23 ways to cut your overheads

08th Jun 2007

Is your cash flow a bit tight? Here are some ways you can make things a bit easier. Michaela Ryan.

Many beginner investors put a high proportion of their income towards their mortgages. Eventually rents rise and cash flow becomes a lot easier. But in the meantime, there could be a few years when you’re strapped for cash. So here are some suggestions for cutting your living and property expenses, to free up some cash flow and make life a little easier.

1. Stick to a budget Karen Novak, a certified financial planner with Westpac, says the first thing you need to do is work out where you’re spending your money.

There are a lot of pro forma budgets available online or through financial advisers. You could use one of these, or simply go through all your bills and work out what you’re spending each month.

According to Novak, the problem area for most people isn’t their bills, it’s their discretionary spending. Most people underestimate the amount they spend on items such as groceries, entertainment, takeaway and clothes. That’s why Novak recommends tracking your expenditure for a month and comparing it to your initial estimates.

Once you know how much you’re really spending, you’ll be in a good position to establish a realistic weekly limit. “That’s where the majority of savings can be made,” she says. It takes discipline to stick to your limit. Novak says it helps if you don’t carry any money in your wallet other than that weekly amount.

2. Identify your weaknesses As you track your spending, you’ll see where your greatest weaknesses are. For example, Novak says some people regularly go to the supermarket for one thing and end up coming home with six additional items. Another person’s weakness might be shouting rounds at the pub on their keycard once their cash runs out.

Once you’re aware of your weakness, you’ll be able to change your behaviour. (For example, you could stop taking your keycard to the pub!)

3. Negotiate with a property manager Do you own a number of properties, managed by different property managers?

If you offer several properties to one manager, you’re in a strong position to ask for a discount.

These days there are a number of property management companies that service an entire city rather than one suburb. Tenant enquiry tends to come largely from the internet these days, so it isn’t as important to have a local manager as it once was.

4. Do repairs yourself If you need to send a handyman around to a property it can set you back $60 or more. If you employ a gardener to attend a property regularly it can cost you several hundred dollars a year. Are you capable of doing these jobs yourself?

5. Shop around for insurance Do you know how competitive your insurance premium is? Not just landlords’ insurance. What about your health, car, and home and contents insurance? It sounds like tedious work shopping around for a better deal. But it’s just a matter of making a few calls that might save you hundreds of dollars a year.

Alternatively you can ask an insurance broker to shop around for you. Or you could try an online service such as www.iselect.com.au to compare a wide range of health insurance premiums.

6. Shop around for phone/internet While we’re on the topic of shopping around, there are huge savings to be made on your home phone, mobile and internet bills. When your contracts expire, it’s a good time to consider your options. Or if the cost of breaking an existing contract is small compared to the savings you’ll receive from a different service provider, it could be worthwhile making the switch even earlier.

There are attractive deals in each of these areas individually. Or you could bundle the three services with one provider to get attractive discounts.

You just need to set aside an hour to go online and consider the packages that various companies offer.

7. Reduce bank fees Bank fees and charges can take a nasty bite out of your savings each month. If you shop around, you might be able to swap to a bank or building society with much lower fees.

For example, Novak says some banks offer low-fee accounts for seniors or students.

When you shop around, don’t just find out about account keeping fees. Ask about penalty fees too. Some banks will sting you up to $50 for a dishonoured cheque or for overdrawing your account.

You should also take steps to avoid these penalty fees. In order to do that, the Australian Consumers’ Association (ACA) suggests you should always know your bank balance.

"Check it before making a payment from your account or writing a cheque. That way you’re less likely to go overdrawn," the ACA says.

"If you’re likely to go into the red, consider getting an approved overdraft facility if it’s available and affordable. Otherwise, you may even be better off with an account that doesn’t allow you to overdraw."

In some cases you can be stung with fees even though your account is closed. The ACA cautions: "If closing an account, make sure you cancel any direct debit arrangements…"

8. Use your own ATMs Do you know how much you pay every time you use the ATM of another bank? If you’re regularly incurring a fee of $2 or $3, you might want to think about locating the nearest ATM or branch belonging to your bank, and doing your withdrawals there. You can also make bigger withdrawals so you don’t have to find an ATM so often.

Check your bank’s terms and conditions to find out whether you’re charged a fee for getting cash out via EFTPOS. It might be that you can get your weekly pocket money when you do your grocery shopping.

9. Reduce credit card costs Beware of late payment fees and over-limit fees on your credit card, which can be up to $40 a pop.

According to the ACA, if you don’t make a payment by the due date, some credit unions even charge $15 every seven days until a payment is received.

By shopping around you might be able to change to a credit card which offers a much lower interest rate and perhaps no annual fee. The market is becoming much more competitive.

10. Consolidate debt Novak says you can save money by consolidating debt. "If you do have credit card debt there are a lot of companies out there that are offering honeymoon rates – six months on a zero interest rate."

Novak suggests you could settle your other credit card debts using the new card, and then pay off the debt on the new card in a focused period of time so that there’s no debt remaining by the end of the honeymoon period. This strategy could get you out of the cycle of making costly ongoing interest payments – so long as you have the discipline to carry it out properly. Alternatively, you can speak to your mortgage broker or banker about consolidating personal loans and credit card debts by refinancing your home loan. You pay off the debts using the equity in your home, and the new debt (secured against your home) should be at a much lower interest rate than the rates attached to credit cards and personal loans.

You need to check the conditions of your loan to see if it’s possible for you to make smaller payments more frequently. Some banks will penalise you for making extra repayments, or they may not be willing to change the amount of your regular repayment.

Also check how often your bank calculates interest on your loan amount. If they calculate it every day or every week this strategy will be helpful but it won’t make a difference if it’s only calculated monthly.

Also keep in mind there are 26 fortnights in a year. So if you elect to make fortnightly repayments (as opposed to twice monthly), you’ll actually be paying the equivalent of an extra monthly repayment each year. That’s great for debt reduction but not so good for your cash flow in the short-term.

14. Tight Tuesdays On Tuesdays, cinema tickets and DVD hire are often half price. (Colloquially it’s known as "tight-arse Tuesdays"). If you love your weekly DVDs, it saves a lot of cash if you swap them over each Tuesday.

15. Save on food and alcohol Some restaurants offer “happy hour” meals before 6.30pm. That’s dinner for under $10, or a half-price menu. If you love eating out but you’re strapped for cash, this is a great option. Alternatively check out shopadocket.com.au and see if there’s a restaurant in your area which is offering a two-for-one deal. If you don’t order alcohol with your meal, you’ll walk away paying a hell of a lot less. Alternatively, BYO restaurants (with only a small corkage fee) can make your night a lot cheaper.

If you’re a wine lover, consider buying cleanskin wines (in stores or online). The wines often come from excellent wineries but are sold without their labels. With no labelling or marketing costs, the savings are passed on to the consumer.

16. Save on your bills If you ever have a bill that offers a discount for prompt payment, that’s a pretty good reason to pay it before the deadline. In some localities this is the case with council rates, for example.

Some companies also offer discounts to customers who pay bills online, or who opt to receive statements online rather than in the mail.

17. Reduce body corporate fees Do you own strata-titled property? If you’re an active member of your body corporate you might be able to negotiate a reduction in your body corporate fees. Provided the body corporate has sufficient funds, it might be reasonable for you to suggest a reduced rate for a year or more.

18. Review your ownership structure Before buying property, consider the most cost-effective ownership structure from a tax perspective. It’s extremely valuable to get professional advice on this topic from an adviser who has a thorough knowledge (and preferably personal experience) with property investing.

In some cases it might make sense for one spouse to have the property in their name only, rather than joint names. In other cases it might be advantageous to set up a trust (refer to issue 68 of API for an article outlining the pros and cons of trusts).

19. Save on cars If you are a two-car household, do you think you could manage with just one car? Or if you live alone, could you survive without your car for a few years? The potential savings on rego, petrol, insurance and repairs are huge.

Novak herself used this strategy and got rid of one of her household’s cars. Occasionally either she or her husband is required to take a taxi but the cost of doing that doesn’t come close to the ongoing running costs of a car.

This is called “asset rationalisation” and it doesn’t just apply to cars. If you have a boat or a motorbike or any other asset that costs you money to keep, there’re some savings to be had if you get rid of it for a while.

20. Save on furniture If you have to buy furniture, secondhand stores and online auction house eBay can save you a lot of dough.

21. Save on energy bills Cut your electricity bill at home by using energy-saving globes and opting for energy-efficient appliances.

It also saves energy if you set your air conditioner to 24 degrees.

22. Save on water Are you being charged for water usage on your home and investment properties? Check your rates to see how it works in your municipality.

It’s very cheap to fit water-saving devices that can reduce your tenants’ water usage significantly. Government rebates are often available for these products too.

23. Salary sacrifice If you need a new computer or PDA, you might be able to salary sacrifice or salary package the purchase. That means your employer buys the item for you and reduces your salary by the amount of the item.

For example, a $50,000 gross salary would be reduced to $48,000 if you received a $2000 laptop. The advantage is that you’re receiving an item worth $2000 from your before-tax income. You otherwise would have to earn $2920 (gross income), pay tax at 30 cents per $1 (plus a 1.5 per cent Medicare levy) and then buy your laptop with $2000 of your after-tax money (your net income).

Not all employers are willing to offer this to their employees but it’s always worth asking.

However, there’s no point spending money on a computer, or anything else, in order to "save" money. If you can go without the computer for a while longer that’s going to be better for your cash flow than outlaying $2000.

Keep your eye on the goal This kind of discipline and innovation is a fantastic way to get you through the early years of investing. Provided you’re making good investment decisions while you’re counting your pennies, in time, you’ll be rewarded with wealth and financial freedom.

However, if freedom and a better lifestyle are your long-term goals, it’s pretty ironic if you’re making your life a frugal, living hell in the short or medium term.

"It’s about creating a balance between what’s financially beneficial and your lifestyle as well," Novak says. "There’s no point putting all your money away if you’re completely miserable and you don’t have the lifestyle that you want either."

 

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