One of the most recommended ways to achieve financial stability is by investing some money in a side business other than a 9-5 job. But for investment, you need to save your money by cutting back monthly expenses. That’s why personal financing is very important as it is the key to lessening your spending in each area as you may not know when you are overspending. In the beginning, you have to do some effort as it is hard to break old habits but you will feel the relaxation of financial stability once you start saving the money.
Here are some simple and easy methods to reduce your monthly expenses that are easy to implement and effective, so that you can save and invest the difference in income-producing assets.
Track all your Expenses in a Spreadsheet
Make sure to track every single dollar that is going out into a spreadsheet as it is very essential to have everything note down so that you can start focussing on your habits and decisions. It might take a little bit of effort; however without knowing or tracking your expenses or spending it is difficult to know exactly the different areas that you are spending the most money on. It is important to have complete data in the budget spreadsheet about your spending monthly that includes everything from transportation, housing, food, subscriptions, cable, utilities. As it makes it easier to come up with a plan regarding how much you want to save monthly and how.
Make a Budget
If it is difficult for you to control your spending, it is better to plan a budget and stick to it. One of the famous and recommended budgeting schemes is the “50/30/20 rule”. It is the rule that explains how you can do budgeting effectively in which
- 50% refers to “needs” i.e., something that you literally cannot live without and that includes housing, insurance, grocery, utilities, etc.
- 30% refers to “wants” that might cause minor inconvenience in your life like shopping, dining out, and hobbies are joys of life like gardening. That you don’t necessarily need but it improves the quality of your life greatly
- 20% refers to “savings” and paying off debts like emergency funds, credit cards, save for retirement or investment
It is also recommended to use budgeting apps like Mint, Quicken to track your spending, set your limits, or hold yourself accountable. Read: why am I not rich?
Housing
It is by far considered the largest expense but also probably the easiest to cut down. It is important to refinance your mortgage because the interest rates matter as refinancing will help you in reducing the mortgage. House hacking is another option recommended to reduce housing expenses, it is when you live in one part of the property and rent out other parts. That will help you cover your mortgage. There are many different ways by which you can house hack; whether it’s buying a duplex living in one unit renting the other or being a single-family living in one room and renting the other rooms.
Transportation
It is considered the second-largest expense after housing. The value of cars always goes down in the market, insurance, the expenses on its fuel along with pricey maintenance and parking; all these expenses are a hurdle while saving the money. Using public transportation can help you save money monthly. You can also do car-pooling to share the monthly fuel of car with some friend or colleague. Another option is to rent your car on Uber, Lyft when you are not using it to make it easier to afford its expenses and make it a source of earning some extra bucks as well.
Save on Utility Costs
In this modern era electricity and gas is the necessity so can’t cut down that but we can simply adopt some rules to lower the bills like
- LED lights are costly to buy but last longer and consume less electricity as compared to incandescent light bulbs.
- Install a programmable thermostat for heating and cooling your home. In this way, you can turn off the thermostat when you are not at home thus reducing the cost of bills.
- Unplug all the electrical devices that are not in use as they use up a small amount of electricity even when not in use. It is better to use smart power strips to manage electricity more efficiently.
Control Food Expenses
It is recommended to prefer homemade food items if you want to save some money. Similarly, make coffee yourself instead of take away as it can save you almost $80 monthly. Take homemade lunch as it is healthier and will let you save some bucks. Make a meal plan; limit appetizers, desserts, and fancy drinks. Make a double batch of your favorite meal, and freeze it for later use. Always use portions of leftovers for the next day. Set a budget for eating out and cut back on that area. Allow yourself one or two restaurant visits maximum like look for specials or happy-to-go hours. Prefer casual restaurants over fancy ones.
Save on Groceries
There are 3 strategies to save on groceries
- Before you go into the grocery store download your grocery store’s app, see what main items are for sale. Adjust your weekly meal plan according to the meal items that are on sale and make list a of your shopping accordingly
- When you are in the grocery store, the easiest to save and hardest to do is to buy only those items that are on your list. Grocery stores are designed to make you walk by all the food items that you do not need to get the ones you do. Be mindful of this and don’t let this strategy win. Go in, shop by sticking to your list, and get out.
- When you leave the store you can download the app like checkout51. Such apps are designed to give you cashback after you buy certain items. Once the app is downloaded, pick the grocery store you shop at, take a picture of your receipt and the money will flow into your bank account.
Update Subscriptions
There is nothing worse than wasting the money on the subscriptions or memberships that you are not even using now. Like all the magazines that you monthly pay for or online subscriptions of different sites or tempting emails that you used in the past but not availing now. Ask yourself that when the last time that you used that subscription or can you find the same service cheaper or more affordable. It is recommended to cancel all those expenses that are not worth it now. Cut the cable if you are paying too much for it as there are more affordable options available nowadays like Netflix, Amazon Prime Video or Sling TV, etc.
Work Out at Home
Monthly gym subscriptions somehow become unaffordable when you are planning to save. It is recommended to download free fitness apps to work out at home instead of paying for the gym. Due to internet facility, it has now become very easy to find cardio routines, yoga classes, or other different resistance workouts free online. If you don’t feel like doing the workout session alone, you can invite your friends at a fixed time to accompany you and give you the feeling of the gym. Some of the free workout apps are
- Night Training club
- Ladder
- Cross fit beyond the whiteboard
- Nike Run Club
You can also go for some paid apps like BeachBody to follow workout plans at home, it costs much less as compared to a local gym membership.
Request a Credit Card Rate Reduction
In case you have a good amount of balance on your credit card, you can call the company and request the rate reduction. They might negotiate if you have a good reputation for paying your bills timely every month. If they decline your request, you can always transfer your balance to another card with better rewards and lower rates.
Shop in Thrift Stores
Always check out the cheaper alternatives first for shopping. You can get designer clothes and good stuff for your home in these thrift stores at affordable prices.
Put any Bonuses in Savings
It is important to deposit your bonus into saving accounts for the future instead of cashing it out immediately. It is recommended to do the same with some larger amounts like tax refunds, yearly bonuses, or annual raises. You can invest in a 401k plan as well for future financial security and stability.
By taking an action on any of the above-mentioned areas, you are sure to save a significant amount of money monthly. If you even stick budgeting to the main 3 areas you are likely to be saving up to 50% or more. Reducing your expenses and living frugally is the first step for personal financing. It’s not easy but it is important. Save the difference of your income and expenses to have some second stream of income. It will give you financial stability, security, and freedom in the long run.