Two things jumped out at me during my quick scan of business headlines on Monday:
- McDonald's (NYSE:MCD) same-store sales rose 8.2% in October;
- Circuit City (NYSE:CC) filed for Chapter 11 bankruptcy protection, hoping to stave off claims from suppliers and continue normal operations through the holiday season.
In a nutshell, that's a pretty good economic report, isn't it? People wanting or needing to eat out are doing it on the cheap. And as Best Buy (NYSE:BBY) confirmed this morning, people aren't buying as many new TVs, stereos, and computers.
Clearly, lots of folks have been cutting back their spending. No surprise there -- if a massive global financial crisis doesn't scare you out of running up credit card debt for nonessentials, nothing this side of an alien invasion will. (And even that might depend on the aliens -- if they've come to Earth because of their insatiable hunger for low-quality mortgage-backed securities, things could get interesting.)
But people are likely to spend less for a while, even as the acute crisis recedes. You don't have to be an employee of Ford (NYSE:F), Bank of America (NYSE:BAC), or Yahoo! (NASDAQ:YHOO) to be worried about your job security. Although history suggests that most of us will keep our jobs, plenty of people won't -- and many of those who do will see raises and promotions postponed, bonuses cut, and benefits reduced.
Most of us will be tightening our belts in some way. Whether that means skipping the morning caffeine hit -- those lattes can really add up -- or keeping the current Ferraris for two years instead of one, change is coming to most American households.
For some, that change will be drastic. For many others, that change might feel drastic ... at first. But if it's too drastic, you can end up slipping back to old habits -- and getting yourself into trouble just when your margin of error is smallest.
Happily, there are ways to cut expenses without making yourself miserable. Really!
Spending less without living less
Getting your household expenses down to a sustainable level and keeping them there isn't hard, but it takes some up-front effort and a little clever thinking. Rather than laying out a harsh budget that you won't be able to stick to -- a mistake lots of people, including me, have made -- follow this plan to get your spending under control in a reasonable way.
- Track your current spending for a month. You don't have to become a Quicken power user to manage your spending -- really, you don't, I promise -- but tracking your actual spending for a little while is step one of building a sustainable plan. This can be easier than it sounds: Use your debit card for everything you'd normally buy in cash, and your bank will do the tracking for you. Try to record everything -- get receipts when you do spend cash, toss them in a shoebox, and total them up every now and then. Do this for a full month if you can, but even a couple of weeks will prove enlightening.
- Look for the obvious cuts. Take your records, add it all up, and group expenses by whatever categories make sense to you. Then look for the low-hanging fruit. Late fees and bank charges resulting from sloppy bill-paying habits can add up to hundreds of dollars very quickly, and are almost always very easy to avoid. And are there changes you can make to your larger spending patterns? Do you have a tendency to blow money on clothes when you're feeling down? Spend $100 a pop on family dinners out a couple times a week? Think about cutting some of that out, or at least consider alternatives.
- Make sustainable changes. Obviously, you'll separate the "needs" in your monthly spending from the "wants", and make sure that the "needs" get taken care of on time. But here's the trick: The key to making your cuts sustainable is to find lower-cost ways to satisfy some of the "wants," too. Nailing yourself to a strict needs-only budget can get you through a crisis -- but if you're trying to spend less than you earn over the long haul, you've got to make room for a few indulgences, too.
One great way to get some "wants" on the cheap is by shopping secondhand. I've talked about Freecycle and Craigslist before, but I recently discovered the joys of thrift stores. I went into a local one on a lark -- and walked out with $100 worth of Polo Ralph Lauren (NYSE:RL) and Brooks Brothers shirts, nice ones that looked new after I had them cleaned. Twelve of them. These shirts cost $60 - $100 each new, and they're all the kinds of things I've been buying new for years.
Check out your local Goodwill or Salvation Army -- you probably won't do all your shopping there, but there's lots of good stuff, especially for kids, and the prices can't be beat. (And here's the secret: People you know, even some of the ones you think of as quite well-off, already shop there. Really.)
To read more about cutting expenses without making yourself miserable:
