We have prepared a series of educational articles in cooperation with the leading financial portal Peníze. Read the full article with comments here.
Planning can save money. We’ll show you how.
In the first part of our series on managing family finances, we took a piece of paper and wrote down all our expenses. Of these, we have singled out those that we have to pay or face some kind of penalty and called them compulsory expenditure. It includes taxes and compulsory insurance, it includes everything we have contractually committed to, paying rent and utility bills, paying debts. And we have shown that there is usually little that can be cut in these expenditures, although there is always something:
The other issues on the list are optional – in the sense that we don’t face fines or jail time – but we have to do them anyway. Because otherwise we wouldn’t survive. Or we would end up spending more than we save. We will call them necessary expenses, as opposed to compulsory expenses.
Know and plan
The costs necessary for their own survival are typically: buying necessary food, paying for fares to and from work, buying clothes and shoes, or buying some school supplies. They are, in short, expenses without which you cannot function.
However, unlike compulsory expenses, necessary ones can be saved more often. Not that we cut them out completely, but costs can often be squeezed. A longer-term perspective and planning will help.
A typical example might be a regular commute to school or work. Should I buy a daily ticket or is it worthwhile to subscribe to a city transport voucher or a commuter ticket for a longer period of time? Economically, the subscription usually wins over the sum of the individual expenses. Let’s take a specific example.
In Ostrava, an individual transfer ticket costs CZK 25. So I will need two tickets for each working day – one for the journey to work and one for the journey back home. That’s a total of 50 crowns. If I drive to work every working day, I have 250 working days a year. Thus, multiplying this by the annual cost of CZK 12,500. However, if I work partly from home and commute to work only twice a week, that’s only 100 working days a year and the fare would cost me 5000 crowns a year.
The standard annual ticket for the city of Ostrava now costs CZK 4,050. A simple comparison of the calculations shows that whether I drive to work every working day or only twice a week, the annual pass is worth it. But if I only ride once a week, it’s already worth buying individual fares.
As far as fares are concerned, it’s still a simple problem in which there are predetermined numbers to reckon with. But necessary expenses also include clothing and food – and here we get into a more complicated situation, because the line between what is necessary and what is already extra is different for everyone. It is often the subject of heated family discussions. Do I need a new shirt, or will the one I have still do? And do I really need this new shirt, or would it be enough to buy a slightly worn one at the thrift store?
To sin is human
This brings us to the third type of spending, we will call it excessive spending, i.e. spending where we do not spend money on the essentials, but because we simply want to spend it on something for some reason. We do this entirely voluntarily, knowing that we could actually forgive ourselves for any such purchase of goods or services.
And hand on heart – we are human beings, so if we make a small expense like this from time to time, it makes us happy and it doesn’t have to make a hole in the budget. It’s about the rate at which we make such expenditures. If we stick to the really small “sins” and they are really rare, nothing happens, but if the exception becomes the rule, it is already a mistake.
A good example is the purchase of alcohol. If we indulge in a bottle of wine at a birthday party and then on New Year’s Eve, it won’t ruin the family. If I buy a bottle of wine every week, it’s a problem. And maybe not just financially. According to statistical data, alcohol and addictive substances are among the statistically significant items and account for three per cent of family expenditure. Which is a lot.
Typical residual expenditure includes the following items. It’s not a full list, but if you find them on your list, look out. You can easily add more yourself:
- cigarettes and tobacco/nicotine products
- refreshments or a social visit to the restaurant
- excessive costs for services (hairdressing, massages, etc.)