Control your expenses

Now that set our sights on becoming financially independent and took a hard look at our finances and started tackling our debts, it’s about time we started thinking about what brought us to this situation to begin with – Our spending!
When you start thinking about it, you quickly realize that in the modern world that we live in, we don’t really have a way to run away from our spending – Everything costs money!
That also seems to be the most common excuse we hear from big spenders, how can I live without this or that, Why should I live without this or that? isn’t the whole point of having money is to enjoy it and to make our lives better because of it?
While that might be true, I think it holds both the problem and the solution together – The fact that we have money does not automatically mean we have to spend it, and even if we do, there is more than one way of spending it, and to be even more precise, there is such a thing as spending better, or taking better care of your expenses!
I think one more point should be added here: The fact that you control your expenses should not automatically mean that you’ve become cheap.
when I first started taking a hard look at my expenses I was shocked at how much money I spent on meaningless things, things that did not really make me happier.
even more so, the stuff I really needed to buy, were many times expensive without a good reason, just because I did not take the extra minute to check their realistic price, to shop at a better cheaper place, or sometimes even just by asking for a discount, my end cost was worlds different then what I started with!
After all this introduction I’m sure you’re starting to get the direction this guide is going to take us: Understand your expenses better, shop better, cut the unneeded things that don’t really bring you added value, and more than anything, take good care of your money!
you will be amazed at how quickly you become so much better at that!
Here are some really simple steps that will help you get better control of your expenses:

 

1. Start Tracking Your Spending Habits

  There is a reason this is the first step, before we can start solving a problem, we first have to understand it a lot better and start understanding the specifics behind the things we buy. grab a pen and paper, or even better yet, open a word doc or an excel sheet and start writing down all your expenses. Start with the big things, the stuff you cannot really avoid like rent, electricity, water, and gas. (we will put all those things in a category we will call regular costs,  meaning all the regular expenses that provide us with the infrastructure we need). After that move on to the daily expenses that are important and crucial for your healthy & happy life like groceries, food, diapers for the kids, hygiene products, toothbrushes. (we will put all those things in a category we will cal daily necessities, meaning all the day-to-day items we need for our regular healthy life). from here on, start cataloging all your other expenses and put them in categories according to their nature: clothing, furniture, holidays, vacations, entertainment, eating out, etc. what is really important here is as you are starting to catalog your expenses, you start to understand their priorities – what is more important for you, buying clothes every week or eating out every week, spending a lot of money on your entertainment every week or on a gym subscription? Start putting your expenses in their order of importance until you will have a complete list of all your day-to-day expenses. Complete this list for a minimal duration of one month and now finally you should have a number – how much are you spending monthly. remember, this is just our starting point, don’t get scared by that number, gradually with better decision-making and better priorities we will start cutting that number down and from week to week you will start seeing your expenses diminish.

2. Get on a Budget

The three major steps for how to make a budget are:
  • Determine your income. (which you should have already understood using our guide here on How to create your financial plan)
  • Determine fixed monthly bills – mortgage or rent, utilities, car payments, etc. (See Step 1: Start tracking your spending habits)
  • Determine needs — food, gas, medical expenses, etc. (See Step 1: Start tracking your spending habits)
Now, and after completing Step 1: Start tracking your spending habits, you should have the monthly amounts you spend on all your bills, What’s left is your “discretionary spending.”, these are all the other things that you might spend on, try to decide on a separate monthly budget for them and always consider whether or not do you really have to spend them as that money can be saved! The next step is setting aside an amount every month that you can put in savings for an emergency fund, and also come up with a figure that can go toward paying off credit card debt. (see our guide on Pay your debts ) There are a variety of apps and other resources that can help, and there are a variety of online budget tools and templates. Once you’re done, it may seem as though there’s very little money left over for anything. But now comes the fun part – figuring out how to trim those expenses!
 

3. Re-Evaluate Your Subscriptions

We all have monthly subscriptions that we don’t always use. Think Amazon Prime, think those costly entertainment bills, think your subscription to different hot sauces delivered to your door every other week (or is it just me that loves those hot sauces? 🙂 ) Now’s the time to take a close look. Ask yourself:
  • How much do I use this?
  • Do I really need this?
  • Can I live without this?
If the answer is NO on even just 2 of those, cancel the subscription. Think about it, in the worst case, you can always redo them but just freeing those funds on a regular monthly basis automatically will make your budget a lot better and release your funds to stuff you are actually using!

4. Reduce Electricity Use

Have you realized your electricity cost comes up to 12% of the average monthly expenses? There are really quick ways to cut down on your electricity cost: Put your boiler on a timer, make sure you close your computer when you finish using it, check that your dishwasher is fully loaded before running it, hang out your wet laundry on a rope to dry instead of using the dryer, check for alternative ways to heat your house, limit your use of air conditioners to when you really need them. more advanced ways to save on electricity might also be simple to deploy but might need you to take a short trip to the hardware store: switch to energy better lights, put your air conditioners and heaters on a timer or program them to be used only when you are in the house, and that is just the start. check with your power supplier’s website as in many cases they can give you a breakdown of your energy use and suggest many more ways to save up.

5.  Lower Your Housing Expenses

One of your biggest expenses is likely housing – people whose income is below $50,000 a year spend an average of 36.6% or more of your income on housing. This is above the rule of thumb 30% recommended by financial experts. Lenders, when considering mortgage applications, like to see someone spend about 28% of their pre-tax income on housing. Reducing housing expenses may seem like a nuclear option, but it is something worth considering and there are ways to downsize that may be easier than you think. Renters have many options to save money on rent. Some are:
  • Get a roommate.
  • Give up a paid parking space.
  • Offer to do repairs yourself for a break in the rent.
  • Move to a cheaper apartment, or even a cheaper area of your region, or the country.
Options for those who own their home include:
  • Refinancing to get a lower interest rate, and lower your monthly mortgage payment.
  • Remove private mortgage insurance. If you bought your house with less than 20% down payment, PMI is required. Once you have 20% equity, it’s removed. Even if you haven’t paid your mortgage down that much, check the home values in your area – if they’ve risen, so has the value of your home. If the value is high enough that you have 20% equity, you may ask your lender to cancel your PMI, and they must comply.
  • Sell your home and consider renting one instead. The advantages of renting a house include lower upfront costs, like taxes, insurance, maintenance and more.
  • Rent out your home, or a portion of it, as a short-term rental.
 

6. Consolidate Your Debt and Lower Interest Rates

One way to drastically cut expenses is to consolidate debt. If you have credit cards, those monthly payments could be eating up a big portion of your take-home pay. Check out the interest payments on the cards – likely it’s between 16% and 30%. Debt consolidation means combining multiple debts into one monthly payment. The end goal is to reduce what you pay in interest and lower the monthly payment and pay the debt off. The benefits of debt consolidation are:
  • One monthly payment. No more juggling multiple payments, it’s one and done with a good consolidation plan.
  • Lower interest rate. What you pay every month is going to reduce what you actually owe, not the constant build-up of interest.
  • Pay off debt faster. It takes about 20 years to pay off credit card debt if you’re just making the minimum payments. Debt consolidation will eliminate your debt in 3-5 years.
The two most common ways to consolidate debt are through a debt consolidation loan or using a debt management plan.

Debt Consolidation Loan

One way to consolidate debt is to take out a large loan from a bank or credit union to pay off the smaller debts. This method can be effective, but if you have a less-than-perfect payment history and low credit score, you may not get approved. If you do, the loan may have a high-interest rate, which defeats the purpose.

7. Reduce Your Insurance Premiums

changes to your home and car insurance are another way to reduce monthly expenses. If you pay both, shop around for companies that will bundle them for a cheaper rate. You may also be able to lower your rates based on what kind of homeowner or driver you are. To save money on car insurance, check out companies that offer lower rates for a safe driving record, or for those who drive a cheaper car. Cars with enhanced safety features also can get lower rates. Being a member of an organization like AAA is beneficial. To save on homeowners insurance, check out your policy and see if your company offers reduced rates for making improvements. Installing smoke and carbon monoxide detectors and burglar alarms can mean discounts. So can upgrading electrical or heating systems. Also, consider raising your deductible from $500 to $1,000, which can save 25% on your premium. Shop around for insurance companies that may offer a better deal. Check out the National Association of Insurance Commissioners (NAIC.org), for tips on picking a good insurer. But also check out whether your insurer offers a discount if you’ve been with them for six years or more.

8. Eat at Home

Sounds simple but actually scares a lot of people. Eating out is expensive! all those restaurants have to take care of so many costs besides the actual food like rent, paychecks, texas, and many more. all those expenses end up in our bill for the same exact food we can get for much less. Making your own meals at home will also mean you will be able to control what’s going into your system a lot better – eat healthier, greener, and lose weight while you do it! If you are inexperienced in cooking, start from the simple stuff, low fat, low carb home cook meals can be surprisingly easy to make! Check out online recipes, always opt for made from scratch meals instead of buying preheated food and industrial food and watch your body transform and your expenses reduced!

9. Shop with a List

There are many ways you can cut your Grocery shopping spending but all of them start at the same thing: Create a shopping list. Going to the grocery shop with a list will mean that you will only buy what you need and reduce the impulse to buy what you don’t. Keep a running list on your fridge and add to it during the week whenever something runs out. Try to plan your trips to the grocery store to be in regular intervals so you will get the stuff you need exactly when you run out of it and avoid waste. Check more remote out-of-the-city outlets – they usually offer dramatic discounts and help you cut back those grocery costs dramatically. Divide your grocery shopping into your weekly regular shopping (veggies, bread milk, etc) and the more last purchase that you need to stock on (Toilet paper, detergents, accessories). that way you can do the regular grocery shopping that you really need often, and only stock up on longer-lasting stuff once a month (and also buy them in bulk to save even more!).

10. Put a Freeze on Your Credit Cards

 

One of the best saving tricks that will really have a dramatic effect on your bottom line is to go the extra mile and Cut your credit card!

Having a credit card at hand lets you forget about the real cost of your spending, even if you don’t really have the money to make them, thus creating an endless backlog of expenses that move from month to month and start creating debt.

Consider switching to a debit card instead of a credit card and that way you will only be able to spend what you have and won’t accumulate debt.

also, check the fine print on your credit/debit provider, many of them today offer cashback of a % of your spending and enable you to create mini saving accounts inside the card for the stuff you really need.

11. Use Cash Only

Using a cash-only spending method you are always in control on how much funds you have, and even more, how much funds you are willing to cash out with a fixed budget in mind. Plan your expenses in an organized way so that you always know how much money you need to cash out from the ATM to take care of all the expenses you need and document exactly how much you spent. that way, next time you will know exactly how much money you need to prepare in advance and avoid unnecessary spending. Put as many expenses as you can on auto payment so you don’t have to worry about them and check how much you have left – that’s your spending limit for out-of-pocket expenses. It might require you to keep a strict eye on the budget but will cut on the impulse to buy the stuff you don’t need. want that amazing shirt or jeans? craving that new game? no problem, just budget for it – put aside a small amount every week and label it ‘money for the game’ ‘money for shirt’. that way you will always account for what you spend. .