Monday, October 20, 2008

Earn Money by Cutting Expenses

This blog has shifted to a new web site called Nomadic Home. Click here to see it.

I've been talking to a few people and reading forum posts about earning enough money for a mobile lifestyle. A recurring theme that is too often over looked when trying to increase income, is that any money you can save on expenses is actually the same as extra money earned.

In business it is recognized that profit comes from two areas. More income and reduced costs. There is no difference when it comes to personal finance.

So how can we apply this philosophy into our every day personal lives?

To start with, we need to take a close and objective look at our current lifestyle. This probably applies more to people who are contemplating a nomadic lifestyle, than those already living one. But future plans of transitioning to a nomadic lifestyle should also be examined in the same way.

The key here is to look for ways to simplify our lives. This doesn't mean the same thing as making everything more convenient.

As an example, eating out is more convenient than making a meal at home, but in the broader context it is not simpler. On the face of it, eating out is quicker than making a meal at home, but when you look at the whole process it is not. There are two things to look at here. The first is cost and the second is time. We are all familiar with the term "time is money."

If we start with the cost of a meal, it is reasonable to suggest that the one we get at a restaurant will be about twice the price of one we can make at home with the same calorie and nutritional value. This is in straight dollar terms. To counter that, you may suggest that the extra time taken to make the meal yourself costs more in lost earnings, than you have saved by the convenience of eating out.

So now, lets look at the time side of the equation. Say it takes three quarters of an hour to make the meal yourself and another fifteen minutes to wash the dish's (I'm assuming you don't have a dish washer, remember simplicity), so you now have an additional hours work to do over eating out. Or do you?

First off, you spend time driving to where you are going to eat. This takes both time and costs money running a vehicle, which you wouldn't have done if you were making your own meal at home. Now that you are at the restaurant, someone still has to make your meal, which is still going to take time, unless you are going to a fast food outlet, in which case you are getting even less value for money with your food (very poor nutrition) then you are going to spend more time and money driving your vehicle home again.

So you have lost all of the time you would have saved, staying at home and preparing your own meal; it has cost you twice as much up front, plus you have the additional cost of running the vehicle to and from the restaurant.

I used to eat out frequently. Now I rarely do. I now spend less money on food and also eat much better. The money saved equates to less hours that I need to work to have the same amount of money, though in practice it means I have more money to do things that I want to do.

Practice doing this kind of cost benefit analysis on every aspect of your lifestyle and you will be surprised at how much extra money you can have in your pocket, without having to earn any more money than you already are.

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