Editor’s note: This article was first published in April 2012, during the financial crisis. The remarks on soaring electricity prices and the savings estimates reflect that period.
In a previous article we said that a personal financial crisis is something we have all been through or will go through at some point (with the odd honorable exception). When that moment comes, and it seems to have come for all of us now that the financial crisis is global, some people are clearly caught more unprepared than others. Once the initial panic is over, and bearing in mind our earlier advice (How to deal with a personal financial crisis), let’s put together a strategy to get our personal finances back in shape.
To get better results, we should treat our household finances as if they were a company, so we’re going to try to make our business (our household economy) profitable. As in any company, profitability clearly improves by saving more (that goes without saying) and also by following a basic business principle: you make more money when you buy than when you sell. Let’s put it into practice in these 5 points:
1. Bring your insurance up to date and look for savings
Most Spanish families have several insurance policies: life insurance, home insurance, one policy for each vehicle, and so on. Often the home insurance is taken out with one company, the car insurance with another, and another family member’s with a third. Few people know they could get up to a 20% discount on their total insurance bill if they took everything out with the same company.
Most insurers would be willing to offer remarkable discounts if all the family’s policies went to the same company. It’s also a good moment to ask whether you have any insurance you don’t consider necessary right now and could put off for a while.
2. Invest in a pair of scissors and use them to get rid of your credit cards
Some experts say that paying in cash saves money. It has been shown that when people pay by credit card, they tend to go over the budget they had set. For example, you’re at the supermarket and you plan to spend €100 on the weekend shopping. If the final bill comes to €120, what do you do? Would you take something out of the basket? Probably not, because you have your credit or debit card with you.
If you go to the supermarket with just €100 in cash, you’ll make sure you don’t spend more than that €100. This simple piece of advice can keep us from falling for marketing strategies that get us to buy things we don’t even need. It may sound silly, but give it a try. And while you’re at it, you’ll avoid paying interest on credit purchases.
3. Check your home electricity use
Step one: replace the light bulbs in your home with energy-saving ones.
Step two: don’t leave appliances switched off with the standby light still on. That little light uses very little, but a little every day of every week of every month adds up to quite a lot over a year. The price of electricity has soared, so it may be time to avoid electric water heaters, electric ceramic hobs and the like. You can cut your electricity use by more than 35% without being austere, and if you do go austere, you could save even more than 57%.
4. Buy certain products in bulk
If we think like a company, there are certain products we can buy wholesale at big stores. Toilet paper, for example: it doesn’t expire, and we could save a considerable amount by buying a whole year’s or six months’ supply. The same goes for cleaning products such as laundry detergent and dishwashing liquid, as well as alcoholic drinks or foods with a long shelf life.
These are products we’re going to use anyway, and buying them retail at a supermarket can cost up to 30% more than the price we could get buying wholesale.
5. Healthier habits
Eating well and exercising regularly can save us money on some medicines. Not only that: exercise helps relieve tension and keeps the mind sharp, and a sharper mind tends to make better decisions.
Beyond these 5 basic points, remember to go over your income tax return (IRPF, Spain’s personal income tax), because we sometimes forget to deduct small items that can make a difference to the refund. In a previous article we explained some ways to make the most of IRPF deductions. Keep in mind that even losses on an investment are deductible.
Further reading
Featured image: Anton Fomkin, CC BY 2.0, via Flickr.
