How To Cut Your Expenses

Many Americans understand the plight of having too much month at the end of their money. That  is another way of saying the monthly income does not cover the expenses.

If that happens, it’s natural to think of ways to increase income. There’s nothing wrong with that, except it may be masking the real problem, which is how much Is spent. Any of us may find a time when it’s necessary to reduce expenses – and some of us may have to do so drastically.

The good news is there are helpful ways to cut expenses and save money. The key is knowing where to look.

1. Keep Track of Your Spending Habits

Solutions to financial challenges are there for the taking. What they require is discipline.

The first step is to keep a written record of what is spent. Those who don’t know where money is going will find it nearly impossible to know what to cut.

To be clear, tracking spending means tracking everything, even the $3 for that large soft drink. Monitoring spending helps people think about whether the expense is worth it. Seeing a list of spending with $82 monthly for soft drinks or fancy coffees can be eye opening.

Use a notebook, spreadsheet or money app. Do this for a minimum of one month – two months is better – and you’ll have the information you need for the next step.

2. Create a Budget

The importance of budgeting can’t be minimized. Once you know what your income and expenses are, you can prioritize spending to reach goals.

Creating a budget requires three steps. First is to understand earnings. Calculate income after taxes so it’s clear what’s being considered is what is going in the bank. Second is knowing where money is spent, which means keeping track of everything, as we discussed above.

Once those are completed, it’s time to make a plan to spend less than you make, which means there will be money left over that can be saved.

Although it’s wise to keep a budget that accounts for every dollar, that method isn’t for everybody. An alternate approach is the 50-30-20 rule. Allocate 50% for necessities (basic housing, utilities, insurance, food, clothing, taxes, debt payments), 30% for things you want (eating out, entertainment, luxuries) and 20% for savings.

It will take discipline not to spend the portion devoted to savings, and there may be times when life gets in the way and savings simply must be spent.

The goal is what’s important, and typically achievable with careful assessment of income and expenses.

» Learn More: Average Monthly Expenses

3. Update Subscriptions

The great thing about the digital world is the ease it provides for purchases, subscriptions, streaming channels, and memberships. However, it’s also dangerous, because clicking a button on a phone or computer doesn’t really feel like spending money, so it becomes too easy to add another movie channel or purchase another round of drinks.

The average American spends $219 a month on subscriptions, according to C+R Research.  Consider that some of them are never used and are charged via automatic renewal, and it’s easy to see how it can add up. If even half of those are eliminated, that’s (on average) $109.50 per month saved.

This is another case where careful assessments can help. Take the time to find the magazines, streaming services, cable packages or memberships you have, and eliminate the ones you don’t use. Cancel them. Just do it. If you find you miss it, you can always re-subscribe when the financial situation brightens.

Then assess what arrives in the digital and real world that makes spending tempting. Even though they aren’t costing money directly, drop email newsletters or merchandise catalogs that can lead to impulse purchases.

Be firm, Be decisive. Focus on the savings. Deal with the here and now.

4. Save on Utility Costs

Though power, heat and water are necessities, there are ways to lower your utility bills.

• When incandescent light bulbs burn out, replace them with LEDs. They cost more but last longer and use less electricity, which means they more than pay for themselves. To choose the right bulb, use the lumens number, which indicates the amount of light emitted, rather than wattage, which measures the electricity used.
• Save on your A/C bill by installing a programmable “Smart” thermostat for the heating and cooling system. This enables you to change how hot or cold you keep the house when you’re not at home, saving on utility bills. You can set it to return to a more comfortable temperature just before you get home from the office. This can really help save energy in the winter months.
• Unplug every unused electrical device. Many electronic devices draw a small amount of electricity when not in use, and it adds up. Another way to block excess electricity is using power strips or timers to turn devices off and on. “Smart” power strips can manage electricity so that DVD players only get power if the TV is on.
• Lower the temperature on the water heater. Few need it set hotter than 130 degrees Fahrenheit. Setting it higher burns unnecessary energy. Using a water heater blanket and insulating hot water pipes also saves energy.
• Seal energy leaks in the home. Caulk and weather-strip doors and windows that leak air. Seal air leaks where plumbing, ducting, or electrical wiring comes through walls, floors, and ceilings. Install foam gaskets behind outlet and switch plates on walls.
• Turn lights off when you leave a room.
• Repair leaky toilet and faucets. Take shorter showers. If it’s time for a new dishwasher or washing machine, buy one with an Energy Star rating to save water.

The Department of Energy says people can save as much as 10% on heating and cooling costs by using a Smart thermostat. Eliminating phantom energy – appliances or items plugged in but not in use – can save as much as $100 per year. LED lighting can save $225 per year.

The bottom line: Every little step matters.

5. Cheaper Housing Options

A home or apartment is a major monthly expense, so any attempt to reduce expenses should include a look at what is spent on housing. There’s no right answer to this for everyone, but there is a right answer for each situation.

Although home ownership is hard-wired into the American psyche, it’s worth asking whether it’s right for you – or, at least, if it’s right for you at this time.

The advantages of renting include affordability. Not only may you pay less per month in rent than with a mortgage, but you also aren’t responsible for repairs, nor do you have to pay the upfront financing costs to get a mortgage or pay homeowners association dues.

Anyone already renting may find it possible to save money on rent by relocating to a less expensive area or into a smaller rental house or apartment. Another popular option is to get a roommate. Rent for a two-bedroom apartment isn’t twice that of a one-bedroom, so getting a roommate can significantly drive down monthly costs.

Also, when it’s time to renew a lease, negotiate. Landlords want to keep good tenants, and if you move, they aren’t making money on the apartment while it’s vacant.

» Learn More: How Much Rent Can I Afford?

Yes, there are considerable advantages to home ownership. But if you’re going to buy a house, there are ways to get a lower mortgage payment. First is to ensure the mortgage is right for you. It’s important to understand the options.

If you’re willing to commute a few miles, real estate prices may be lower away from a city. A down payment of at least 20% means you avoid paying for private mortgage insurance. Though mortgage interest rates remain high in 2024, if rates drop substantially, refinancing can reduce the monthly payment.

6. Consolidate Debts

Few can pay cash for everything, so debt is likely a part of anyone’s monthly costs. Auto loans, credit cards, student loans …. all add up. Each of those debts involves a separate expenditure, and each may have been a good deal initially, but it might be wise to look at them as a single unit.

Debt consolidation combines multiple debts into a single loan and single monthly payment. It can be particularly effective for those carrying a balance on one or more high-interest credit cards or student loan debt. A single loan at a lower interest rate can lower monthly costs and pay debts off sooner – a win-win as long as you make monthly payments on time. Transferring credit cards into a single low-interest card also can be effective, but you may have only 12-18 months to pay off those debts during the introductory period before the interest rates go up.

Another option for credit card debt is a debt management plan that you can obtain through a nonprofit credit counseling program. The credit counseling agencies help consumers create an affordable monthly budget that enables them to get rid of credit card debt. Nonprofit agencies have agreements with major card companies to lower their interest rates to 7%, many times even lower. Consumers make a single monthly payment to the nonprofit counseling agency, which then makes payments to each card company in agreed upon amounts.

7. Shop for Cheaper Insurance

There’s no time like the present to shop for less expensive insurance. There are plenty of companies out there, and with a little work you may find you can save money on car insurance and homeowners insurance – either with different companies or by bundling them with the same company.

Most insurance companies offer a bundling discount, and can be significant. Nationwide and Farmers offers a 20% discount for bundling. Allstate’s bundling discount can be 25%, and State Farm’s up to 30%. This is a win-win. The insurance company gets more business under one account, and you save money.

Other savings can be found. Raising the deductible – the amount paid before insurance contributes to a claim – can reduce monthly premiums on auto insurance.

High deductible health insurance plans offer lower premiums and are especially appropriate for people who rarely seek medical care and just want to make sure they’re covered in case of an emergency.

Term life insurance, which terminates after a set time period, has lower monthly premiums than whole life policies, which cover you for your entire life. Term policies can be set up to end when you retire, and the family no longer depends on your paycheck.

8. Eat at Home

Dining out is enjoyable. It’s also expensive. Many are shocked when they calculate how much money they spend at restaurants each month. Consider that the average American spends $2,500 annually at restaurants – more than $200 per month.

We all have to eat, but we don’t have to eat out. Nobody needs to commit to a full-blown, “rice and beans, beans and rice” diet to make a big impact on the bottom line. But many of us need to cut back, and cutting spending at restaurants can provide savings. That $20 meal at a restaurant might cost $3-$6 to make at home. Think about that cup of coffee purchased outside the home. That cost can range from $2-$3. The average price of a cup brewed at home: 26 cents.

Don’t feel confident in the kitchen? There are oodles of cookbooks and YouTube videos for beginners. Cook several servings of some items you like and freeze what you’re not going to eat for future meals. Buy nonperishable items. Use grocery coupons. Buy generic or store-brand canned goods instead of the well-known labels. .

9. Shop with a List

Buying food at a grocery store will help cut expenses. Once that commitment is made, you’ll want to save money at the grocery store. A tried-and-true way to do that is to make a shopping list in advance and stick to it. Resist the temptation to buy something on impulse when you get to the store. If you organize your list around sales the store has advertised, so much the better.

Also, consider options. A generic brand usually is less expensive than a national brand. A store like Costco sells their Kirkland items at good prices and in bulk. A store like Aldi has excellent prices, often lower than a big name for the exact same items.

10. Freezing Your Credit Cards

Credit cards are wonderfully convenient, but that convenience is one of their drawbacks. They are so easy to use that sometimes we make purchases we shouldn’t.

Figuring you’ll pay it when the credit card bill comes due is one way a lot of people get into credit card debt. And, even if you keep your credit balance at zero, money spent on impulse purchases is money you don’t have for necessities, like food.

The solution? Find a way to make using the credit card less convenient. Keep it at home instead of in your wallet or purse.

It may sound crazy, but you might consider freezing – literally freezing – your credit cards in a block of ice. You’ll still have them if needed, but it will take time to thaw them out, and that time provides time to reflect whether the purchase is really necessary. (Note: This is not the same as freezing your credit to protect yourself from identity theft, which can be a smart move but doesn’t necessarily help you cut expenses.)

11. Switch to Cash Only

Anyone serious about cutting expenses could commit to spending cash only – even If it’s for a short period of time.

Studies indicate that people tend to be more frugal when they use cash than when they use credit cards. Using cash means spending only what you have, which prevents you from living above your income.

To simplify this, your regular, essential bills – mortgage/rent, utilities, and the like – should be paid by automatic withdrawals from your bank account. The rest of spending is limited to the cash remaining.

12. Pay off Your Debts

Getting out of debt is a no-brainer if you want to reduce expenses and save money. This is especially true of credit card debt, which typically carries much higher interest rates than conventional loans.

Money spent on interest is money unavailable for other necessary expenses. The longer it takes to pay off credit card debt, the more expensive that purchase becomes.

There are many strategies to pay off debt depending on how much debt you have. Refinancing debt at a lower interest rate can help, but it still requires a commitment to pay it down to zero. If you’re unable to refinance, make a list of all the debts you owe and rank them in order of highest to lowest interest rates. Then, pay off the highest interest debt first, then the next highest and so on.

Make debt repayment part of your monthly budget. Set a target date to get out of debt and do what it takes to make it.

Start Cutting Your Expenses Now

To cut expenses, start today. Don’t wait. Don’t ponder. Get started. The sooner you start, the sooner you finish, and the more you save.

If debts are large enough that you question your ability to do it, consider speaking with a credit counselor at a nonprofit credit counseling agency like InCharge Debt Solutions.

Their credit counselors will help you create a budget and provide other information and services to get you out of debt and save you money.

» Learn More: Is debt consolidation right for me?

» Learn More: Will debt management help me?

» Learn More: What is debt settlement?