Cutting fixed costs before cutting coffee

Personal finance advice concentrates on small discretionary purchases, and the money is in the handful of large recurring commitments that nobody reviews.

Why fixed costs matter more

Arithmetic.

A daily coffee is a small recurring amount requiring daily restraint indefinitely.

Housing, energy, insurance, telecoms, transport and debt servicing are large recurring amounts requiring one decision each, after which the saving continues without effort.

Which means an afternoon spent on fixed costs frequently produces a larger annual saving than a year of foregone small pleasures, and requires no ongoing willpower.

The behavioural literature is clear that decisions requiring repeated restraint fail, and that one-off structural changes persist.

The list to work through

In rough order of size.

Housing, which is the largest for most households.

Mortgage rate, which for anyone on a standard variable rate is frequently well above what is available — remortgaging or a product transfer takes a few hours and can save substantially.

Rent, which is negotiable more often than tenants assume, particularly at renewal with a good payment history.

Energy, where tariffs and social tariffs vary and where checking is periodic rather than one-off.

Insurance — home, car, life, travel, pet — where auto-renewal pricing is systematically worse than new-customer pricing and where a single comparison and a phone call to the existing insurer frequently reduces the premium substantially.

Telecoms: broadband, mobile and television, where out-of-contract customers pay considerably more than new ones and where social tariffs exist for eligible households.

Debt servicing, where reducing rates through balance transfers or consolidation has a larger effect than repaying faster.

Transport, including whether a vehicle is needed at all, which is the largest single saving available to some households.

Subscriptions, which accumulate invisibly and which almost every household has several of that nobody uses.

And childcare, where entitlements and funded hours are frequently under-claimed.

The auto-renewal trap

Worth understanding because it applies across several categories.

Providers price to retain inattentive customers and to attract new ones, which means loyalty is penalised.

Regulators in several markets have intervened, requiring renewal prices to be shown alongside last year's and restricting some practices.

The practical response: never accept an auto-renewal without checking the market, and call the existing provider with a competitor's quote, which frequently produces a match.

Setting calendar reminders a month before each renewal date converts this from a chore into a routine.

Negotiating

Which works more often than people expect.

Providers in competitive markets have retention teams with discretion.

Ask to be transferred to retentions or cancellations, which is where the authority sits.

Be specific: state the competitor's price and ask them to match or improve it.

Be prepared to leave, since the leverage depends on it.

Be polite, since the person has discretion and uses it.

And note that switching is frequently easier than the fear of it suggests, with providers handling the transfer.

Social tariffs and support

Which are widely available and widely unclaimed.

Broadband social tariffs for households on certain benefits, at substantially reduced prices, with take-up in single-digit percentages of eligibility in some markets.

Water social tariffs and affordability schemes.

Energy support schemes and priority services registers.

Local tax reductions and discounts.

Transport concessions.

And a full benefits check, since entitlement take-up is consistently below eligibility and a check is free.

Subscriptions

Where a simple audit pays.

Go through three months of bank and card statements and list every recurring payment.

Most households find several they had forgotten.

Cancel anything unused, and consider rotating entertainment services rather than holding all of them continuously.

Check for duplicate services.

Check whether annual payment is cheaper than monthly for the ones you keep.

And be aware of free trials that convert, which is the model most of them rely on.

The things worth keeping

Because indiscriminate cutting is its own error.

Insurance that covers a risk you could not absorb — buildings, life cover with dependants, income protection — where cancelling to save a premium is a bad trade.

Pension contributions, particularly where matched.

Anything that produces income or maintains employability.

Preventive spending — dental checks, vehicle servicing, home maintenance — where deferral costs more later.

And a modest amount of enjoyment, since a budget with none is abandoned.

Doing it as a project

Practically.

Block out one afternoon.

List every fixed cost with its provider, amount and renewal date.

Work down from largest to smallest.

Note the annual saving from each change, which is motivating and which most people are surprised by.

Direct the saving somewhere specific — debt, savings, pension — since otherwise it is absorbed within weeks.

And diarise the renewal dates so next year takes one hour rather than one afternoon.

General information only, not financial advice. Consult a regulated adviser or a free advice service about your own circumstances.