Posted by Mike Smith :: October 18, 2008 @ 8:28 am

When trying to save money, both sides of the financial equation need to be examined. We often look at ways to increase our income as well as cut our expenses. Just as income sometimes increases on its own over time, some expenses also come to an end. Capitalizing on those opportunities may make all the difference in our savings plan.

Note that when I say saving, I don’t necessarily mean a savings account. Investments are a form of savings as well. As I mentioned in my short post about ignoring raises, it’s usually easy to live with the status quo. I argued that in the case of a pay raise, you should be able to save most, if not all, of any additional money received. The logic goes that if you were able to get by on your pre-raise income before, you should be just as able to get by on it afterwards. There are obviously some cases where a raise is truly needed and will allow your financial struggles to become a little easier. Allowing yourself to spend some of your raise to combat inflation is also reasonable. But aside from those exceptions, many of us could save a substantial portion of pay increases.

In much the same way, the end of expenses can be exploited to help us save more. Many expenses have no set end, but some do. In particular, I was thinking about expenses like car payments, college tuition, or repaying a P2P loan. When such expenses are finally finished being paid, you’ve probably become accustomed to making that payment each month for several years. Why not continue that expense in your budget but allocate it towards savings instead? If your lifestyle adjusted to deal with a monthly expense, there’s no reason to increase your spending once that expense ends. You can continue to “pay” that amount each month, but it will go into your own pocket rather than the bank, college, finance company, etc.

If nothing else, most people are creatures of habit. Once they have gotten used to something, it’s much easier to live with it than to change. You can take advantage of this characteristic by ignoring the end of expenses and simply diverting the payments to a more beneficial purpose.