How to earn an extra $500 a month: Part 4

OLYMPUS DIGITAL CAMERAPart 4 wraps up the series on earning an extra $500 per month.  The focus this time is not increasing income, but instead decreasing expenses.  After exhausting all of the previous options, there always remains the option of cutting expenses.  Below are three examples designed to save an average of $500 per month.  It is unlikely that a specific example may fit you perfectly, so the best option is to pick from each example those options that do work for you.

Example #1  ($150+$80+$270)

  1. A newly created cost is the smartphone data plan.  With many 2 phone plans pushing past $200, perhaps a simpler approach is needed.  Here’s the action… drop the phone plans and get a prepaid plan and free internet at your local library.  The savings here can be as high as $150, which still leaves an allowance for going prepaid.
  2. Cut out the $20 per week for office lunches, coffee, etc.  Home cooked food gets better with time and experience.
  3. Downsize your car payment.  If you have a car payment, try trading it in for something older that will reduce of your payment.  A New $24000 car will have a payment of $450 per month with good credit.  Cutting down to a $10000 car will save $270 per month.

Example #2 ($300+$100+$25+$75)

  1. Refinance that car.  Extend the term if needed.  It will be good to free up the cash flow, and car debt for those with good credit it is not that expensive.  If you had three years left and a balance of $24000 at 5%, refinancing to five years at 2%, would save $300 per month.
  2. Cut the cable TV.  With good quality programming on Netflix and Amazon Prime, cutting the high end cable and movie packages will save upwards of $100 per month.
  3. Ask for a reduction in rent.  This applies to good tenants who pay on time.  A vacancy costs a landlord a good amount of money.  On top of that, they are paying 10% management fees and taxes on top of every gain.  Asking for a modest $25 per month (or hopefully more) off of your month should be reasonable to many landlords who wish to keep a good tenant.
  4. Make sure not to buy more insurance than needed.  Insurance is mainly designed to protect personal assets.  If you don’t have much in the assets category, cutting insurance and raising deductibles can free up some cash.  $75 per month alone on health insurance is achievable.

Example #3 ($260+$40+$200)

  1. Carpool, walk, or take public transportation.  This really applies to your second car.  Get rid of that $15000 new car you just bought on a 5 year loan and save $260 per month.
  2. Ditch the home phone.  The home phone and long distance is now becoming more expensive than a prepaid cell phone with unlimited talk.  Since most have the cell phone, this will save about $40 per month.
  3. Refinance the house.  There are many options for no-cost refinancing.  Refinancing a house that you bought three years ago for $165,000 at 5% can now be refinanced at 3.25% for 30 years, freeing up $200 per month.

The FPO series on earning an extra $500 per month has provided multiple methods for achieving that goal of bringing in some extra income.  Combine that with some of the savings methods above, and the result should be a complete transformation of your personal finances.

Fixed costs and variable costs in your life

Good Evening FPO Readers,

This is a mini lesson in economics.  There are two types of costs, fixed and variable.  A fixed cost is one that remains the same independent of other variables.  A variable cost is a cost that changes based on a combination of variables.  Many bills and purchases in our life have a combination of fixed and variable costs.  A utility bill is a common example.  For any consumable, there is a fixed base account/delivery charge and a variable change based on the amount delivered.  This applies the same to a water, electricity, or natural gas bill.  The fixed cost must be overcome before any variable costs are encountered.

The important concept here is that it is easier to cut variable costs than it is to cut fixed costs.  However, the counter to this is that the price per unit consumed raises since the fixed cost becomes more of the dominant cost of the two.

A useful application of this principle would be a household that has both an electricity service and natural gas service.  The only device on the natural gas line is the hot water heater.  The fixed monthly cost is for delivery is $14 and the consumption by this house is low at approximately $8 per month average.  In this case, it is likely beneficial to switch to an electric water heater when the natural gas unit reaches the end of its life.  With a variable cost that would likely be $12 to $14 per month, the natural gas fixed cost is eliminated since hot water is now provided by the electric service, whose fixed costs are already covered.  Though an electric unit does not heat as fast, this should be an acceptable trade off since the hot water consumption was low enough to start.

Winter energy savings tip

Hello FPO readers,

Given that its nearing the start of winter and many areas are experiencing cold time, it’s time to share some energy savings tips…

To help lower utility bills, go for the low hanging fruit first. Plug the leaks. Heat lost to air exchange will be more costly than thinly insulated walls. Make sure that there is still enough air exchange to facilitate combustion air and environmental concerns.

Next, insulation is a pretty good deal these days with the combination of utility and tax benefits. Put a good amount in unfinished and attic spaces. Finished space may or may not be cost effective.

Thick curtains are great at reducing heat loss. Let the sun in during the day.

Good Luck!

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