No sooner did you receive your biweekly pay check that you notice the automatic withdrawals from your bank account for those dreaded monthly bills. When creating a budget, it may be easy to spend less than you earn on entertainment and non essential stuff, but what sometimes gets overlooked are the regular fixed payments that come along with, well, simply “living”. After accounting for these fixed periodic household living costs, it can be hard for a household to remain optimistic about saving money and enjoying their hard earned money.
This post will look at several categories of common fixed household costs in which you as a homeowner can make an effort to optimize every year, and why this is so important to do so periodically, in order for you to remain feeling optimistic about your household budget.
These common household cost categories include:
Home and auto insurance
Phone bills
Utilities
Groceries
Cable and Internet
Transportation
Optimizing can take the form of either choosing the best alternative in terms of services offered and best bang for your buck, choosing an alternative based solely on price, or selecting an alternative that offers special promotions or deals through your payment provider (i.e. credit card company).
Let’s go through each category a bit more in detail.
Home and Auto insurance
Almost every insurance provider offers both home and auto insurance. As an incentive, many providers offer a combined home and auto insurance package for a discounted combined cost of the two, as opposed to paying for insurance coverage separately. Honestly, I can’t think of an insurance provider that doesn’t offer both home and auto insurance, and I can’t really think of a good reason to have two separate insurance providers for home and auto. The only exception would be if you found one provider that offered cheaper insurance for home or auto than what another provider is offering at the combined home and auto rate. Many insurance providers will offer discounts if you are part of a professional association, or an alumni of a particular institution like a university or college. This is beneficial not only for yourself, but also if your partner and dependents can be under the same plan and realise the same added benefits that you receive. Insurance rates change every year and it’s not a bad idea to do a review every year of the comparable rates offered by other providers for home and auto insurance, as well as a review of the rate with your current provider. Similar to communications providers, insurance providers may even offer you a discount to incentive you to remain with them if you make them aware of a competitor’s better or equal rate.
Phone bills
This one is a bit tougher to optimize once you are already locked into a cell phone plan, or purchase a phone under a multi year contract. Taking advantage of a cell plan through an employer is always a bonus if available. Many providers offer discounted family plans for data and calling if the plan is to cover 2 or more people/cell phones in the same household. Phone plans are tough to optimize, but there should be no reason to be paying extra fees on top of your fixed bill every month. If that is the case, then obviously your current phone plan isn’t right for you and needs to be changed or upgraded. I still can’t fathom the fact that people pay more that $100 per month for a phone bill… maybe that’s the new normal, I guess. I could just be getting old and “complainy”. In today’s day and age, WiFi is pretty much everywhere, and there are beefy data plans out there.
Utilities
Utilities can include electricity, water, garbage disposal, and natural gas. Water, garbage disposal, and gas can’t really be optimized since these are typically provided by the municipality. Utilities is limited in terms of optimization because electricity might be the only rate you have control over. If you live in a condo, the utility provider is selected by the board for the entire building, and each home owner is only responsible for paying for power separately from what condo fees cover. However, as a home owner in deregulated electricity markets like Alberta and Ontario, one has the flexibility of choosing their own utility provider for power. At the end of the day, utility costs shouldn’t vary much from one provider to another, but there may be differences in administration costs and delivery charges rates. In deregulated electricity markets, comparing provider’s rates is also difficult since electricity prices can change from month to month depending on peak demand levels. It’s likely that no matter which provider you choose from the oligopoly of players in the electricity market, your bill should be roughly the same. This is covered more in Lesson 25. Decreasing one’s utility usage is an easy way to cut down on utility bills. This might be in the form of purchasing a thermostat that can be set to automatically reduce temperature at night or during the day when a household is empty, or having timers on light switches and fans in bathrooms. Some provinces will offer rebates for purchasing “energy efficient” devices such as Nest thermostats.
Grocery bills
Finally… a category that we have full control over! As discussed way back in Lesson 4, many supermarkets offer discounts if you have some sort of loyalty card, points card, or other benefits program offered by an associated payment provider (PC optimum points if you shop at a Loblaws Companies grocery chain locations). If price really is your only concern over variety (and perhaps quality in some cases), then Superstore is the place to go. If you want to treat your body like a temple and overpay for foods that cover all the bases of the latest fad dieting trends, then Whole Foods is the place to go. At the end of the day, grocery stores are a personal preference thing (and a convenience thing in terms of distance from home), but there are typically stores that offer lower prices for certain food items. Shopping at a non chain local grocer or farmers market can be a good way to save money by purchasing local fresh ingredients and foods.
Cable and internet bills
This is another category that we have full control over. Similar to insurance, cable and internet is typically offered together by one provider at a discounted rate. This is more convenient and cheaper than selecting two separate providers for cable and internet service. Internet will be the more important of the two in my opinion, as less people are seemingly watching TV nowadays, and will opt for a subscription based streaming service instead since this is usually cheaper than your average monthly cable bill, and can offer better content. These services will vary in price depending on the content offered. Internet service shouldn’t be too different between providers, as speed will always correlate with price no matter what plan you choose. As for TV, cable providers usually offer some sort of channel package to select from to bring your bill down. As in most jurisdictions, there are usually only a few providers out there as part of this cable and internet oligopoly (namely, Telus and Shaw in Canada). Again, it will boil to down to customer preference as everyone has had good and bad experiences with either provider. Like I mentioned earlier, similar to insurance providers, cable and internet companies may even offer you a discount to incentivize you to remain with them if you make them aware of a competitor’s better or equal rate, or if you complain about your current service!
Transportation
This cost category refers to how you get around. This can simply be the cost of gas for your vehicle, or it could take the form of transit passes and Uber rides. Optimizing this category will heavily depend on the amount of travel a household does for commuting to and from work. However, if a household wants to reduce fuel costs, consider purchasing a monthly public transit pass, or using ride sharing alternatives. As eluded to in Lesson 11, not only do these alternatives save money on fuel costs, it may actually render the need for a vehicle obsolete, or a lot less than before. This in turn could actually end up saving a household money on car insurance if the premiums are tied to distance driven. Taking alternative transportation also reduces wear and tear on your vehicle, resulting in lower maintenance costs over time. If you live in a condo building with one or more parking stalls, perhaps consider renting out your parking stall for some added monthly income if you don’t need to use your vehicle often, or if you don’t need one at all! Ultimately, the trade off with transportation costs will be convenience, and every household will have to balance these scales to optimize their budget around which transportation alternative works best for them.
The ease of cost optimization for the six categories is summarized below in Table 1:
Table 1: Fixed Household Cost Optimization Ratings
Now that we’ve optimized our monthly fixed costs, let’s put it all together and see what our annual spend looks like for these typical fixed costs for a household of two people in Table 2 (I’ve added in some other categories just for completeness). I’ve tried to use a combination of average monthly costs for a household in Alberta from U of A housing statistics, and historical cost of living averages adjusted for inflation.
Table 2: Fixed Household Expenses vs. Median Household Net Income
At first, the monthly expense numbers seem low, especially if we are trying to represent a household that can have more than 2 people. However, if we look at what this adds up to over a year and compare this to the average annual household income in Canada, the comparison is surprisingly close.
What’s left over is about $12,100 given these cost average estimations and median after-tax household income in Canada for one year. Is this enough to hold a household over for a year for non essential expenses? This doesn’t even account for any variable costs such as eating out, clothing, car and household maintenance, and entertainment expenses.
The comparison begs the question of how much is there actually left after accounting for these additional variable expenses for saving for one’s retirement?
I wanted to show this comparison to reiterate that although monthly fixed expenses may seem moot and insignificant on their own at first, optimizing each category can have a great impact on one’s overall monthly and annual household expenditures. Even saving an extra $400 per month results in a 10% decrease in total expenses, and roughly a 40% increase in net dollars retained after deducting expenses. This can make or break a household’s budget for the year, and be the difference maker in remaining optimistic and being able to save money versus being stuck in the same routine and having no savings at all.