Figuring Out What’s Essential

One of my core principles of personal finance is that you should cut back in the areas that you don’t find very important so that you can preserve spending in areas that are important.

That’s a great philosophy to have when you’re on the road to financial recovery or when things are going well, but it doesn’t help too much when you’re actually facing a scary pile of bills and don’t have an obvious way to start tackling them.

Most of the time, at the start of a financial turnaround, you’ll have to cut back even harder for a little while so that you can get a few bills paid off and get a little bit of money in the bank to handle emergencies.

Sarah and I certainly went through a period like that. We cut back on everything. We cleaned out our closets, sold off a large chunk of our possessions, and lived as cheaply as possible for the better part of 2006 before we were able to breathe a little.

That experience taught us a few things. The biggest lesson was that many of the things we view as essential aren’t really essential after all.

Since then, I’ve learned that many people struggle with one fundamental part of this transformation – they view certain things as essential and never question whether they should drop them for a while in an effort to rebuild their financial life.

Here are five things that I commonly see people defining as “essential” without even thinking about it. Sure, removing these items from your life might be a real challenge, but the amount of money saved per year without these items would measure in the thousands for most people.

Is Your Car Essential?

The answer to this question depends on where you live. If you live in a different area than where you work and there’s no mass transit available between the two places, then a car might actually be essential.

However, if you live within a few miles of your workplace or there is a mass transit option available to you within a short distance of your home that will take you to work, you should strongly consider life without a car, at least for a while. You may also want to consider the possibility of moving to a location where these services are available.

Not having a car saves you on insurance, fuel, registration, maintenance, and parking – costs that can easily add up into the thousands over the course of a year.

Is Home Internet Access Essential?

It is often tempting to look at home internet access as an essential thing. People use it for entertainment, information gathering, social connection, and professional matters, among other things.

Still, the only item on that list that’s truly essential is the professional issue. If your job requires that you have home internet access – meaning that you need to use it on an extremely regular basis with specific programs or security measures – then it is a necessity.

Without that requirement, however, public sources of wi-fi and the computer tools available at your local library can fulfill one’s non-professional needs for access to the internet.

Home internet access can range anywhere from $20 to $100 per month. If you can drop a $50 bill each month, you’re suddenly spending $600 less per year.

Is a Cell Phone Essential?

Twenty years ago, virtually no one had a cell phone. Today, seemingly everyone has one. It’s become a requirement, right?

Again, unless you’re in a professional situation that requires you to have constant availability, a cell phone is not an essential device. It is almost always a convenience. However, there are situations where cell phones can brush up against a requirement, such as a personal emergency.

The best solution in those cases is to have an extremely low cost pay-as-you-go phone that you use in emergency situations. There’s no need for a data plan or other bells and whistles, just the ability to make occasional voice calls and/or texts. You can find a device that meets those needs for very little money – as little as $20 a month – from a service like Ting.

As for smart phones? Yeah, most of what they offer is decidedly in the non-essential category.

If you can drop a $70 cell plan (the average American pays $71 a month) down to $20, you’re saving $50 a month or $600 a year. If you can drop a $70 cell plan entirely? That’s $840 a year.

Is Cable or Satellite Television Essential?

Of course it isn’t. Television is a great source of entertainment, but it’s far from a requirement for anyone.

If you switch to getting over-the-air televisions signals by using an antenna, you’ll still have many channels of programming on your television for free, which means you can maintain watching television as a much less expensive hobby. Plus, having this type of access enables you to use it for weather updates (although it’s always a good idea to have a weather radio around).

Minimizing television usage frees up time for other personal projects and hobbies. A period without television at home can open a person’s horizons to new interests or provide the time to rediscover old ones.

The average American pays about $80 a month for cable and/or satellite television in their home. Dropping that service will save you $960 per year.

Is a Large Apartment or House Essential?

According to AEI, over the last forty years, the average American home size has doubled. Amazingly enough, this has happened while the average American family size has shrunk significantly. In other words, the average American today uses 2.5 times as much living space as a person in 1970. If you look at homes earlier than that, the trend continues.

Here’s the reality. Most of us live in homes far larger than we actually need. Most of that space is used to house stuff that we rarely use, stuff that we could easily sell off.

Consider downsizing to a smaller home or apartment. Doing so will save you on housing payments (whether rent or mortgage) and insurance and open up the possibility of better locations that are more accessible to your job or to better jobs.

Not sure you can do it? Look around your home at all of the stuff that you rarely use, then have a big sell-off. Not only will it make moving to a smaller space far easier, it’ll provide you with a pretty nice cash boost to pay off some debts and cover moving expenses.

If such a change can save you even $200 a month in housing costs, you’re instantly spending $2,400 less per year, an amount that can easily be transformative and make the difference between sinking and swimming.

The Take-Home Message

The take-home message here is very simple. Question everything. There isn’t an expense in your life that you shouldn’t look at with a critical eye. Every time any money leaves your home, you should be asking yourself two key questions.

First, do you need this expense at all? What does your life look like without it? Are you able to do all of the things you need without this expense? Are you truly losing anything of value by cutting this out of your life?

If you decide that you do need this expense, ask yourself whether you need this particular version of this expense. What does your life look like with a cheaper data plan or an over-the-air television antenna? Do such changes make your life unlivable or is it merely asking you to make a few simple lifestyle changes?

Sometimes, you’ll decide that an expense is worth it and keep it. That’s completely normal.

However, when you make the decision to cut a major monthly expense out of your life, you’re making a transformative change. You suddenly have a hundred or more dollars a month to use to get yourself out of debt, build up an emergency fund, kickstart your retirement savings, or simply have more flexibility to do other things that you want to do with your life.

You might also decide to eliminate a particular expense on a trial basis. Try getting rid of your cell phone for three months or getting rid of cable for three months or getting rid of home internet for three months. How does that change alter your life? You might discover it’s not as bad as you think, particularly once you get past the alterations in your routines, or you might find that you really do enjoy this service.

Never, ever stop asking questions. Never, ever hold an expense up as untouchable. Never, ever be afraid to experiment or try a new approach.