The $1,000 Challenge, Part 6: Finding Big Savings in Little Purchases

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Woman having nails done in salon
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At the risk of sounding like a bad reality-TV promo, here goes: "This week in The $1,000 Challenge -- things get personal!" And by that I mean "personal spending."

As the syndicated Funny Money columnist for The Detroit News, I thought trying to cut my family's personal spending would be emotionally fraught. But when managed properly, this turns out to be the family budget category that ensures wedded and financial bliss, with no arguments about why I can't spend $30 on designer duct tape, and no accusations that Mrs. Funny Money fritters away our hard-earned dough at the nail salon. To eliminate petty squabbling, we decided that petty cash would be divided into categories of "Yours," "Mine," and "Ours."

(I'm only going to hit the high points here, but if you want more details, check out my book, "The $1,000 Challenge." In my 10-week experiment, I cut an average of $100 each per month from my 10 biggest family spending categories, saving $1,000 in monthly spending.)

A check of my sketchy bookkeeping on the personal spending category found that Mrs. Funny Money and I averaged $52 a week in personal spending on clothes, skin cream, visits to Starbucks (SBUX) and other sundries. Most of the money came out of our accounts via ATM withdrawals, to be spent in cash, but reviewing the debit card purchases at least gave me a notion of where my personal spending money was going -- and there was certainly room to save.

My biggest outflow was lunch, which I should pack, not only for financial reasons but health reasons, too, since I work just a few blocks from Detroit's two greatest Coney Island restaurants.

The ugly surprise was that I'd paid almost $10 a month in bank fees that year, for ATM surcharges or when the account balance fell to the point where I incurred a maintenance fee.

My money coach, Robin Thompson of Budget Wise Consulting in Sterling Heights, Mich., had the answer: cash.

"When it comes to debit and credit cards, I call it 'magic money,' " she says. "You never see it as spending real money." Thompson advises using the old-fashioned but reliable envelope system for any type of discretionary spending. "These variable expenses get us into trouble because they're prone to impulse spending," she says. "We don't say, 'Wow! Let me make an extra car payment!'"

The biggest embarrassment of my entire 10-week series of budget-cutting columns was the fact that I was paying about $10 a month in fees to get back my own money at the ATM. I've railed against these outrageous fees for years, and yet I still got nabbed by them. But you can sidestep ATM fees with some shopping and planning. Online banks and some credit unions will give you a set number of free ATM transactions each month at any machine, or they might rebate any ATM fees you pay. Credit unions also operate a fee-free network of machines.

Paying cash for small purchases helps you avoid another nasty bank charge -- the "courtesy overdraft" fee. It's easy to lose track of small purchases, especially if you and your spouse are making them on debit cards, and then -- wham! -- a $4 sandwich gets you socked with a $35 overdraft fee. Besides cash, your best bet is to carefully track your balance, set up account alerts if your bank offers them, and link your checking account to a savings account or credit card for cheaper overdraft protection if you happen to slip up.

The other cool part of paying with cash is that you spend less. Cash feels more "real" than paying with anything else, from a credit card to trinkets and beads. Studies have also found that parting with your hard-earned greenbacks is physically uncomfortable -- they call it "the pain of paying."

When it came to saving on lunches, I was amazed at how little effort it took to save a significant amount. A typical lunch in the cafeteria used to run me about $7. Instead, I discovered I could get a week's worth of Weight Watchers (WTW) microwave entrées, two bags of frozen mixed vegetables, and a half-dozen bottles of generic seltzer and cut my cost to about $4 a day.

Sharing a newsroom coffeemaker with a half dozen other caffeine addicts brought my habit down from as much as $3.50 a day to the price of a can of coffee once a month. It added up to savings of $50 a month on coffee alone, and even more if I watched for sales.

Now, with things like accessing cash, packing your lunch, and sundry spending, you're going to have good weeks and bad weeks, so if you're working late and run out of time to shop and pack lunch, don't beat yourself up. Look at where you went wrong and adjust. It's easier to be disciplined with these kinds of ongoing saving strategies if you set up a system, such as getting all your cash on payday, and sitting down to plan out your lunch menus at a set time each week. If nothing else, grab a pack of hot dogs and buns, a few cans of soup, and you can microwave a decent, inexpensive lunch with nearly no thought at all.

Beyond bank fees and lunch, who knows how you or anyone else will manage to cut back when it comes to personal discretionary spending. Lord knows that I don't want to know what Mrs. Funny Money spends her personal cash on and how she cut back, and I'd certainly be embarrassed to have her know how stupidly I spent my cash in the past.

After weighing all the options, Mrs. Funny Money and I agreed that we could each get by on personal spending of $40 a week instead of $52 or more. If we saved a bunch, that freed up money for whatever else either of us wanted, as long as we stuck to the $40 weekly limit. If we buy something online with a credit card, we deposit cash in the checking account to cover the bill.

That saved $104 a month, with nary a marital squabble, thanks to the cooperative and understanding Mrs. Funny Money. Ideally, our new all-cash approach will allow us to find ways to trim without cutting out the things that are important to each of us.

"After all," said Mrs. Funny Money, batting her eyelashes, "new makeup and nice clothes make me feel romantic."

"Oh, sweetie," I said, handing her a martini, "that's what the gin's for."

Here's the running total for the whole series so far:
  • Week 1 - Miscellaneous Spending: $132.89
  • Week 2 - Utilities and Phones: $139.39
  • Week 3 - Transportation Costs: $41.61
  • Week 4 - Kid Costs: $114.50
  • Week 5 - Work Costs: $90
  • Week 6 - Personal Spending: $104
  • Total Monthly Savings: $622.39

Read them in any order you want -- just get in there and start saving! Check out the series introduction to get the big picture on finding big savings in your family budget. You can check here on DailyFinance.com, follow me on Twitter, or go like The $1,000 Challenge Facebook page to get a heads up whenever a new installment comes online. Or better still -- don't buy the book. WIN it free. DailyFinance is giving away 10 copies over the next six weeks, and all you need to do to toss your name in the virtual hat is follow @daily_finance on Twitter and re-tweet one of our $1,000 Challenge Giveaway Tweets. To find our tweets easily, search for #dailyfinancegiveaways.


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SPQR

Takle all your charge cards and have a bonfire in the yard! Get dressed up like an Indian and put on warpaint and carry a tomahawk and dance around the fire yelping

February 11 2014 at 10:32 PM Report abuse rate up rate down Reply
George Regnery

I use a 529-linked credit card from Fidelity, which I think has several advantages over cash. 1) 2% cash back on all purchases. It adds up. Especially if you can make business charges and get reimbursed. 2) I can download transactions into Quicken where they are categorized so I know where I'm spending the money. 3) I pay off my credit card bill each month, so never worry about the APR. I have no idea what the APR is on my credit cards.

February 11 2014 at 5:22 PM Report abuse rate up rate down Reply
Andrea

what about the expense of all that gin and all those olives for your martinis? that REALLY adds up.

February 11 2014 at 3:16 PM Report abuse +1 rate up rate down Reply
DIVA DEB

The problem with using CASH is that it is too easily stolen by nefarious types. At least with a Debit Card you have some protections built in. As far as avoiding Bank Checking Fees - easy - JOIN A CREDIT UNION.

February 11 2014 at 11:28 AM Report abuse +1 rate up rate down Reply
1 reply to DIVA DEB's comment
classof68gto

Many banks let you keep a specified amount in your checking acct to get free checking. I am a senior and have a special acct for seniors and as long as we have direct deposit our acct is free for fees

February 11 2014 at 10:05 PM Report abuse rate up rate down Reply
SPQR

After alifetime of saving and no fun just leave your million to your kids and they will have it all spent in 2 weeks. You can smile down from heaven in your raggity shirt

February 11 2014 at 10:45 AM Report abuse rate up rate down Reply