Published January 10, 2014
If cash is tight and you're struggling to get by, cutting your monthly budget even further may feel darn near impossible. But according to Brian O'Connor, author of the new book, "The $1,000 Challenge: How One Family Slashed Its Budget Without Moving Under a Bridge or Living on Government Cheese," you'd be surprised by the amount of money you can save simply by taking a closer look at your expenses.
"No matter how much money you think you don't have, you still have a lot of choices," says O'Connor, a personal finance columnist at the Detroit News.
In 2009, O'Connor tried cutting his own middle-class budget by $1,000 per month and found that, in many cases, it was easier than he expected to trim some of his everyday expenses. "I was amazed at how much of this was pretty painless," he says. "Once I got started, it wasn't all that hard and agonizing. I just had to keep at it."
Over the course of 10 weeks, O'Connor tried shaving a minimum of $100 from 10 of his biggest monthly expenses, including food, housing, transportation, childcare and entertainment. Some weeks, he could barely squeeze more than $40 from his spending. Other weeks, he managed to save hundreds of dollars on fixed expenses, such as Internet and cable, simply by switching around the services he was using.
By the end of the experiment, O'Connor was able to cut just over $1,000 from his monthly spending, despite having failed to meet some of his weekly goals. He says he eventually learned that you don't have to be perfect to successfully shrink your budget. You just have to do it.
"You're going to have months where you do really well and months where you maybe don't do as well and you just have to look at your results and try to make them better," says O'Connor. "Don't sit down and create a beautiful, color-coded Excel spreadsheet and spend a month digging out every bill and receipt from the last year to create a perfect budget," he adds. "Just start cutting your spending and freeing up cash for whatever your goal is right then." Eventually, you'll find that you have access to more money than you think. "My rule is start small. Start now. Don't be perfect."
CreditCards.com caught up with O'Connor and talked with him about his new book, which chronicles the 10 weeks he spent digging through his monthly expenses.
Q: When you first started the experiment, you and your wife were already pretty careful spenders, weren't you?
A: For most things we were, but as I went through it, I found that I had been sloppy about some things. And it was embarrassing some of the dumb spending that I found, where I had just sort of gone, "Oh well, that's not important, that's not a lot of money."
Q: What were some of the most embarrassing moments for you?
A: The most embarrassing was the old unused email account in my miscellaneous spending. That was $25 a month, and I hadn't even opened the account in years. And you know, when I started to add that up -- it was $25 a month times the cost of three years -- I was just like, "That's a really nice dinner out somewhere. That's two months of speech therapy." And I was literally getting nothing for the money. I could have just been burning it and getting more use out of it. So that kind of stuff was really embarrassing. Because you look at it and you might miss it on the credit card bill or whatever. Or think, "It's only $25." But then when you add it up over how many months you've let that stupid little charge ride, you're like, "Yeah, $300 a year. I could find another use for $300."
Q: Automatic payments, like the email account, were a big drain for you. What did you learn when you started trying to weed out those recurring charges?
A: The one thing that I learned, which I think keeps a lot of people from dealing with that stuff, is that it was very easy to cancel everything. You know, my first thought was, "Ugh, they're going to really hassle me. They're going to have to send me a form, and I'm going to have to mail it, and they're going to make me wait six weeks and keep charging me and then they'll cancel it. Then I'll have to call and follow up and yell at people." And really, I think the email account was ... a phone call. Almost all of them were going to a website or one phone call. So it was like, "Oh! And it's not even as hard as you thought it was, so you didn't even have that excuse, you big dummy."
Q: You chose 10 categories to try to trim by $100 per month. What was the hardest category for you to rein in?
A: The first category was my automotive spending -- and that was, I think, about $40 of savings -- because our cars were paid off. We already had a good deal on insurance. We found a good garage that was doing maintenance at a reasonable rate. And, of course, housing is the same way if your insurance is under control. You don't really control your property taxes. Unless you can refinance a purchase, you're pretty much just stuck with what you're spending on the house or the car itself, in terms of things like maintenance.
So those are things where people really need to be careful ahead of time. Because once you're locked in, you're kind of locked in. With a car, a lot of people don't realize that you can often refinance a car payment at a credit union, which is usually a big plus if you've got a high interest deal on a loan or you bought the car at a "Buy Here, Pay Here" kind of joint. I've written columns on people who have saved a lot of money refinancing their auto loans through a credit union. It wasn't a problem for me because my cars were paid off, so with that, it was mostly switching around when I drove my wife's high-mileage car to save on gas. That was the big savings there. With the house, we couldn't refinance because it was underwater. So all we could turn to there was setting up an ongoing maintenance account.
Q: What were some of the easiest things for you to tackle?
A: Utilities. I loved the utilities. You can't save a lot on your water bill in most cases -- unless maybe you've got a home that's backed up to a canal. But things like cable, Internet, cellphone -- all those things are incredibly competitive. The people who have your business want to keep it. The people who don't have your business want to get it. And they're introducing all kinds of new plans and options, and so if you haven't re-priced that stuff in two years, you're probably losing money. You know, that was the easiest savings of the whole thing. It was about $140 a month. I spent about 90 minutes on the phone and I got another $600 either in temporary price reductions [or other promotions] and that included a $200 gift card.
Q: What's the best thing you learned by the end of your $1,000 challenge?
A: I learned that you have to tell your money where to go. It's not that hard to get yourself in financial shape. The problem is that it's so much easier to let yourself get out of shape. I told somebody, "The day I see an ad on prime time TV for having 13 weeks of living expenses in an emergency fund, that's the day I will eat a copy of my own book." Because the ads that you see are for this wonderful credit card that lets you go to the Caribbean because you get all these frequent flier points. Yeah, you get all these frequent flier points because you're charging a couple thousand dollars a year on stuff that you then have to pay interest on. People just get busy, and they're hassled, and everybody thinks finances are a big hassle. And the bills come and you just pay the bills and you do what you have to do and you try to make it work out at the end of the month. And, you know, that's probably how most people cope. And you're not really putting yourself in charge of where your money goes.
Q: If someone were to follow in your footsteps and try their own $1,000 challenge, what's the first thing they should do (besides pick up your book)?
A: It's funny that you mention this because on Jan. 5, we started the $1,000 challenge at AOL.com. [You can check out the $1,000 challenge -- a series of columns and reader challenges -- at AOL's dailyfinance.com]. We're going to do it for 10 weeks and do 10 categories and invite people to play along at home.
Q: Is this something people can start at anytime?
A: That's the plan. The stuff is all there and people can drop in to the process at any point. Or if people just say, "Holy cow, I'm spending an awful lot on utilities," and they just want to go look at utilities -- which will be the second week of the challenge -- they can do that. So, we're making it sort of bite-sized, and that's how people should do this sort of thing. Start with one category. Just get last month's credit card bill or bank statement. Go through it and say, "Are we automatically renewing the Cat Fancy subscription even though Fluffy died two years ago?" or "What's this $15 charge on the cellphone bill? Oh, it's that mobile data thing from the vacation." Just do it. Just take it one step at a time and don't be perfect.See related: Q&A with 'Bootstrapper' author Mardi Jo Link, Over your head in debt? 5 extreme budgeting ideas