Cutting back on household expenses can have a drastic impact on any budget. Whether your goal is to get out of debt, to fund your next vacation, or increase your retirement contributions, spending less is a surefire way to get where you want to be faster.
Let’s be honest, there is plenty advice on reducing your budget out there, but most of it is stale. We all know a daily Starbucks habit doesn’t belong in a tight budget and we need better advice for how to cut expenses in unexpected ways.
In search of unique approaches to cutting monthly expenses, we spent some time visiting with certified financial planner LeeAnn Arens and Rachel Cruze, best-selling author of Smart Money, Smart Kids and Love Your Life, Not Theirs.
Start with discretionary expenses.
Don’t assume you’ve cut back on all of your unnecessary spending. It never hurts to take another look at your spending in case you’ve missed something. Ask yourself if a certain expense is truly a necessity, suggests Arens, who says that cutting back on discretionary expenses is a great way to save money each month.
“Dining out with friends is a large cost you can trim back on,” she says. “Instead of dropping $50 to $100 going out, have your friends come over. Do a wine and movie night, everyone brings a bottle and watches Netflix. If you've been going out at least once a week, this is a great way to cut back on expenses!
In general, slowing down to think before you spend is a practice that could save you a lot of money in the long run. Of course, spending money is a necessity and spending money on fun is great— as long as you’re certain it isn’t getting in the way of your goals.
“We have to control our lifestyle choices,” advises Cruz. “With every spending and saving decision, we’re moving ourselves closer to financial success or financial distress.”
Avoid unnecessary fees.
Life is full of surprises, but spending your money on unnecessary fees should never be one of them. For some, saving on monthly expenses might be as simple as getting their finances in order for their first time and getting rid of fees that were the result of disorganized money management.
Start by keeping track of late fees. Whether you’re borrowing from the library or checking out a Redbox for your cheap date-night in, the little expenses add up over the long term.
“We all love Redbox but make sure you return that copy of Beauty and the Beast because, for each extra day you keep the rental, you’ll be charged for another rental period plus the taxes,” advises Cruz, adding that a lost DVD can cost Redbox fanatics $25 or more.
If you’re struggling to return movies, books or other rentals on time, set a reminder on your phone for the date due immediately after checking it out.
Additionally, make sure you're not paying your bank any fees for your activity. There might be extra charges for withdrawing from your savings account too frequently, according to Cruz, so make sure you understand the terms of your account before you start moving money around. If you are paying various fees, talk with your bank to get them waived.
Review those auto-debits.
Monthly memberships and subscriptions are an easy way to wind up spending on services you're not actually using. Maybe you signed up for a music streaming service or subscribed to your favorite magazine, but lost interest after a month. If you haven't canceled your auto-debit, you're throwing your money away. If you are still struggling to figure out how to save money every month, reviewing your subscription auto-debits is one task you can't ignore.
“Cancel online subscriptions you don’t use or need,” suggests Cruze. “That extra fifteen dollars a month you pay for online [fitness] classes that you use once every three months could be an extra something in your pocket each month.”
Set aside a few minutes on your next lunch break and make a quick list of every auto-debit you're enrolled in–you just might be surprised at how much you've been spending. Making the time to cancel every one could add the wiggle room to your budget you need to start reaching your financial goals.
Deal with your debt.
If you're in the process of paying off debt, there might be creative ways to cut back on expenses each month. For starters, if you are working on paying off a high-interest credit card, transferring your balance to a new card with an interest-free introductory period could work to your advantage, says Arens. Before you get too excited, there are a few questions you need to ask about balance transfers and interest-free promotions.
“The devil is in the details. You need to review the terms,” explains Arens. “How long is the zero interest for? What’s the rate after the introductory period? What is the transfer fee and is there an annual fee for the new card? You need to crunch the numbers to see if switching is the best option for you.”
Of course, don’t you dare start using that card for purchases you aren’t able to pay off. The point is to spend less on interest so you can send more money towards the balance, not to get into further debt.
Credits cards certainly aren’t the only form of debt. We know that, for most millennials, 69 percent of their debt is from student loans. Chances are high, if your student loan balance is giving you grief, you’ve probably heard a thing or two about debt consolidation. This might be a good option if you’re truly struggling to make ends meet each month and need a lower payment, but that really depends on your situation, says Aren.
“Consolidating your federal student loans under the Direct Loan Consolidation Program might be the right thing for you if you are looking to possibly lower your payment by extending the repayment period or if you want the simplicity of having one loan and one fixed interest rate,” shares Arens. “ The rate is the weighted average of your current interest rate but can’t exceed 8.25 percent.”
Debt consolidation certainly isn't always the right choice, and Arens warns against any private loan consolidation programs as you will have given up rights like deferment, income-based repayment and loan forgiveness or cancellation.
Go green at home.
Paying attention to the energy you consume each month doesn’t just benefit the earth, it can be good for your wallet, too. Utility bills might seem like an unavoidable expense, and in a way they are, but that doesn’t mean you can’t find ways to cut back on what you’re spending each month.
One little-known trick is to buy an advanced power strip, according to the Department of Energy. These power strips actually keep idle electronics from using power. Since plugged in devices are estimated to take up 10 percent of home electric bills, it makes sense why this move would save you money in the long run.
Home automation is another effective way to cut back on your home’s energy consumption and lower your household expenses. By installing a programmable thermostat, and programming it to a lower temperature during the hours you are away from home, you can cut back on what you are spending on heating your house by 10 percent, according to the Department of Energy.
Additionally, keeping up with home maintenance is a way to avoid spending more than necessary on your monthly bills. For instance, if you’ve been putting off dealing with a running toilet, you should know a toilet with a medium leak costs an estimated $3.30 a day, according to a report by the New York City Department of Environmental Protection. That really adds up! Heating and cooling experts also recommended changing your HVAC filter a minimum of twice a year and as often as every 90 days to avoid high bills. According to the Department of Energy, this simple action could reduce your heating and cooling bill by as much as 15 percent each month.
Review your mortgage.
When talking about how to save money each month, it is good to look at fixed monthly expenses like your mortgage. Homeownership is expensive, but no one should be paying high interest if they don't have to. Refinancing your mortgage can be one way to save money, according to Arens, but there are a few things to consider before you take the leap.
“It’s a smart thing to do depending on how high your current rate is,” she explains. “The refinance rule of thumb is that the new rate should be at least .75 percent to 1 percent lower than what you are currently paying.”
Of course, don't forget to factor in other costs. You should know that how much you will be spending on closing costs and how long you plan to stay in your home also influences how much a refinance will save you. Refinancing can also extend the term of your mortgage. So, it might lower your monthly payment, but it also might mean it will take longer to pay off. These are all things you should consider, says Arens.
Ditch your car.
If monthly car payments or simply filling your tank is eating up your extra cash each month, it might be time make a big change to your lifestyle. If your city has public transportation, sell your car and learn how to navigate the bus or subway system.
The potential for savings is astounding. According to the latest Transit Savings Report released by the American Public Transit Association, a switch from driving a car to work each day to using public transportation can save the average American $769 every month. This adds up to $9,234 over the course of a year, which is truly a life-changing saving for many young adults.
Get the best deal.
Whether you're shopping for groceries or furniture, comparing prices of items can be a time-consuming task. Still, being certain you're not overspending is an excellent way to cut back on your expenses. There's good news—there are plenty of apps out there that will do the work for you!
If you’re shopping at Walmart, for instance, you can actually use their app to do a price comparison. After you check out, scan your receipt, and the app will check for better deals in the area, and give you the difference back on a Walmart gift card. And, if you’re planning a purchase in the future, you can use apps like ShopySavvy to keep track of changing prices. You can even set up an alert on the app so you know when an item has reached its all-time low.
Make a plan.
Ultimately, you can take advantage of each of the tips above, but if you don’t have a plan for your money, you’re wasting your time. So much unnecessary spending can be attributed to not planning how your money will be spent or paying attention to upcoming expenses, from regular maintenance of vehicles to upcoming celebrations.
When you have a plan in place, you’re not just avoiding unexpected expenses. You’re also preparing to say no to unplanned budget breaks, no matter how fun they might be, because you’ve already prepared yourself for the decisions, says Arens.
What exactly does a plan look like? It probably starts with a monthly household budget, with an outline of all of your fixed expenses, from your rent to your monthly water bills. After knowing what you have to spend on each month, you can decide where the money you have left will go based on your goals for your future. Do you need to be better prepared for retirement? Budget in increased savings. Are you still facing student loan debt? Don't just hope you have money for bigger payments, include those payments into your monthly household budget.
“If you take this opportunity to educate yourself, formulate a plan, and stick with the plan, you will be able to walk the path of financial responsibility and end up on top,” encourages Arens. “It can be a hard lesson, but practice makes better.”
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