Thursday, April 9, 2009

How Radical Are Your Cuts?

Suze Orman’s “live on half” idea, meaning, spend just half of your income or half of what you’re used to on your living expenses, is a good idea for a lot of people at this point. It’s a great time to reduce or pay off debts, to put yourself in a more stable financial position in case there is a disruption in your income. Some of the biggest corporations (I recently mentioned Ford and General Electric) are doing this, and you might have a reason to do it too.

I like the idea of “live on half” because it gets you away from the thought that you can get where you’re going by making a few cuts here and there. To cut your expenses by half, you have to start taking away things that you think are essential parts of what you’re doing. That’s what gets you from incremental cost-cutting to radical cost-cutting.

And that can be a difficult hurdle sometimes. People think they’re doing radical cost-cutting, when in fact, their cuts are only incremental. How radical are the cuts you are thinking about? See where you think they might fit in in the following table. I’ve included a range of cost areas so you get the idea that this distinction works no matter what you’re spending your money on.

Subject Incremental Cost-Cutting Radical Cost-Cutting
Hair Getting your hair done only once every two months Getting your mom to cut your hair
Food Eating out only once a week Eating mostly fresh vegetables and grains that you cook at home
Television Canceling HBO and NFL Network Canceling cable entirely, and movie rental plans too, and getting the VCR out of the closet so that you can watch your old video tapes
Home Firing the landscaping service and cutting your own grass Renting out your house for a year and moving into the spare room in your sister’s house
Vacation Buying tickets on Priceline Camping at a campground 12 miles from the beach
Clothes Buying clothes only if they are at least 75% off Wearing the clothes you already have
Car Shopping for a less expensive, more fuel-efficient car this time Continuing to drive the car you already have, and working from home and not going out for days at a time
General Motors Phasing out Hummer and Saturn, and delaying most model redesigns Eliminating all models except for a range of Chevrolet cars and GMC trucks, and cutting off 80% of dealerships
The U.S. Federal Budget Canceling the laser plane, and cutting funding for abstinence-only sex education Closing all overseas military bases, and pulling all troops out of Asia and Europe

I’m sure you won’t be prepared to do most of the radical cuts you can think of, but it’s still constructive to be able to think of them, and to recognize that you have options if you need to cut expenses more than you have already.