Wednesday, July 1, 2009

The Step-Down Method

The key to spending less than we earn is simple—it is called discipline. Whether early in life or late, we must all eventually learn to discipline ourselves, our appetites, and our economic desires. How blessed is he who learns to spend less than he earns and puts something away for a rainy day.

N. Eldon Tanner, Constancy Amid Change

When I was at Utah State, I took an excellent family finance class taught by Alena Johnson. In addition to teaching classes, she worked in a financial counseling center on campus helping people who had found themselves in difficult financial situations. One of the gems I picked up from that class was something Alena called the "step-down method." Simple and adaptable, it is the best method I have found for reducing our family's expenditures.

Here is how it works: In any given situation, you have a variety of options, and some cost more than others. The example used in class was waffles.

Restaurant waffles: a few dollars
Frozen waffles: about a dollar
Waffles from a mix: less
Waffles from scratch: pennies

Sometimes people think that in order to cut back, they have to drop from expensive end of the scale to the cheapest end. This can be kind of depressing. The point of the step-down method is that, wherever you are, you take a step down. If you are eating waffles at a restaurant every Saturday morning, you will save a lot of money by eating frozen waffles at home. If you make waffles from a mix and you still need to cut back, you can start making them from scratch.

You can apply this principle just about anywhere. How do you watch movies? Where and how often do you eat out? What makes for a good family vacation? Where do you buy your clothes? Take a step down in several areas and you will find more room in your budget. You may also find that there are some areas where you are willing to pay for the nicer option, and some areas where spending more hardly made a difference.

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