How To Improve Your Cash Flow By Optimizing and Reducing Your Automated Spending

Credit cardsImage via Wikipedia2010 has been a year where I have spent time on optimizing and reducing my automated spending. I did not cancel any services and I was able to save in a good few areas. It’s not huge but it is still considerable and I can make that money work for me instead by investing it in my DRiP accounts. Let me walk you through the different steps I took this year but first let me explain what ‘automated spending‘ is and what it represents.

What Are Automated Spending?

Automated spending refers to all the bills that you pay monthly. It’s usually a fixed amount with some being variable. Your credit card can be used for the payments or it’s taken from your bank account automatically. Here is a list of the different types of spending.

  • Hydro: Usually variable but can be fixed
  • Natural Gas: Usually variable but can be fixed
  • Phone: Fixed with some part variable
  • Wireless: Fixed with variable spending
  • Internet: Fixed
  • Cable: Fixed
  • Life Insurance: Fixed
  • Car Insurance: Fixed. Not always monthly but could be.
  • Car Loan: Fixed to a monthly, bi-weekly or weekly
  • Mortgages: Fixed to a monthly, bi-weekly or weekly

There are to ways to improve cash flow; optimizing and reducing spending. I will cover both with some examples.

Steps To Optimize Your Spending

This is probably the easiest step to do for anyone. Optimizing your spending refers to the ability to create a more even cash flow by turning your variable spending into fixed regular spending. It’s not going to reduce how much you spend but it will help your budget. A variable spending is a lot harder to manage than a fixed spending and you want to avoid any surprises with increased monthly spending that you cannot afford. Fixed spending will help you stay away from dipping into line of credits or delaying credit card payments.

This year, I optimized my hydro bill. My natural gas bill was already optimized. Both of these utilities offer the ability to average out my payments during the year. So instead of having larger bills in the winter, I have fixed payments for the year based on the estimates. With the winters, it makes a big difference in planning, especially when you run a tight budget. The extra cost for the winter become spread across all months including the summer.

[Update] Note that the variable and fixed payment for the utilities doesn’t refer to the rate offered by the utilities. It simply refers to the payment amount per month that is variable. When you go variable, it tends to be higher in the winter compared with the summer due to heating cost. This create an unbalanced budget and can possibly lead to inappropriate spending unless you really think about it. Since the utilities know how much you spend during the year, they allow you to split that cost evenly across all the 12 months and that amount is fixed. Variable rates will be discussed below.

Steps To Reduce Your Spending

I did a number of improvements to reduce my spending this year. It has made a difference and I can feel on top of my situation. It’s funny how I thought I was on top but there always seem to be something that you can do. This year, I went the extra mile!

  • [Updated] Electricity / Gas: I had a great comment from a reader and I wanted to pass along the savings. Nowadays, there are marketers selling energy at a fixed rate with the industry de-regulation. I have never switched to a fixed rate price for natural gas or electricity, I am still on a variable rate and I believe that over time the variable rate is better. Since it is very recent, there isn’t really a huge amount of data to prove this out. However, there is enough data for mortgage rates and they have proven that a variable rate beats a fixed rate.
  • Phone / Cable / Internet: I consolidated my accounts under the same provider. For me, it’s Shaw Communications, and negotiated some extra benefits. The fierce competition always help to get a decent price for the package. This cost reduction is not permanent, but it is for a full year. It’s worth the savings if you can put yourself in a negotiating position. My previous phone land line was with Rogers and the heavy promotions from Telus was enough to get a deal.
  • Wireless: We have 2 plain and simple cell phones. Up until last October, we were on a contract with Rogers and once I was free of a contract, I went shopping. Pre-paid plans, here we come! No iPhone, no BlackBerry, no Android, no smart phone were needed. Our phones usage doesn’t need a lot of minutes and we did not need anything else. I must admit that call display and voice mail are really nice features. I was paying extra with my contract to have that. Lucky for me, the pre-paid phones come with voice mail and call display for free. Yes, you read it correctly. Those features are free!!! I went from a 70$ wireless bill for both phones to less than 40$. We are trying to figure out what works right now with buying the pre-paid minutes to see if we buy them in 10$ or 20$ size. I would like to replace my phone with an iPhone and use my sim card with the pre-paid plan and use the phone as an iPod Touch. Basically, everything the iPhone offer without the data plan. 95% of the time, I am within a wireless network anyways … Why pay a premium fro data …
  • Car Insurance: No major reduction here. What I have done is raise my deductible to 500$ from 250$. It actually makes a difference as it usually means any windshield replacement isn’t declare as it isn’t worth making a claim. I really dislike how rigid car insurance is in British Columbia with ICBC. I am still looking at my options to have further discounts but I have not found the right combination yet. I am willing to move my house insurance too but no luck so far.
  • Life Insurance: I am making changes here and saving some money but you’ll have to stay tuned for a unique post.
  • Mortgages: I already discussed my savings and process in a past post back in August: I LOVE saving money! The mortgage edition. I’ll let you read it but I did save quite a bit even after paying the penalty for breaking my mortgage. Don’t wait for your term to end to review your situation. Make sure you understand what your penalties are and run the numbers regularly. Compound interest has a huge impact on what you select and how much you ultimately pay.
Overall, it has been a good year to really optimize my cash flow and reduce my spending where possible. What’s important to realize is that as long as the variables are changing, there is always room to optimize your situation. Prime rate changes, or life changes, or anything else that can make use of your money should trigger a review of your situation in the impacted areas. Many blogs will trigger me to look at something deeper and challenge my situation along with discussions I have with friends and co-workers. Don’t be shy to talk about many of the points above as it can always help you find something better.
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One Response to "How To Improve Your Cash Flow By Optimizing and Reducing Your Automated Spending"

  1. This is a very valuable lesson we learned early on and now require payments upfront and stop work when invoices are more than 30 days past due. But, as we grow, we also begin work with more Fortune 100 companies, who won’t pay deposits and don’t pay before 90 days. So the strategy is not to not work with them, but to make sure cash flow can support us while they take their time in paying their partners. It’s an ongoing balancing act.

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