay for it.
For example, if you plan to take a vacation in a year’s time, and you estimate it’ll cost $2,400, start saving $200/month for the vacation. If you have car tax and insurance due every year, break the amount down by 12, and set aside money for it.
When it’s finally time to pay those huge bills, or have fun on your vacation, you know there’s money in the kitty, and that will give you peace of mind.
Steve and Annette also advises creating a budget that would account for 98% of your annual expenses. They do this by dividing their budget into separate categories:
- 1. Allowances (cash for your wallet)
2. Auto – a)gas/maintenance; b) insurance/taxes
3. Business expenses (reimbursed/unreimbursed)
4. Charitable Giving
5. Clothing
6. College tuition and books/School supplies
7. Food
8. Gifts
9. Haircuts
10. Home Repair
11. Kids’ activities/day care
12. Insurance: life/medical
13. Medical Expenses
14. Miscellaneous: eg. dry cleaning, magazine subscription, postage
15. Mortgage
16. Emergency Fund
17. Pet food/supplies
18. Recreation (eating out, activities, internet, cable tv)
19. Savings
20. Utilities
21. Vacation
It’s not easy keeping track of a budget. One way to do it is to use the ‘envelope system’. Basically, with your budget in hand, you would know how much you need to allocate in each category. Physically make each category an envelope, and put the relevant cash in the envelope. Once the envelope is empty, it means you have used up your quota for the month, and you will have to either take money from another category (eg. recreation), and spend less on that category for that month, or wait till the next month.
[Editor’s note: Dave Ramsey and Path Choices talks about the envelope system too.]
You have to keep track of where your money goes for any budget system to work. If this is something you have never done before, you have to start picking it up. If not, you’ll might end up spending more than you earn, or never being able to save for anything.
Analyze your budget each month to see what is working and what is not. You may find out that some categories need more $$, while others could do with less. Fine tune it as you go along.
Others in this series:
America’s Cheapest Family (Part 1): On Grocery Shopping & Budgeting
America’s Cheapest Family (Part 2): On Cars
America’s Cheapest Family (Part 3): On Housing
America’s Cheapest Family (Part 4): On Utilities
America’s Cheapest Family (Part 5): On Debt
America’s Cheapest Family (Part 6): On Staying Healthy, Entertainment & Recreation
America’s Cheapest Family (Part 7): On Vacation and The Final Payoff
America’s Cheapest Family by Steve and Annette Economides was checked out of the National Library for the purpose of this book review. It can be found at English 332.02400973 at your Library.
Check online to see if it’s available, and check it out for free!
(Free up some money in your entertainment/education envelopes!)
Seems like common sense to me all this advice. I find it amazing some times that a lot of people seem to have lost this common sense. wouldn’t it be nice if we could get back to spending only the money what we have.
The idea is very simple. Income less savings = expense. Save first then allocate what is left for your expenses. It’s very simple but the difficult part is the execution.