If you want to free up room in your budget, there are two levers you can pull. The first lever has to do with your income. If you make more money, it gives you room to spend more money. The second lever deals with expenditures. If you spend less, you don’t have to make as much.
The Only 2 Ways to Improve Your Financial Situation
While every financial situation is unique, there are ultimately only two ways to improve your financial situation and create more margin in your monthly budget. You can increase your income or you can decrease your expenses.
Increasing your income is something that you should always be thinking about, but it’s not something that typically happens overnight. For most people, it takes several months to move the needle. For others, it can take years.
The more practical short-term option – and the one you have the most influence over – involves decreasing expenses. By lowering your expenses, you’re essentially giving yourself a dollar-for-dollar raise (at least from a cash flow perspective).
4 Tips for Slashing Monthly Expenses
Want to slash your monthly expenses and free up room in your budget? We have a few tips that you may find useful.
- Stop Eating Out
A family of four eating out fast food lunches twice a week and mid-priced restaurant dinners twice a week can expect to spend somewhere around $680 per month eating out. That translates to roughly $8,000 per year. (You can get a rough estimate of how much your family spends by adjusting for frequency and family size.)
While there’s nothing inherently wrong with eating out, it’s far more expensive than cooking your own meals. You can often cook an entire meal for the same price it costs to purchase one entree at a mid-priced restaurant.
If you want to save several hundred dollars a month, try cooking 100 percent of your meals. You’ll find money you never knew you had!
- Shop Around for Better Rates
Never assume that the rates you’re paying for services are the best possible rates. If it’s been a while since you’ve shopped around, you may want to do a little digging.
Car insurance, for example, can vary as much as 50 to 60 percent from one company to the next (for the same type of policy). Internet and cable can fluctuate as well. The same goes for checking accounts, mortgage rates, and subscription services.
- Cancel Prime
Here’s a bold suggestion for all of you online shoppers: Cancel your Amazon Prime membership.
While we don’t technically have anything against Amazon, the truth is that having a Prime membership makes you feel like you can shop for anything at any time. The free shipping gives you a license to buy anything your heart desires. By canceling, you force yourself to be more intentional. Suddenly you have to pay for shipping, or wait until you meet the minimum purchase threshold. This prevents unnecessary purchases and makes you wait until you have enough items in your cart to check out. By this point, you’ll find that you no longer want/need many of the items you originally added.
- Prioritize Energy Efficiency
With a little more attention to detail, you could potentially slash your home’s monthly energy bills by 25 percent or more. Here are a few suggestions:
- Install a smart and/or programmable thermostat.
- Lower your water heater’s temperature to 120 degrees Fahrenheit.
- Switch from incandescent light bulbs to LED alternatives.
- Air dry dishes instead of using your dishwasher’s drying cycle.
Not only do these tips save you money, but they also lower your carbon footprint and make you a more responsible steward of the resources you’ve been provided. Think of it as a small way to be a good neighbor.
Putting it All Together
When cutting expenses, it’s important to maintain the right perspective. When we encourage you to stop eating out, we aren’t saying you can never eat at a restaurant again. And when we tell you to cancel Amazon Prime, we aren’t saying online shopping is evil. Instead, we’re equipping you with simple short-term techniques that you can leverage to create long-term financial freedom.
The goal of cutting expenses is to create enough margin in your finances to get ahead. By slashing your expenditures, you save enough money to pay down debt, build up savings, and begin investing. Then, if you decide to resume more normal spending patterns, you can do so without compromising your financial health.