Saving

The $1,000 Challenge – How One Family Slashed Its Budget Without Moving Under a Bridge or Living on Government Cheese: An Interview With Brian O’Connor

Cutting dollars

The Detroit News’s Funny Money columnist Brian O’Connor had a couple of problems: he needed a fresh idea for his column, and the family budget was always too tight.

Putting those together, he came up with the $1000 Challenge, an award-winning series for the newspaper and now an entertaining, practical book.

For the challenge, O’Connor wasn’t just looking to save $1000 once. Too easy. He wanted to cut $1000 out of the monthly budget by focusing on ten different spending categories, from groceries to insurance to the all-consuming “miscellaneous.”

O’Connor spoke with MintLife columnist Matthew Amster-Burton, who can relate all too well.

MintLife: In the book, you identify some juicy monthly savings by getting rid of your storage unit. So, how’s life without storage?

O’Connor: Well, it’s kind of time for true confessions. I’ve actually been to the storage unit. The storage unit is—instead of saving money, it’s costing money, because I lost the key. So I definitely had to pay to have them saw the lock off.

There was a lot more stuff in there than I thought. And that kind of stymied my plans to jam it all in the back of my trusty 1995 Roadmaster and bring it all home.

So now I have to coordinate with a friend who’s got a pickup truck. My parents put my stuff in there when they retired, kind of without telling me.

I just got a contract and keys in the mail one day with a note from my dad saying, “I got tired of waiting for you to get your stuff, so I put it in a storage unit. Pay the rent or they’ll sell it.”

The lesson in all of it is, we’ve all got a whole heck of a lot of downsizing that we can afford to do. In fact, if I was going to do a non-personal finance book, it would be the Decrapifying Challenge.

MintLife: So what else did you learn from the $1000 challenge, and did the savings stick?

O’Connor: You’re paying money for this stuff that you clearly don’t need. I was keeping this old email address, because it’s going automatically on a credit card, so it’s no big deal.

It doesn’t feel like a lot of money, but then you say, wait a minute, that’s $25 a month. That’s $300 a year. And you could probably find a lot better use for $300.

I would tell people if they’re in a situation where they find something like that, take that money and have it sent to an online savings account. Just redirect it.

If you do a lot of different things that are lurking in your budget, you can come up with a couple hundred dollars a month.

MintLife: But how important are these small monthly bills versus saving on big-ticket items?

O’Connor: We’ve had the major appliance angel of death visit our house this year. We’ve got a 30-inch microwave that’s nothing but a night light right now.

The washing machine is the latest victim. And my wife and I were really shopping on this washing machine, and we’re looking at a model like $50 different.

And I’m like, “We’re going to get 14, 15 years out of a washing machine.” That’s like $3 a year.

And we’re shopping really hard on this. This $50 was a big deal. And I’m like, “No, it’s better for us to cut $10 a month out of our cell phone, and that’s $120 right there.”

If we did that for the 14 years our washing machine would last, you’re talking over $1500.

MintLife: What’s the difference between doing this sort of cost-cutting as part of the $1000 challenge and just approaching it ad hoc?

O’Connor: Having a goal is a lot better because it pushes you to get a little bit uncomfortable, to say, “Well, I’ll pack lunch three times a week even though I always wake up late in the morning and I run around like a chicken with my head cut off.”

MintLife: What were some of the more unexpected savings opportunities that you found over the course of the project?

O’Connor: That miscellaneous category was pretty surprising, not so much in terms of savings but in how much I was actually wasting.

Bank fees were the really surprising one. I thought that I had conquered the entire bank fee thing. Because I hate bank fees. You should not pay money to get your own money back.

That was a big embarrassment for me—I was spending north of $10 a month. That was one of the reasons we went to cash for personal spending and entertainment and things like that.

It made the whole tracking of spending so much easier.

MintLife: So you’re still using the cash envelope system and satisfied with it?

O’Connor: Yeah. Well, we need more cash. [laughs]

MintLife: Okay, I’m your target audience here. I’m a weekly personal finance columnist, like you, and I think I know everything. Find me some savings.

O’Connor: Your biggest spending categories are clearly your biggest targets. And then it’s a matter of how radical you want to get. And make sure that they’re recurring.

People say to me, “Did you really…?” And I say, “Yeah.” And that $140 in cable savings? I have never had to do anything else.

I’ve been saving $140/month since the end of 2009. I don’t have to clip a coupon.

You’re looking for the kind of semi-discretionary stuff where you won’t miss it. Transportation was really tough.

You can go to a credit union and refinance a car payment, and that’s helped some people out by a lot.

The thing I’ve got to warn you about is, this kind of thing takes on a life of its own when you’re in it.

So you find yourself going, “Well, I think Mrs. Funny Money can just run all these apples through the juicer, and we don’t need to buy these juice boxes anymore.”

That kind of thing is going to really be ruled by how willing the other people in your family are to get on board with you.

Doing it in ten weeks was a little intense. I sat down on Mondays with just the category, and I had until Thursday night to find the savings.

MintLife: What if we’re not ready to make that kind of commitment? Where’s a good place to start?

O’Connor: Once a month, just grab one bill and go through it, then make a couple of phone calls. Cell phone, cable, internet access, all that stuff changes.

That was crazy, because there’s all kinds of new competitive plans that are coming out. I think my thing now would be, can I get rid of cable entirely?

I would probably find that there’s really only 12 channels that we watch. And so between a high-definition broadcast antenna and a streaming service, would we really be giving anything up?

It really is a matter of doing the math, and then you see what you’ve got.

MintLife: Have you heard from readers who have used the book to unlock some savings?

O’Connor: I got an email today from a metro Detroiter who got the book, a 74-year-old retiree, who took an early retirement buyout and took the lump sum instead of the annuity, and now they’re really crunched.

He can’t go back to work at 74, at least not at his old job. They’re not getting evicted tomorrow, but they need to find some breathing room. So this is the kind of experiment that people can do.

This interview was edited for clarity and length.

Matthew Amster-Burton is a personal finance columnist at Mint.com. Find him on Twitter @Mint_Mamster.