If you’re not tracking your monthly expenses, start now. Otherwise, this exercise is pointless, because how can you assess your living expenses if you don’t know what they are! Using a budgeting app rather than a napkin, you can continuously monitor your expenses and quickly analyse your spending habits to see where you can make cuts. Chances are, you can make cuts everywhere or almost everywhere.
Personally, I use Mint.com and their mobile app, which has a fantastic dashboard allowing you to see your monthly budget, all of your accounts and your total net worth at a glance.
I’ve gone through this exercise myself and overtime was able to reduce my living expenses by over 40% without sacrificing my lifestyle. I recommend looking at your biggest expenses first (taxes, housing, auto), because they can yield the largest savings. All three of these topics are rather involved and I plan on addressing them in more detail in separate posts.
Taxes: For most people taxes is by far their largest expense. As I mentioned above, I believe this topic deserves a separate discussion, so I will hold of on it for now
Housing: It’s the biggest expense for most people outside of taxes and there is a lot to consider. You can read more about it in this post where we discuss when does it make sense to buy vs rent? If you do buy, how much to put down? How much can you afford to pay monthly? Whether and when to pay off your mortgage and much more.
Auto Payments: This is another large expense for most people and the topic that I’ve covered in this post. Generally speaking, the best way to save on car payments is to buy a reliable used car, pay it off and keep it for longer.
Car Insurance: You can save a lot of money by switching. Period. Shop around and compare. I was able to cut my car insurance by almost 50% just by switching to another company. It took less than an hour of searching online and then a couple of phones calls with the new and old insurance company to make the switch on the right date.
Groceries: Some people manage to spend next to nothing on their groceries by using coupons and diligently looking for sales. I tip my hat to these folks, but I’m not one of them. I find that my time is better spent on other things and most of the food that we buy is rarely discounted. With that said, We have a monthly budget and we stick by it. We shop at our local grocery store and use their app to manage our food shopping list. Be prepared to pay more for higher quality produce. Check out a few tips on how to save on your groceries here
Gas & Fuel: If you drive a lot than fuel efficiency of your car should be considered. A difference in fuel costs between Toyota Tundra (a large pickup) and a Toyota Prius (a smaller hybrid) could amount to $2K / year for 15K miles. We will look into it in more detail when we discuss auto payments.
Mobile Phone: As always, the message is to shop around. Things to consider are coverage in your area, Plan charges, discounts offered by your employer, and phone subsidies
Eating out: Eating out is fun, convenient and there is a social element to it. I’m not going to tell you how much you can afford to spend on eating out. Just know that it can quickly add up. Think about it, if a family of 4 eats out a couple times per week, plus they all buy lunches daily… do the math, here is what an average week can end looking like:
- daily lunches (2 adults): $10/person x 5 days x 2 people = $100 per week
- daily lunches (2 kids): $5/person x 5 days x 2 people = $50 per week
- dinner with family $20/person x 2 times x 4 people = $160 per week
So an average month could end up costing you ($150 + $160) * 4 = $1240. That’s almost $15K per year, and close to $150K in 10 years! So, how much do you like eating out?!
Gym: Gym membership doesn’t have to be expensive and you don’t have to have a personal trainer. Heck, if you’re really committed to it, you can outfit a pretty decent garage gym with craigslist equipment for under a grand. That’s the easy part. The hard part is actually using that equipment.
Kids: The best way to save on kids is not to have any! Seriously though, if you figure out how to save on your kids, let me know. All I know is that it cost about a quarter of a mil ($245K to be exact) for a middle-income family to raise a single child to the age of 18. Kids are expensive.
Cable (internet/TV/phone): At one point I got fed up paying close to $200/month for cable, so I called up my local cable company and told them that I was fed up paying that much. To my surprised they told me that there is promotion that if I sign up for 2 years I can get the services that I want for close to $100/month. That’s half of what I used to pay. So call your local cable company and see if they have any promotions and as always, shop around.
Home phone: I barely use my home phone, so i don’t’ want to pay for it. I ended up getting an ooma phone ($150 to purchase the phone) with free service and never looked back.
Lowering and controlling our living expenses is a defensive strategy that we must implement if we’re serious about our finances. As I said in the beginning, the first step is to start tracking all of your expenses. So, start there, look at the big three (taxes, housing, and auto) and work your way down the list. And please share your own cost cutting strategies and any other interesting life hacks in the comments section.