Small Changes Matter

Small Changes Matter

Walk into any conversation about cord-cutting, switching energy suppliers, or heck, even fuel-efficient cars and you will always find one person saying something along the lines of “Oh but that’s such a small amount, that won’t really make a difference”. One of the biggest obstacles to people changing their behaviors is the belief that the reward won’t be big enough to justify what is perceived as a sacrifice.

I am here to dispel that myth. The first and very most important thing that people forget is that when you cut back on that cable bill, gas expense or whatever else, you then have that money free to #1 reduce debt, #2 save (more on how to do that later) or #3 spend on something else of a more immediate nature (though eliminating debt and then saving is often the best course for any surplus, not everyone’s situation is always so clear cut).

Let’s take a quick example of a budget here, ignoring the biggest culprits – housing, transportation and food – and focusing on smaller, but just as important targets – phone, TV, internet, car insurance, etc.

Budget #1Monthly Expenses
Car Insurance$180
Homeowner's Insurance$84
Gym Membership$50
"CableTown" Package$200
Monthly Total$514

These numbers are more or less based on my own experiences and very cursory online research, but I would be willing to bet that they are not too far off the mark for an average American family. Let’s tackle each one:

  • Car Insurance – “Full coverage” including low deductibles ($500) on collision and comprehensive and 100k/300k/100k liability with a non-competitive insurer.
  • Homeowner’s Insurance – $1000 a year, divided by 12 for monthly payments (albeit most people bundle this in with their mortgage payment, so they may be more likely to forget about it) Dwelling Limit of $250K, Extension 10% of dwelling, Personal property limit of $175,000, pretty much standard default coverage. This will remain the same in the comparison, the difference will be the insurer.
  • Gym Membership – This is pretty much the standard price for chain gyms like LA Fitness or Golds Gym… remember Planet Fitness is not a gym, they said so themselves.
  • Cable / Internet – I based this number off of what I used to pay to have the premium cable package (200+ channels) + HBO (for the 10 weeks out of the year that Game of Thrones was on 😛 ) and a “high speed internet package”. This is accounting for the prices going up after the trial period being over.

Here’s is another budget, which covers the same basic “needs” but for a much lower cost.

Budget #2Monthly ExpensesOne Time Expenses
Car Insurance$60
Homeowner's Insurance$38
Gym Membership$0$500
TV / Internet$74$65
Monthly Total$172

Wow. That is a $342 reduction in spending, per month! To put it in larger terms, that would be an extra $4,104 per year! Over 10 years, without accounting for compounding interest, that would be $41,040. But let’s say you take that money and invest in in a low-fee total stock market index fund that has average annual returns of 7%, 10 years later you would actually have $56,702.70 (I used this but you can search for “compound interest calculator” and use any of them and the results are generally the same) Now let’s go through each item and discuss how we can reduce the cost by receiving more or less the same value / coverage / service.

Imagine that this car is full of your money, that’s what overpaying for auto insurance does.

Saving on Car Insurance

This one is pretty easy – just shop around online and compare apples to apples. Get quotes based on the same coverage as above, comparing multiple identical quotes from multiple insurers. Many people fall back to the “but I want to be able to speak to a real life agent”. The truth is that most online insurers now offer local agents in many areas. That doesn’t stop their competitors from misleading consumers about it though. Always remember that, despite any insurance agent’s best intentions, at the end of the day it serves them best to be a salesperson. Do your own research and you will find that you are saving anywhere from 30-60%.

Saving on Homeowners Insurance

The market for this type of insurance is changing rapidly with more options becoming available from various insurers. Even a year and a half ago, the “online insurers” weren’t able to offer the same kind of competitive rates for homeowners as they were in auto, but now the savings are pretty legit – we dropped our yearly premium from $916 to $418 recently – that’s a 55% reduction! Do yourself a favor, and shop around every few years. Getting quotes is easier than ever and definitely worth the 2-5 emails you will get after you generate the quote reminding you about it.

The frugal gym

Saving on Gym Membership

It is my belief that you really don’t need a gym membership to stay fit. A simple strength training routine, which can scale up from bodyweight routines (start here) moving up to barbell routines (StrongLifts 5×5 is a good template to start with), combined with a healthy walking routine (I shoot for 10,000 steps a day) is all that you need. If you want to build your own home gym for barbell training what you really need is:

  1. Squat Rack ($200-300)
  2. Adjustable Bench ($100)
  3. Olympic Barbell ($50-100 on Craigslist, $100-200 new for a basic one)
  4. Olympic Plates ($100 should fetch you a good set on Craigslist)

Those are the basics, if you would like to dive deeper – Anthony Mychal has a more comprehensive list here. You don’t need the specialized machines, treadmills, ellipticals and countless other silly machines that these gyms have. I know that some may say, “But I enjoy the gym for the social aspect” or “I just love this spin class that they have there” or “I don’t have room at home for any equipment”. As I often need to remind myself – not all solutions work for everyone.

So let’s say you are going to the gym three times a week, seeing gains over time (or losses, depending on your goals) and not rewarding yourself with a JaMocha shake and a slice of pizza for each workout. If you can go ahead and justify the membership fee plus the added expense of the gas or bus fare used to get to the gym, then sure keep your membership – even the most frugal of people have areas that they don’t want to scrimp on. However, I am willing to bet that, unless you are a competitive bodybuilder / weightlifter, with a little bit of research and creativity, you could do just as well with a simple strength training routine and walking.

Saving on Cable / Internet

Cable is the easiest one to cut here. You don’t need to watch TV… like ever. If you want to keep up with the weather and local news and it needs to be on a TV screen – get an indoor antenna ($25 on Amazon). If your TV viewing preferences include a random show or movie here or there – get a FireStick ($40) and sign up for Amazon Prime ($100 for the year).

Internet is a trickier beast here, but my guideline is pretty simple – 10 Mbps Upload / 100 Mbps Download is all that you need. Some might say “What if I have people wanting to stream different movies on different devices?” or “Well I work from home, so I need the fastest package”. Addressing the former, streaming services mention anywhere from 15 – 25 Mbps for streaming content, per device. So all other factors aside, 100 Mbps is gonna take care of 1-3 devices streaming if needs be. You could always, you know… do a puzzle, read a book or play a game of Uno. If you work from home and need the extra speed to do your job, your employer should be paying for the difference. If you are self employed, you need to look at the increased speed as a business expense and structure your budget to reflect the added cost.

Some people may not be ready to make all of those changes, or at least not all at once. So here are the savings from each one of these, standing on their own:

Budget SavingsMonthlyYearly10 Years10 years, Compounded at 7%
Car Insurance$120$1,440$14,400$19,896
Homeowner’s Insurance$46$552$5,520$7,627
Gym Membership$50$600$6,000$8,290
TV / Internet$126$1,512$15,120$20,890

Why This Matters

A really important step in achieving financial independence in building wealth, which can only happen when you have more income than expenses. Sure, you could rely on getting some raises over the course of your career, but those raises are still going to be taxed. That $2,000 extra per year is probably only $1,500 more in your pocket (multiplying by 75% is normally a fair estimate of one’s after tax income). But if you reduced your expenses by $300 per month, that’s like giving yourself a $3,600 raise, tax free (since the taxes have already been paid). Reversing the math, you would need close to a $4,800 raise before taxes to have the same financial effect.

The key takeaway of all of this is that if you spend even a little bit of time doing research and asking yourself “Is this worth it?” or “Could I get away with doing less of this or doing it differently?”, you will probably save a good deal of money, even on each little change. If you stack all of these changes together, the savings are profound. All of this is even before tackling housing, transportation and food, which can be huge game changers.

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