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Money management: use the ERR strategy to make your money go further

Your money never goes far enough, uh?

This sucks.

I still remember the time when a month was almost by eternity longer than our monthly income.

This is when we got in debt. I didn’t look at my payslips, I didn’t look at my bank balance and I didn’t care what things cost.

Irresponsible, you think? Dumb?

May be. But most of all it was fear.

When I finally looked, we were in so much debt that fear was irrelevant: I either had to do something about it or we were going to the bankruptcy court.

I was only grateful that there are debtors’ prisons any longer; otherwise my son would have been growing up like the Little Dorrit.

And I did something: I read, I studies, I analysed and I number crunched.

I played around and I used my knowledge of chess (however much I had forgotten about the game) to experiment with strategies for money management. More importantly, I applied these strategies.

As I‘ve said before we made our money go further (and paid off all our debt in three years) by doing these two things:

  • We increased money management; and
  • We increased the amount of money to manage.

Today, I’ll introduce you to the ERR strategy for money management.

I developed it; used it to get out of debt; and still use it because I know that winning the game of wealth is about how much you keep, not how much you earn.

The ERR money management strategy is about three things:

  • Eliminate (waste);
  • Replace (activities and the way you do these); and
  • Reduce (consumption).

Of course, using it assumes you already have a budget.

When you are serious about winning the game of wealth – irrespective of whether you are paying off debt or building capital and investing – you need a budget (Note: I’m planning to publish a guide on budgeting and budgeting tools within a fortnight).

A budget doesn’t have to be a whalebone corset; it can be like a comfortable shoe.

If you don’t have a budget already, stop reading; go away and come back when you have one. You can use this budgeting tool to budget.

If you’ve done this one right, you’ll know:

  • Exactly how much is your income (weekly, monthly and yearly);
  • How much you spend (it is important that you have this to within couple of pounds; no approximations); and
  • On what you spend your money.

Simply knowing all this is great but not enough to get where you wish to be financially. You have to use this information to make decisions about what to eliminate, what to replace and what to reduce.

One: Eliminate (waste)

Most of us waste a lot. We did! We used to waste over £2,000 every month; gosh, this is £24,000 per year. No wonder we had so much debt.

You are likely to waste a good chunk of your money as well. Great thing that you have a budget now; scout it for waste.

In my experience, up to 80% of the waste in household budgets is on

  • Food;
  • Insurance; and
  • Entertainment

Do you waste food?

To find this out you don’t need systematic research and days of number crunching.

Just look in your bin(s): if you need to empty these often and they contain the food for which you paid good money a week ago you are wasting.

We found that we were wasting up to £400 every month on food. We were in a cycle of buying food, not cooking it and eating out or getting ready meals instead.

All I had to do to cut down our food waste down to an acceptable level – the occasional limp salad – was to realise that we are not imaginative cooks. This means, we can’t look at ingredients and make a meal; we need to start with a recipe.

Instead of buying food and then thinking about the meals, we started planning our meals and buying ingredients for what we’ll cook. We also cook more than we need for one meal and freeze the rest. This way, we use what we buy and we always have ready meals.

This is how within couple of months we were spending on food a third of what we used to spend.

Do you waste on insurance?

Being insured is prudent; being insured when you have dependents – young children and a partner – is a must.

Overpaying for insurance though is not necessary. It is time to make an inventory of all insurance you carry. Notice how much you pay for it and when was the last time you changed the insurer (house and car mainly). If you have not changed in the last couple of years you are over-paying.

The solution is simple: shop around for house and car insurance every year. You will always find a cheaper deal than if you simply renew. And you know what? You just need to tell your current provider you found a cheaper deal and, more often than not, they’ll match it.

Do you waste on entertainment?

I come from a hedonistic culture; I love having fun. I believe that you shouldn’t forget the Cinderella rule of personal finance: have fun and budget for it. But entertainment can become a lot like hard work.

Look at your statements and check how much you spend on entertainment; how many times you eat out, how much you drink, how many times you go to the theatre and the cinema.

Then ask yourself whether you enjoyed it all or some of it felt like hard work?

Cut out everything that felt like hard work. It is your life after all and when it comes to entertainment it should be fun; otherwise it is waste.

Two: Replace activities and routines

If you wish your money to go yet further, the next thing to do is to look for the items on your expenses list that you’d like to continue doing but can change the way you do them.

This is where the fun really begins. Because ‘replacement’ is not simply about being frugal; it is about becoming a ‘frugal artist’.

There were many things we never gave up when we were in debt; we just learned to do them differently. Here are some examples:

  • We started making all our bread; this way we always have fresh bread, I know what is in the bread, it relaxes me and it costs a fraction of what we’ll pay for inferior bread. No brainer.
  • We entertained more at home rather than go to restaurants. It is cheaper, you can really chat to your friends and can include your children. You can also add some spice to having dinner parties to take off the pressure: I had a bet with our friends that I can serve three course French menu dinner for £1.50 per person. I won!
  • We still went skiing. It is just that we booked a cheap flight, borrowed a friend’s house and I bought half price ski passes at mid-day. This was also character building.
  • I kept my exclusive gym membership by bartering it for writing and business consulting.

I can expand the list but you already get the idea. You know the best thing about learning to ‘replace’? It stays with you long after you’ve paid off your debt because it is fun and brings a great sense of achievement.

Three: Reduce consumption

We all over-consume. You need clothes, I agree; you may even convince me that you need labels in your wardrobe.

But do you really need fifteen outfits?

Do you need forty pairs of shoes; twenty handbags?

I love my shoes and my handbags as much as the next woman. I used to have forty pairs of shoes. Then I got rid of 38 pairs and bought three new pairs.

You got it! Now I have five pairs of high quality shoes, including my running shoes.

When you look carefully at what you do, and how you do it, you’ll probably find that you over-consume on many fronts.

I am far from a minimalist and still I’ve reduced consumption in almost all areas of my life. Better for me, for my bank account and for the environment.

Try it. It is very liberating.


Okay, enough writing. I’m off to apply the ERR money management strategy to our budget again.

And I am ready to make a bet with you that I’ll trim between 15% and 20% from our monthly spending again (yeah, I haven’t done this for about a year).

Would you like to play?

We can use the ERR money management strategy together over the next week. I’ll let you know how I got on next Tuesday and you can share in the comments.

What do you say? Shall we play the Game of Wealth?

photo credit: Brother O’Mara via photopin cc

25 thoughts on “Money management: use the ERR strategy to make your money go further”

    • @Krant: That’s really good. I was rather good going through it when we were in debt and have not done it for some time. Certainly have some gains to realise :). I find the ‘replacement’ part particularly interesting – it needs so much creativity and ingenuity that it is really great fun.

  1. What we do is once a month is sit down and audit all of our incomings and outgoings.

    First of all we have a spreadsheet which lists all the different types of income we have. Wages; child benefit; interest etc. We then go down them one by one to see if there is anyway to increase the amounts such as asking for a payrise, investing better, earning more from side hustles…

    Once that’s done we move over to the outgoings spreadsheet. This lists everything from bills, travel, entertainment…

    One by one we go down the list and see if it can be reduced. Cutting our food bill, reducing our direct debits, renegotiating our rent.

    We’ve been doing this for the last 8 months and every month we’ve been able to increase our income and reduce our spends. Sometimes only by a few pounds and other times by over £100!

    We’ve almost turned it into a type of game and trust me when I say this; the Skint household do not like to lose!

    Ultimately I think a lot of being able to control your finances comes down to mindset and determination. If you want to be better off financially and you’re motivated, you are 50% of the way there. The other 50% is just math.

    • @ Ricky: Cutting has limits though it is a good idea to keep it going – thing creep in. I love doing the ‘replacement’ and your ‘fakeaways’ are perfect example of that. In our case it was a weekend of wine-tasting in France for the price of one return ticket (£130 or so). John and I had great time – I gave a keynote in Paris (and almost met Pauline from the Savvy Scot and RFI), we were driven to the vineyards and wines and dined for two days. This is to have great friends from different walks of life (when they first mentioned that they make wine I thought they do it like my grandfather mainly for themselves; then I learned they export in 20 countries).

  2. This is new to me, although I suppose we’ve been doing it on some level for a while now. But, I think this is going on my wall as a reminder of what I’m doing and how to do it. Thanks for this!

    • @Gretchen: Glad it is new to you 🙂 because this is what I came up with (the combination and again it is borrowed from medical science – these are the three ways in which experimenting on animals is reduced). Hope you try it to the full, Gretchen, and let us know how much further you managed to make your money go.

  3. I’ve been doing a bit of each one but thanks for reminding me that there is so much more to do! I think I have 1 (Elimination) down to as much as I can now, so need to look at what more I can do for the other two.

  4. I’m in the process of doing a very in depth assessment of my expenses, waste, etc. I’m also thinking about my needs vs. wants. Now that I’ve gained clarity on what I absolutely must have in my life to be happy I’m able to manage my financial life with a sense of purpose. I also think that you have to remain vigilant in terms of eliminating bad habits and developing good financial habits. It’s a process but as long as you’re not too hard on yourself you eventually become comfortable with the process of rocking your money.

    • @Michelle: Quite right it is a process. Also, you’ve hit on an essential part of ‘The Money Principle philosophy of money and everything else’ – personal finance is neither about finance nor about the personal. To sort out ypur finances you have to sort out your life. To understand how money works for you, you have to know how money works in the wider economy. Good luck, Michelle.

  5. Thank you for emphasizing the need to have a budget first — I agree! For us, the very act of making a budget and comparing it to our actual spending each week was easily 50% of the change that got us out of debt and on track. Once we had that we could see which parts of your ERR we wanted to implement and what to change as our life evolved. I’d never ever live without a budget again.

  6. I actually am just finishing up playing my own “minimalist game” where every day you get rid of 1 more thing than the previous day for a month. Day 1 – 1 item, Day 2 – 2 items, etc…

    I’m learning a lot about my consumption and clutter! There’s so much in our lives that we can reduce, it’s amazing to see what you thought you once needed enough to purchase only to realize later that it’s just clutter taking up space.

    ERR sounds like another good way to start this too!

    • @Zee: Hi Zee and welcome. This clutter and consumption thing is something that fascinates me now. Recently I went to New Orleans; I packed an average bag (I travel quite a bit and am used to travelling fairly light). Imagine my surptise when I realised that I brought back quite a few items of clothing without wearing them – now this is weight I could have done without. New time, I’ll be crossing the Atlantic with a small backback.

  7. We’ve been pretty good about eliminating waste and reducing expenses, but I still need to work on our food budget. Our grocery bill is sometimes out of hand for just two people. I think I’ve justified not paying attention to this bill because we really don’t go out and eat, so I’ve indulged in other items at the grocery store to compensate. I need to get this one under control!

    • @Little House: The ERR system is about choice and control, not about cutting everything to the bone. I’m a great believer in allowing a line for fun (including great food) in your budget.

  8. Great article. This is the most effective way to know and learn about this money management. Using this ERR strategy will be very useful and helpful to make your money go further. Read and understand the article and you will get a brilliant idea. Thanks for sharing this article. I will share this information with my friends. Very informative.

  9. Exactly what I need right now. For the past few months, aside from my debt, I wasn’t able to manage my finances very well. Since then, I’ve been trying a lot of ways to improve my spending habits, but I’m failing most of the time. Poor me.. 🙁 I’m going to start doing this method this October.

  10. I’m really focusing on making sure don’t waste food. It’s drastically reduced our bill, but it’s still a work in progress.

    For me, there’s a balance between making meals interesting and often enough I don’t get sick of them — but not so complicated I won’t have the energy to make them.

  11. I love the ERR strategy you detailed.
    We have tracked our income and expenses for years in order to stay on track. Always looking at ways to cut waste but still living a full life. We find our frugal threshold and live without feeling like its a deprived life so our budget is sustainable over the long run. But its important to constantly challenge that threshold to shake loose any waste that occurs as interest and passions change. Great post.

  12. I couldn’t agree more on eliminating waste, this can be done in so many ways like you mentioned. I have 6-7 pairs of shoes in my closet, there is no way I need that many. I need to focus on 1-2 pairs and sell or use till worn, but more importantly not to buy any more. This is just one example.


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