Hugh Culver

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How to get rich by spending less money (it’s easier than you think)

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We all know drive-through indulgences are typically bad news for our health. To burn off the 750 fat dripping calories in a quarter-pound double cheeseburger the average adult would have to walk for about two hours. And that’s a fast walk.

In a recent study, researchers found that consumers will change their food order to more healthy options if they know the facts. We’re not talking percent of carbohydrates or sodium – the labelling that works literally says: if you eat this, you have to walk briskly for two hours to burn it off. According to Dr. Meena Shah, at Texas Christian University, when the cold, hard facts were presented it was enough to get people to order a salad.

WHAT ABOUT MONEY?

In one of my more popular blog posts I wrote about my switch from being a heavy coffee drinker to committed tea drinker (read “How drinking tea can make you rich”). The impact on my life, wealth, and willpower (and still to this day) surprised me.

Your spending habits are sort of like that Cheeseburger meal. If you don’t know the impact of your spending, you won’t know the impact on your wealth. 

Help young girls in Nepal get an education

We all want more money. To be accurate, not everyone wants more money. But, those two people don’t read my blog.

And we’ve been taught to get more money means earning more money. That’s hard. You can’t get a raise every week and you can’t just double your client sales. Earning more money is a slow process.

But, “earning” more money by spending less money is fast.

LET’S DO SOME MATH

In a typical day, you have discretionary spending that falls into the “no big deal” category. You spend the money and think “That was no big deal.”

Examples are: a muffin in the morning, espresso after lunch, can of Pepsi from the vending machine, a box of cookies with your groceries. All are no big deal.

Until you do the math.

In British Columbia, where I live (you can adjust these numbers for where you live in Canada by checking tax rates here. And in the US, here), the marginal tax rate, combined for both provincial and federal taxes, is about 20% on the first $44,000 of income and about 30% on the next $44,000. Rates keep climbing the more you earn. In this simple example, let’s assume your marginal tax rate is just 30%.

That means you have to earn about $5.00 to pay for a $3.50 muffin (see table). That’s the number you should be thinking when deciding between carrot-raison or pineapple-coconut.

sample_spending_cut_back_for_blog_0055_-_Google_Sheets

Assuming you indulge four times a week in a morning treat, that’s $1,000 you had to earn this year (based on 50 working weeks). Not to mention the pounds of gluten clogging your pipes, it’s serious cash.

Here’s the question that pulls me away from the pastry display: “What would I have to earn to pay for this?”. Chasing after another client, getting a raise at work, investments suddenly paying a 13% return? No thanks – I work hard enough. 

Sure, the difference between the Chef’s salad meal and the pan-fried salmon with curried basmati was only $10. But that’s over $14 I had to earn for a little pleasure. I say “Salad, please.”

I’m not trying to be puritanical – I love treats, like the next person. I just don’t like throwing away money I had to work hard to get. 

MONEY YOU THROW AWAY

How about these costs? Are you paying for things you aren’t using or simply because you aren’t watching the costs? There’s a good chance you could eliminate at least one of these and never look back.

  • web site domains you pay for ever year, but may never use, like www.howtogetontheoprahshow.com.
  • subscriptions to membership sites you haven’t visited in months ($30/month = over $500/year in pre-tax dollars).
  • that cell phone data plan you never come close to maxing out.
  • channel packages from your TV provider (if you still use one).
  • home or office phone packages that have bloated over time. When we moved offices this year we dropped our monthly bill by over $300 by changing carrier and hard negotiating (thank you Sarah).
  • that cool on-line tool to post tweets, run a survey, or do web site eye-tracking that you’ve forgotten about, but they happily ding your credit card for $10/month.

I could go on and on with even more nefarious examples like: mortgages that could be renewed or bundled at lower rates, utility late fees, using 18% credit card debt to pay bills, and vehicle lease payments that effectively doubled the real cost of your car.

THE BOTTOM LINE

The bottom line is this. Earning more money is hard work and not always possible. Spending less money is fast and has exactly the same result. So you bring the occasional salad to work or avoid surfing the web unless you’re in WIFI range. No big deal. But it is a really big deal in pre-tax dollars by the end of the year.

DO THIS TODAY

This simple exercise may surprise you.

1. Grab your latest credit card bill (if you have it delivered on line, that’s a mistake. Remember: out of sight is out of mind) and highlight any automatic payment, on-line subscription, phone bill, mortgage, whatever. 

2. Next, calculate the pre-tax cost. 

The formula is: $cost / (1-marginal tax rate). 

For my muffin example: $3.50 / (1 – 0.30) = $5.00. That means I have to earn $5.00 to pay for a $3.50 muffin.

3. If you don’t absolutely need what you’re spending the money on, don’t buy it, cancel the service or call and negotiate (the threat of cancelling your account tends to make people listen). Do it today. It’s your money.

What are you willing to drop? Let me know in the comments below. Go ahead and share – your ideas can help you and other readers get rich.

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About Hugh Culver

I teach experts the business of speaking in BOSS (Business Of Speaking School). I help bloggers get noticed with SOS (Stand Out Social). And I speak on how to think better, plan smarter and act on what really matters.

Categories: Blog, Expert/Speaker Tagged: cell phone, getting rich, health, income, saving, smart spending, wasting money, wealth

Comments

  1. Derek S says

    September 2, 2014 at 10:25 am

    Good article Hugh – the slight conundrum is that if you attend an office lunch outing, when you usually brown bag it, the healthy salad that will fill you up sometimes costs more than the evil hamburger. I am often searching the menu for the healthiest and most frugal offering which often are not the same thing. BTW: I will usually go for the chicken burger with dressing free salad instead of fries.

    Reply
    • Hugh Culver says

      September 2, 2014 at 2:08 pm

      Thanks Derek. I vote for salad any day!

      Reply
  2. Elaine Froese says

    September 3, 2014 at 10:17 am

    Cook from scratch, only 21% of Canadians do. It helps when you are a farmer, have a garden, beef, fruit trees etc. Also, calculate the cost per wear on your clothes. Downsize and de-clutter your closet. Simplify the choices you have and you’ll be more creative. I wear a bracelet from the Philipines as my “fasting from buying” bracelet. The bracelet was purchased for $3 and that is what the family in the Philipines needs to buy food for the day.

    Reply
    • Hugh Culver says

      September 4, 2014 at 2:43 pm

      Thanks Elaine

      I’m with you. I shower with cold water (long story) and refuse to use our new clothes dryer (we have a planter on top).

      Reply
  3. Ruth Sirman says

    March 8, 2017 at 1:13 pm

    Thought provoking Hugh! Although I have always had a mindset that it’s my job to stretch the $$ I make as far as possible – it’s time for a review. There are a few things on your list I haven’t looked at lately.

    I travel a lot and I’ve found that most hotels will give you a fridge + microwave if you ask, so 99% of the time I travel with frozen pre-cooked meals that I have made at home. By the time I arrive they are starting to thaw (double bagged in a suitcase surrounded by clothing / files etc is good insulation). When I finish my day, I can return to my room and have dinner hot and ready to eat in 10 min or less rather than spending a couple of hours and a pile of $$ in restaurants.

    That way, I also have time to do whatever prep i need to have ready for the next day and still have time for a walk, workout, reading etc. Btw – if you have a zip lock bag of frozen meal – it is always “Stew” and not “Soup” which is a liquid and subject to airport security restrictions…

    Reply
    • Hugh Culver says

      March 8, 2017 at 4:44 pm

      Ruth this is a new one! I have a picture in my head of lasagna swimming around files and pasta aromas wafting out of my roll on as I approach security!

      Reply
  4. Mr. Rich Guy says

    March 14, 2018 at 8:22 pm

    MAJORITY OF THE PEOPLE:
    Don’t understand how money works
    Earn low rates of return and pay too much tax
    live from paycheck to paycheck
    live on the edge
    Spend not save
    caught in the high interest debt trap
    retire in poverty

    MINORITY OF THE PEOPLE:
    Plans for future
    Put their money to work for them
    have their money professionally manage
    have emergency fund to shield from financial storm

    HOW WE SPEND OUR MONEY MATTERS!

    Reply

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