Hi guys, it’s Finance Fridays again… and well, remember I mentioned my kids were sick on Wednesday? Well, I’m not feeling so great today now, but that’s ok, this post should be pretty short and sweet, because we’re going to talk about Trimming the Fat.

Stock Photo from: Pexels

Wait, it’s Finance Fridays, what do you mean “Trimming the Fat”?

Well, I mean it metaphorically. Trimming the (Financial) Fat. For some, in order to keep their expenses in order, they need to budget things every month. This forces them to evaluate every purchase they make and truly understand where their money is going.

I think having a budget is great when you are first starting out, especially if you have a significant increase (or decrease) in income. Don’t be Dr. Yoloswag. For me, I’ve been an attending for a few years now, and I have a general idea of where my money is going. For this reason, I don’t have a strict budget persay.

Ok, so then why are you “Trimming the Fat”?

Well, life tends to throw you some curveballs once in awhile. I had a certain “general budget” in mind with these first few months of 2017. However, circumstances have changed.

[Strike One]

I was hoping to get a little bit of money back from my taxes this year. However, that isn’t going to happen. My CPA is currently calculating how much I will owe. [[sadness]]

[Strike Two]

My solar panels are finally going up. They were supposed to be go up by the end of 2016, so I could claim the credit for 2016 taxes.

…But they didn’t, so I will be stuck with a deficit from the up-front cost until end of tax year 2017. I won’t receive any of my solar tax credit until March 2018.

[Strike Three]

Remember I bought my 3rd car? This was necessary, but it wasn’t cheap to just throw down $10k on a car all at once. Maybe I should have considered buying a car with 0% APR or something instead. However, that costs more in long run. All things considered, I don’t regret my decision,but I need to make some changes.

[? Strike Four]

I also have some expenses from side project my colleague and I are working on. This isn’t a ton of money, but the costs to build it are increasing rapidly. As such I may be forced to have him front some of the costs for this first 1/2 of the year. He’s a great guy so he knows I’m good for it…. but… I don’t like owing people money.

Oh… I see… all those extra costs add up?

Yup.

Well, I have an emergency fund so I am prepared for situations like this. As such, I was prepared to handle the 3rd car and the solar panels. Also, I can probably still handle having to pay the taxes I owe and still be ok with my emergency fund.

However, the knowledge that my emergency fund will be cut in half worries me. Now, my emergency fund was pretty conservative to begin with, I had enough for probably 6+ months of expenses. But with all these extra costs, I am probably looking at ~3 months of expenses, which I consider to be aggressive. As such, this makes me uncomfortable.

Rather than sit and do nothing, I’m going to be Trimming the Fat.

Now, I’ve told you already I’m not a very flashy guy, so I don’t spend that much money overall. However, as you can see above, things add up.

So I’ve looked at my finances again and decided to make a few small changes. Here they are:

Bye Starbucks

Starbucks, I do love my daily Venti Pike, but after doing the math, it simply costs too much (for me).

Here on Oahu it’s about ~$2.77 a day for a Venti Pike. So 365 x $2.77 = $1011.05

Now, that’s not a ton. However, if it’s not necessary, then it’s a luxury. For any luxury, I implement what I call the Value to Cost Ratio. I’ll talk about this more in a future post. However, it’s a mental calculation as to how much value you get out of any particular cost. This ratio should always be > 1 according to your own internal compass.

Before I lived in Hawaii, I was perfectly content with my Keurig brewed coffee. I even used the Solo Fill cups, and just used some good tasting ground coffee I bought by the bag. Now, is this truly a $1000+ gain? No, because I am substituting for my bought coffee. However, it’s definitely worth it, for my anyways.

That said, for my wife, she honestly can’t function without her Starbucks in the morning. We’ve tried a bunch of different coffees with varying degrees of caffeine, even up to Deathwish Coffee. However, it just doesn’t work for her. So for her, the Value to Cost Ratio is pretty much infinite, since there is nothing that works “as good” for her.

Bye Eating Out at Work

So, like I’ve said before, I mainly work the evening shift from 2pm-12am or 3pm-1am depending on daylight savings time. As you can imagine, my colleagues and I tend to eat out a lot. Also, food in Hawaii is expensive, so a normal food run usually costs $10 a person (sometimes even $15-20). I work about 20 shifts a month, and there have been stretches where I have bought food everyday… sometimes even twice a day since I would buy food for lunch too. You can imagine that 20 shift x $10 = $200 a month which is $2400 a year.

I’m going to make a concerted effort to cut down eating out at work to once every 8 days, or on average 2-3 times a month. This is better for me both financially (and physically).

Bye “Cheesecake Factory”

Cheesecake Factory is a guilty pleasure for my family and I. However, it’s expensive if you go too often. For a family of 4 we might spend $80 or so, and now with my in-laws here we probably spend upwards of $120+.

However, this translates to not just Cheesecake Factory, but trying to eat out less in general. Overall, we’ve been very good about this because my mother-in-law and father-in-law make us home-cooked meals so often. Even so, it’s a good idea to make a mental note to try to eat out less.

I don’t know how much this would save end of the year, but if we ate out 1 less time a month that saves $1440, or 2 less times that saves $2880.

Bye Random Toys

This is the hardest one for me.

My daughter and son are such good kids and I want to give them everything. So whenever we’re out somewhere and my daughter wants something I just kind of crumble. This would be fine if they really enjoyed these toys, but usually they get bored of them in a week or two. For this reason, I’ve tried to make sure my daughter really wants something by telling her “we’ll look for it later”. If she remembers the toy and asks me to look it up later, then that means she really does want it. So we’ll sit down and look for it online and I’ll add it to my Amazon wishlist to consider buying later.

I’m also a really big sucker for blu-rays. We have so many blu-rays, but remember I talked about Value to Cost Ratio? Well, my daughter has watched every one of those blu-rays innumerable times, so I think the Value to Cost Ratio there is pretty good.

This doesn’t seem like much, Sensei…

You’re absolutely right.

All of those things above probably won’t add up to much. However, this is more of an exercise that I do once or twice a year to separate necessity from luxury. And if it is a luxury, then I look at the Value to Cost Ratio. I think that in general my family and our spending habits are pretty lean. However, there are always places for “Trimming the Fat”.

While “Trimming the Fat” may not seem like it saves you much money. However, the other scenario where you don’t continue Trimming the Fat will lead you down the road of Spending Bloat. Remember what I always say… “It’s hard to go back.”

Wait, what about big ticket items like a vacation or some once a year special event (like a concert)?

That’s something separate to consider. I’m all for buying experiences and not things.

However, everyone’s Value to Cost Ratio is different. For me, I don’t really care all that much about going to concert (especially with two kids) so I don’t make it a priority. However, I do want to take my family to Disneyland in the near future, so I will need to set aside money for that.

If you look at the above, by making those small changes I can probably save maybe $5k-$7k a year to add on to my Disneyland fund. It may not be able to cover the cost of the trip completely, because my (very) conservative estimate is about $10k. However, it will certainly help.

TL;DR

“Trimming the Fat” is an exercise in making sure you know where your money is going.

You want to separate luxury from necessity and evaluate your Value to Cost Ratio.

It’s not about making a huge change, it’s about keeping your spending under control.

It’s hard to go back. Don’t be Dr. Yoloswag.

This will allow you to save more money for special occasions, like a family vacation.

Buy experiences, not things.

-Sensei

What do you think? When was the last time you Trimmed the Fat?

Agree? Disagree? Questions, Comments and Suggestions are welcome.

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