The Backwards Way to Cut Your Expenses in Half
Dear Rich Lifer,
We may be past the worst of the pandemic, but another major crisis is coming.
With a federal moratorium on evictions scheduled to end June 30, millions of Americans who owe back rent could lose their homes if federal aid does not arrive in time.
Congress has allocated $50 billion to help struggling tenants and landlords, but most of it is being held up as state and local governments set up systems to verify what tenants owe and then distribute funds.
Imagine being in a position like this, where you don’t know if you’ll lose your house next month?
For most people, housing is their single largest monthly expense. The average American household spends approximately 33% of their monthly income on housing.
If you’re wondering how you can quickly slash your expenses so you can pay your rent or mortgage, we’ll show you how today without spending any less.
That’s right, to cut your expenses in half, you’ll need to spend more. Here’s why.
The Best Way to Make Money
One of the best ways to make money is to let your money work for you. But how can you do this? And how much money do you need for this to work?
Let’s take for example a rental apartment complex. For any rental property, you have three key numbers you have to pay attention to:
These are the three variables you have influence over and can make or break your investment. When it comes to your rental income, the question you should ask is, “How can I increase my income?”
There are a number of ways you can do this, increasing the rent is one, lowering your vacancies is another, or you could introduce some new revenue streams, like vending machines or coin-operated laundry.
While you come up with new ways to add more income to your business, you also need to start thinking about your expenses. Most people automatically ask, “How can I cut my expenses?” This is the wrong question to ask.
A better question is, “How can I spend my income more effectively to offset my current expenses?”
For example, let’s say your building electric bill is high. You think about shutting off the lights in the parking lot early at night to save on hydro.
Soon after you do this, tenants start complaining that they don’t feel safe walking to their cars at night. A better way to deal with your electric bill would be to spend money on more energy efficient lighting.
Not only will this lower your electric bill immediately, but you’ll reap the benefits for years to come.
The last variable you have control over is debt. The best question to ask about debt is, “How can I get the best terms?”
Whenever you’re buying something through financing, don’t get hung up on the price of the item. Instead, pay closer attention to the financing terms you’re being offered, like interest rate and length of the loan.
It’s better to pay more upfront for something that will give you better terms with more flexibility on the back end. And with interest rates at all-time lows right now, financing large investments couldn’t be better.
A lot of people are scared of debt. But if you’re leveraging debt to buy income-producing assets, like a rental property, then debt can be good.
Stop Trying to Slash Your Expenses
Cutting your expenses is not the path to financial freedom. Yes, you can cut expenses below your means and be bringing in more than is going out.
But, this is almost never sustainable. Quite frankly, it’s a hard way to live. A more enjoyable path forward is buying income-producing assets.
Hopefully, what you took away from the rental property example is that your personal household income is no different than running a business.
If you want to increase your household income, you might have to ask your boss (or tenants) for a raise. Alternatively, you could always find some new income streams, maybe look into peer-to-peer lending or investing in commodities?
If you want to lower your expenses, focus on spending your money in ways that will grow your income-producing assets, instead of automatically trying to cut down on things.
For example, if you’re going to pay $1,000 a month in rent, why not buy a house instead and rent out the basement? Now your housing expense goes from $1,000 a month down to $200 or nothing depending on how much you charge in rent and what terms you got on the house.
Spend Money to Make Money
If you want to break the cycle of bad debt and constantly feeling like you’re drowning financially, start by changing your views on money.
Move away from the “I need to stop spending so much” mindset to the “How can I spend money on acquiring more income-producing assets?” or “How can I increase the revenue from my current assets?”
Not only will this get the creative juices flowing but let’s be honest, spending money in smart ways is a lot more fun than cutting back on things you enjoy.
So let’s vow to stop buying things that make us poor and instead start buying things that will make us wealthy, like more stocks, precious metals, cryptocurrency, and real estate.
To a richer life,
To a richer life,
The Rich Life Roadmap Team