A lot of financial advice you see these days pertains to what some people call “the latte factor.” The idea is that if you cut back on the little things you can live without — a daily $4 latte is the usual example — you can save a surprising amount of money without feeling too much of a pinch.
While this is true, it takes a fair amount of patience (not to mention perhaps a little caffeine withdrawal, for some of us) to save up a substantial amount of money if your goal is something bigger — to take a vacation, put a down payment on a car or house, contribute a significant chunk of change to your tuition or retirement savings.
And if life has thrown you a curveball — layoffs at your job, for example — you might not have time to wait for years of non-latte-drinking to add up.
A few years ago, the president of the non-profit organization I worked for held a big meeting and announced that, due to financial hard times, she was cutting everyone’s hours (and salaries) by 20 percent. I felt frantic — living in the Washington, DC metro area is expensive enough as it is, and my job working for a nonprofit wasn’t exactly making me rich. I had to think of a way to slash my expenses — fast.
Instead of merely driving past my local Starbucks every morning and making other smaller changes, I looked at what was by far my biggest monthly expense — rent — and decided to cut it drastically. I sucked it up and moved out my $1,000-a-month (not including utilities) one-bedroom apartment and moved into the guest bedroom of a friend. I pruned and weeded my possessions, donated or got rid of anything I didn’t absolutely need, and stored a few pieces of bigger furniture in my parents’ basement. At my friend’s townhouse, I stored most of my stuff in the guest room and nearby bathroom, but was effectively a housemate, sharing the kitchen and living room.
And just like that, I cut my rent in half. I wrote my friend a check for $500 at the beginning of each month — utilities included.
A move like this isn’t for everyone. I have no children or anyone to look after other than me. Not everyone can ask Mom and Dad to stow the IKEA dining table in the basement for a few months until they can afford a bigger place of their own again. And not everyone would readily swap a spacious (and private) one-bedroom apartment for a much smaller guest bedroom and shared living area like I did.
But if you need to save money fast, I would recommend taking a look at your budget and cutting something big — sharing part of a house with housemates, splitting your apartment with a roommate, taking public transportation instead of driving a car, going without TV or home Internet for a while, dropping the fancy gym membership and buying a few workout DVDs instead. Maybe not forever — just long enough to see some real savings stack up in your bank account.
If you make a sweeping change like this, you might not have Internet at your beck and call 24 hours a day, but you can always use the free Wi-Fi at the coffee shop while drinking the $4 latte that you can now afford.