Financially Efficient Household
Efficiency is defined as the ability to achieve an end goal with minimal waste, effort, or energy. Essentially when you are efficient, you are able to maximize the resources you have in the best way possible because all processes are optimized and waste is minimized. Wouldn’t it be nice to apply this same concept to our home and financial lives? So in that spirit, in this post, I want to review nine ways we can build a financially efficient household.
01 - Know Thy Expense
You want to have a good understanding of all your household expenses. Recurring monthly payments like home mortgages and subscriptions. One-time discretionary spending like eating out or new clothes. And semi-annual and annual expenses like insurance premiums and tax payments.
Unless you know where your money is going, you cannot start to make your home financially efficient. Trying to operate a household without knowing where your hard-earned money is going is like driving a car without a speedometer, rearview mirror, and proper headlights. You can do it. But it will be tough and quite inefficient.
The first step to knowing your expenses is by tracking your spending. For at least a couple of months, list out all your expenses so you can wrap your head around where your money is going. If you do this for the first time, you will notice some surprising findings.
For my wife and I, the most glaring surprises we always notice are unsuspecting subscriptions, we had completely forgotten about. The Amazon Kids subscription I got when my son was two years old, and I have not gone back and canceled it. Or, most recently, the online newspaper subscription that automatically renewed without me even realizing it.
Master knowing your expenses. A financially efficient household knows where every penny goes every month, so you can make your best financial decision.
02 - Recurring Money Meeting
I know meetings aren’t fun. And money meetings are the worst. However, they serve as a cornerstone of a financially efficient household. Once you know where all your money is going, you want recurring checkpoints where you can check on progress, make decisions, and adjust as you go. And don’t think this has to be an extended 3-hour marathon session you might have at work. Even a 10-minute check-in once a month is more than enough.
My wife and I try to do this at least once a month. It usually entails going over our budget. How we are doing against our budget and talk about any upcoming major expenses - tuition payment, new laptop, property taxes, etc. It gives us an opportunity to get on the same page with our finances. And it also gives us an opportunity to review our long-term goals and see how we are tracking toward them.
Don’t over-formalize or make it bigger than it is. It should be as casual as deciding what you have for dinner tonight. And the more often and frequently you have them, the more natural it gets.
03 - Outsource Services
It’s easy to assume that a financially efficient household might choose to do all home-related chores in-house in the spirit of saving money. Think mowing the lawn. Installing a new garage door. Or even house cleaning. However, a financially efficient household isn’t all about saving money at all times. It is about prioritizing our highest-value activity and therefore deprioritizing everything else. And oftentimes, mowing our lawn. Or installing our water heater may not be the best use of our time in maximizing our household’s financial bottom line.
Just the other day, we had a water leak in our house. One of the water pipes that ran across the attic had a small hole, and it created a puddle of water right above our living room. Now trying to be a Magyviger dad, I grabbed my ladder and jumped eagerly into our attic to assess and maybe even fix the leaking pipe. But I quickly realized that it was beyond my capability.
Maybe I could have spent hours looking up youtube videos and going to my local hardware store to get the right tools to patch it up. But knowing my own incompetence when it comes to household maintenance, it would have taken me days or even weeks trying to figure it out. And most importantly it would have taken time and energy away from my personal highest-value activities - like creating useful youtube videos or researching ways to expand my business.
So I decided to outsource it right away and a local handyman that we knew was able to fix it within just a matter of hours. Don’t think you have to be an entire do-it-yourself guy or gal in order to save money. Many times it pays to outsource some household duties so you can concentrate your valuable time and energy on more financially productive activities.
04 - Energy Efficient
Utility costs, especially during summer and winter times are many households’ biggest expenses. Here in California where I live, summer times can be brutal. Not just the weather but on our electric bill due to needing to have the A/C on all the time.
Going through our home and seeing where we can minimize energy leaks can serve to optimize our recurring utility costs. And if we are planning to stay at your home for a long period of time, optimizing our energy efficiency will definitely save you more money in the long run.
When we first moved into our current home, because the house was built over 70 years ago, we still had windows that came with the home from the 1950s; made out of wood and single-pane glass. During winter you can literally feel the cost air seeping through the cracks.
So though it cost us extra upfront, we decided to replace all the old windows with newer double-pane windows. Financially efficient households are constantly looking at ways to minimize recurring expenses and a good way to do that is to make your home more energy efficient.
05 - Prioritize Practical Over Style
Cars are probably the best example of this. It's not a surprise that we Americans are obsessed with cars. And for a good reason. The type of car display status, and some people even judge us based on the type of car we drive.
When I was in college, I used to valet at a high-end mall and I sure thought this way as well. I automatically assumed that someone who drove up in a brand-new jaguar was rich. And a person driving up in a beat-up Civic was poor. Oh, how naive and shallow I was.
It’s not to say we shouldn’t pursue style at all. I like my hair, so I spare no expense when it comes to its maintenance. But let’s be smart about it. Let’s not do it to impress other people. Do it for ourselves. Most people could care less about what we drive, what we own, or how our hair looks.
Do you want a sturdy, safe vehicle for your family? Get the one with the highest safety rating, not the one with the highest price tag and status symbol. Do you want a watch that works? Get the one with the highest durability. Not the ones being advertised in luxury magazines. Focus on practicality over style.
06 - Shop With A List
We don’t need statistics to validate this fact. The majority of shoppers in America today are impulse buyers. The majority of us hardly show up at a store with a list. We just wander around the store without a game plan. We browse. We look at what new items are in today. Checking out this item and that. And before we know it we are at the checkout line with a bunch of items we had no intention of buying when we first stepped into the store.
This fact has been proven time and time again. Without a list, we often buy things we don’t need or, even worse, want. We bought them because the marketing machine spurred us to buy before they ran out. Or buy it because it was on sale.
A financially efficient household, however, knows this game that companies are playing. So they sidestep their marketing schemes by always shopping with a list. What I like to do is have a running list on my phone where I add items every time I think of something. Even if it is something I can buy quickly online, like Amazon, I add to the list first before going online.
Because when you jump into Amazon or any other e-commerce website without a specific list, it is essentially the same as walking into a retail store without a plan. Our minds and will are weak. So combat it by always shopping with a list.
07 - Buy Bulk
Besides Amazon and Trader Joe's, one of my other favorite places to shop is Costco. Given items we buy for our home are most often the same items every month, I can get the most bang for the buck when I can buy them in bulk. Paper towel? Why get 4 rolls from Albertson? Just get 20 from Costco. How about hand soap? Why get individual ones from Bath and Body Works for $6 a piece? Just buy 2 gallons from Costco to last us for the rest of the year.
You want to of course think this out, so you aren’t left with 5 pounds of chicken nuggets your kids don’t want to eat after feeding them the same ones for 6 months straight. But if you are strategic about your purchase, again going back to financially efficient households always shopping with a list, this is a great way to save money and find efficiency.
08 - Practice Minimalism
I’m not saying you should live out of your suitcase, but rather understand the principle and try to apply the most relevant aspect of it to your life. When we have fewer possessions in our lives, it makes us naturally more efficient and productive. We have fewer items to look after. Fewer material objects to deal with. And ultimately fewer things to bog down our lives.
In the book Minimalism by Joshua Millburn and Ryan Nicodemus, Josh tells a story about finding a bunch of boxes under his mom’s bed after her death. As he was going through her home, he found several sealed boxes, each numbered 1 through 4, all seemingly untouched under his mom’s bed. When he cut them open, he found old papers from his elementary school days; spelling tests, cursive writing lessons, and artwork. Every shred of paper from his first four years of school. It was evident she hadn’t accessed the sealed boxes in years. Yet, she had held on to these things because she was trying to hold on to pieces of her son, pieces of the past.
And how many of us do this all the time? I sure am guilty of it. I too have boxes of my kids' artwork in our closet right now. It takes a conscious effort to constantly scrub through them and throw them out. I have to be willing to let go of things because the more we hold onto them, the more we spend our time and energy on them. And they take away our time and energy from being able to focus on things that really matter - the relationships that are right in front of us.
It may not be easy for us natural hoarders out there. But let’s try to practice letting things go so we can build a more not just a financially efficient household, but an overall efficient household.
09 - Practice Mise-En-Place
For those of you hearing this term for the first time, let me explain what this means. When you go to a fancy five-star restaurant, have you ever wondered how they are able to produce excellent quality dishes every single time? Day in, day out. Year after year. Well, it is not by accident. Chefs have a specific system for accomplishing this amazing feat.
It is due to this culinary philosophy called mise en place. Developed in France starting in the late 1800s, mise en place is a step-by-step process for producing high-quality food efficiently. In a busy kitchen, chefs can never afford to stop the whole kitchen just so they can clean up. So they learn to keep their workspace clean and organized in the flow of the meals they are preparing.
In the kitchen, this means small habits like always putting the spatula in the same place so they know where to find it next time. Immediately wiping a knife clean after using it so it's ready for the next cut. Or laying out the ingredients in the order so they minimize trips to the pantry. In the same way, we can organize our home in a way where we have a place for everything.
For example, the shoe rack where we put away our shoes every time we come home. Bookshelf where we know all books go back to after having been read. Or identify a specific drawer where the kitchen pan goes after every use.
Now we can’t be perfect with this practice because that is frankly asking for too much. This isn’t a home organization channel. But if you can adhere to some principle of finding a home for everything in your house, then it will naturally lead to a more efficient home. You don’t accidentally buy two of something because you can’t find the original. And you aren’t wasting precious time searching when you can focus that energy on more financially productive activities.
In line with efficiency, if you like to learn more about how to simplify your overall finances, please check out my post here.
