Mmmm, pie. But some odd pieces are way too big.
Lloyd Alter
It is a completely fascinating project, to look at what you spent, categorize it and look at where you can cut back. I have noted how I downloaded all of my data from banks and credit cards into Quicken (not a difficult or time-consuming process at all) and created a budget report to see where I was spending too much money.
What became instantly clear was that the usual things that most people are told, like don't drive, spend less in restaurants, cook your own food, cut down on meat- we are already doing that. I bike everywhere, we are weekday vegetarians, we have none of the easy low hanging fruit; our problems are structural.
People close to me have expressed surprise that I was in such a situation, but like many people who are self-employed and particularly like those in architecture and real estate development, our income is spiky, we never quite know what we are going to earn this year and there is always a pot at the end of the rainbow. It takes a while, after you take a full time job with a regular and fixed income, to figure out that it is not spiky but smooth and there is not pot at the end, just a weekly dribble. And that in these times, that dribble might just turn off while you are unprepared.
I also had the advantage of a big cushion; I get paid in American dollars but live in Canada. I used to gripe that I took a 30% cut in pay last year as the dollar fell, but now I realize that I had this big glorious pillow that I was relying on, and now that the dollars are effectively at par I have to live within it.
So where is my money going and what am I going to do about it? Let's look at insurance first; close to 10% of my income is going to it, and I am in Canada and don't pay anything for health insurance. How much insurance do you really need?
I have had life insurance for so long that my agent is now in a nursing home. But my house and car insurance is with another firm and I called Lionel Cohen of Hugh Wood Canada, to ask him what he thought. He laughed and said that he was just dealing with this himself, and agreed that when the kids are grown and capable of taking care of themselves, when you have equity in your home, you don't need as much. I cut the term policy off and cut my expenses by $153 a month. That is not much compared to the insurance on property and vehicles, but it is a start.
I kept the universal life policy; Trent at Simple Dollar says don't buy Universal and ignore their claims of being a good investment, but I took out a whack of dough that had collected there at 4% and got rid of another credit card. I have found it to be an effective, tax free way to build a reserve fund for emergencies and big changes like this. However Trent's post, completely coincidental in timing, is good reading. Wise Bread has a good explanation and comparison of different kinds of insurance here.
Life insurance shouldn't be like a lottery ticket for your family, it should cover your dependents' expenses and put your kids through school. I had more than I needed and cut back. I think I did the right thing. Basically, the younger you are, the more you need it, but also, the cheaper it is.
