Are you struggling to get a handle on your monthly expenses? Do you wonder where your money went when the end of the month hits and you still have a few bills outstanding but have close to nothing in your bank account? Has the thought of cutting monthly expenses ever crossed your mind?
Cutting monthly expenses is one part of the wealth building equation and that is what we are going to focus on in this post. By reducing or even eliminating some of your monthly expenses, you will free up more money to pay off debt or save.
There are a lot of ways to go about cutting monthly expenses. Some people just dive in and cut here and there. Others try to tackle small expenses first. I like to attack the big expenses first.
The reason I do it is this way is because with large expenses, you tend to get a better return for the time you spend. For example, if you cut out your coffee habit from your budget, you are saving $3 a day. But if you are able to lower your insurance premium, you will save a couple hundred dollars for the year. And all you had to do was a few minutes of work.
This doesn’t mean we won’t tackle the small expenses in this post. We will look at all of your expenses. By the end of the post, you will have an outline of things to do in order to start cutting monthly expenses from your budget, freeing up money.
In fact, some of you may be able to save over $1,000 just by following this post. So grab a pen and paper and get ready to take some notes.
Cutting Monthly Expenses: The Big Expenses
Most of us have just a few large expenses in our monthly budget. These include our mortgage/rent, insurance, debt and taxes. We focus on these things first since we can achieve a higher level of savings with very little work. Let’s get started.
Cutting monthly expenses when it comes to your mortgage isn’t too difficult of a task. One common option is to refinance for a lower interest rate than you are currently paying. But, there are traps with refinancing. You could pay an absurd amount in fees, negating the interest savings. Or you could even get tricked into extending the length of the loan, causing you to spend more money in the long run.
Make certain you understand your goal when it comes to refinancing before talking with anyone. Do you want to save on interest over the course of the loan or are you more interested in cutting the monthly payment so you can free up some cash?
Once you answer this question, then you will be able to sit down with someone and figure out the best route for your situation.
With interest rates still relatively low, you could save a few hundred dollars per month by refinancing. You just have to be smart about the refinance process and take your time to make sure you understand everything. If you are in the market for a refinance, here is an interactive calculator to help you see how much money you can save.
Now, what if it turns out that refinancing isn’t an option for you? Are you stuck with your current payment? Yes and no. I wrote a post that offers a handful of little known ways to pay off your mortgage fast. Among the options are a fake refinance and using extra cash to knock out your mortgage quickly. Many of these options could open the door for a better refinancing situation or even paying off your mortgage entirely, freeing up a ton of money.
When it comes to rent, there isn’t much you can do now in terms of cutting your monthly expenses associated with the cost. The main things you can do are to start the process of looking for another place to live that is cheaper or negotiate with your current landlord. Some might be leery of trying to negotiate with their landlord, but the worst that can happen is they say no.
To improve your chances of a yes, be sure to highlight all of the great things you bring to the table: on time rent, no complaints, keep the unit well maintained, etc. At the end of the day some landlords would rather have a great tenant that is paying a little less than market rate instead of having a horrible tenant that doesn’t pay at all. You’ll never know which landlord you have unless you ask.
For me, I didn’t raise the rent on my tenant because she was so amazing. I never had any issues from her and the rent was always on time. I would rather forego an extra $50 a month ($600 a year) and have zero stress than have an extra $600 and have some level of stress.
In addition to this, if she leaves, then I have no rental income while I am looking for new tenants and I have to spend my time and money trying to find new tenants. It wasn’t worth it to me. I’ll take $600 less and have zero worries.
When going this route, you will have a greater chance of success if your rental has a landlord who owns a few properties as opposed to a large company that is in the rental business.
Insurance is another place where cutting your monthly expenses will let you realize a nice amount of savings. In fact, I would argue that saving money on insurance is 100 times easier than with your mortgage. Most companies offer free quotes on insurance. Just spend 10 minutes filling out the information and you’ll have a free, no obligation quote.
You should be shopping around and getting car and homeowners insurance quotes every other year at a minimum. Just because you are a great customer doesn’t mean you are getting a great rate. It all has to do with how the company is doing overall.
Also, new studies have found that people who stay with the same insurance company actually pay more over time than they should. These people basically pay for the others who shop around and get offered lower rates.
I used to use an insurance company that I thought was offering me the best price. Then one year, my premiums jumped 10% without warning. I did nothing to cause this spike either. It turned out that the insurance company suffered huge losses after a major hurricane and needed to replenish its balance sheet. This meant rate increases for everyone.
I refused to pay more, so I shopped around and found a great insurance company that ended up charging me $250 less per year. I stayed with them for 2 years and then shopped around and found another company that charged me $150 less.
The bottom line is that you need to shop around for insurance coverage. It takes 10 minutes and is completely free. By not doing it, you could potentially be paying hundreds more each year than you should be.
And it doesn’t end with car insurance either. If your employer doesn’t offer you health insurance and you are buying your own coverage, you need to shop around for a fair price. You can easily get a free health insurance quote. Again, it takes 10 minutes and there is no obligation to buy.
In either case, just knowing that you aren’t being overcharged for coverage should be reason enough to get a free quote.
Most of us don’t think about cutting taxes when it comes to trying to reign in our monthly expenses. But taxes are a big deal. When you add them up, more of your money than you think is going towards taxes.
For example, you pay federal income tax. Chances are you are paying a state income tax. You are also paying a property tax if you own a house. You pay sales tax. You pay a gas tax when you fill up your car. And don’t get me started with the taxes on cell phone services. When you add these all up, chances are you are paying close to 50% of your income in taxes!
While you cannot legally avoid all taxes, there are a handful of simple ways you can reduce your taxes and save money in the process.
- Contribute To Your 401k: The money you contribute to your 401k comes out of your paycheck pre-tax. This means that you are paying less money in taxes on the amount you actually have deposited into your checking account. In other words, if you get paid $1,000 and don’t make any 401k contribution, you will pay $150 in taxes (assuming you are in the 15% tax bracket and other factors aren’t taken into account). But if you contribute $100 to your 401k, you will only be taxed on the remaining $900, which is $135 (15% x $900). You just saved yourself $15 in taxes. Over the course of a year, this turns into potentially thousands of dollars you can save on taxes.
- Appeal Your Property Taxes. If your property taxes have gone up every year, maybe it is time to appeal them. In many cases, a real estate attorney will do all of the work for a small fee. When we did this, we knocked $1,100 off our annual property tax bill. We plan on living here for a while so over the next 20 years, we will save over $20,000! The attorney got $500 for doing all of the work. This was the most we would have had to pay, as his fee was capped. If he didn’t get us a reduction, there was no fee. Of course there is the chance that your taxes will go up. But a good attorney will look at things and give you an idea of what to expect before you agree to challenge the amount you pay.
- Put Money Into An HSA or FSA: These are accounts you put money into to help pay for medical expenses. The main difference between the two is that with an FSA, you have to use the money you save in the account during the calendar year. With an HSA, you don’t have to do this. You can read this article that breaks the two out really well. The advantage of saving money here is the same as the 401k option above. Your savings are pre-tax, helping you to pay less in taxes.
- Change Your Withholding: If you get a large refund each year, look into changing your withholdings. Most people don’t do this because they are scared that they will not get a refund at tax time and have to pay in. The reality is that if you are getting a large refund (over $3,000) you can easily change your withholdings and get a fatter paycheck and still get a refund (be it a small one) each year. You can use this free tool from the IRS to help you do the math.
- Invest Wisely: Make sure you have a tax efficient strategy when it comes to investing your money. By simply placing certain assets in your retirement accounts and others in your taxable account, you can save yourself a good amount in taxes.
Chances are you have some debt. Either credit card debt or student loan debt or maybe even both. Here are a few options to help you save some money and cut your monthly bill that goes towards them.
Have A Plan: When it comes to your credit cards, set up a payoff plan. When you have a plan in place, you will get excited and motivated to pay off the debt. As you pay a little extra each month, your balance will drop, and so too will your monthly bill. Try to not lower how much you pay each month until the debt is gone for good. The more you can pay, the more you will save on interest charges and the more money you will free up when the debt is gone.
Transfer Balances: Another option for credit cards is to transfer your balances to another card. Many times you can find a credit card with a 0% balance transfer offer. If you move your balance over to this new card, you can avoid paying any interest for a set amount of time. There are two catches here. The first is that there is a fee you will be charged. Try to keep it to 3% or less of the amount you transfer. Second, you have to make sure you don’t start spending on your first card again. I made this mistake and it wasn’t fun.
Consolidate or Refinance: For your student loans, try to consolidate or refinance them. Doing either of these will allow you to lower your monthly payment and potentially save on interest charges. When I refinanced my student loans to a lower interest rate, I went from paying $400 a month to $200. It was amazing to have that extra $200 a month.
I know starting the process of refinancing is confusing. Luckily there is someone to help. Lendedu will take your student loan information and compare it with lenders to see where you can refinance and save the most money. It’s 100% free to use and you are under no obligation to move forward. I encourage you to try it out, just to see how much you might be able to save each month.
Cable TV is a huge expense for most of us. I previously wrote about how Comcast is no longer offering promotions to existing customers, but that seems to have changed again. They (and most other cable companies) have gone the route of offering 1 or 2 year contracts. The nice thing about this that your price is locked for the length of your contract term. The not so nice thing is that you have to put a little more effort into this to get a good deal.
Don’t fall for the “more channels, same price” trick, which seems to be their go-to option. You aren’t accomplishing your goal of cutting month expenses by paying the same price for more channels. You are just getting more channels. And when the deal ends (and it will) you will pass out when you get an updated bill now charging you for all of those “free” channels that got added. Remember that your goal is a lower price than what it is now.
If you find that your cable company won’t negotiate prices, then you might want to cancel and find alternative ways to watch TV shows. There are many streaming services out there and more are coming to market every day. In the Comcast post I linked to above, you can read about many of the great options you have when it comes to streaming.
I like and use Amazon Fire TV and subscribe to a handful of streaming services. I am able to watch TV and movies and not pay the outrageous price of cable.
Groceries cost a lot. The average family of four spends close to $900 per month on groceries, which is more than some people spend on their mortgage or rent! This doesn’t even factor in any meals that they eat out either. If you find your grocery bill to be too high, what can you do to save some money?
The first thing you should do is shop smarter. If you have multiple grocery stores in your area, find the one that offers the best prices. This will take a little work, but you can make it easy on yourself. Stick with the basics. What do you buy every week? Make note of these and then price compare. As time goes by, price check other items as well.
In some cases, you might find that you have to shop at two different stores. This is what happened to me. Our family does most of our shopping at one store and then we go to another grocery store to buy our produce since it is cheaper there.
Once you know where to shop, learn to buy things that are on sale. Learn to meal plan around what is on sale. Be sure to read all of the circulars you get in the mail as you never know when they might have a great deal. For example, one store I don’t shop at had a sale of frozen vegetables for $0.75 a bag. I stocked up since our daughter is now transitioning to foods.
To curb eating out habits, cook ahead of time. For my wife and me, we would get tired or lazy by the end of the week and not feel like cooking. This led us to eat out a lot on Thursdays and Fridays. Now we take some time on Sunday and cook meals for the week. All we have to do is just reheat them and we have dinner ready in 5 minutes.
In addition to this, learn to make some simple meals that only take 20 minutes to make. There are thousands out there, just take a few minutes to search around.
If you take the time to do these three things you could easily end up saving a few hundred or even thousand dollars a year or more. The reason I like tackling these first is because it is one and done. I refinance, I never have to do anything else to save money. The savings happens automatically every year or month.
Cutting Monthly Expenses: The Small Expenses
Now that we have covered the big monthly expenses, it’s time to focus on cutting monthly expenses that are small in size. There are thousands of small expenses that everyone has. Because of this, I am not going to cover all of the various ways you can cut your monthly expenses on small things. I am going to highlight a few of the more common monthly expenses. Hopefully this will spark a curiosity in you to tackle other small expenses as well.
I am lucky that I live in a state that offers electricity deregulation. This means that I can choose my electric distributor and potentially save money. If you don’t live in a state that offers this, there are still many options for cutting monthly expenses on electricity. All you have to do is pay more attention. As crazy as it seems, turning off the lights when you aren’t in the room works. Here are a few more electricity saving tips:
- Spend the money upfront on LED bulbs. They do cost more, but they cost less to operate and last a lot longer. They even have them now with different light so you can find a brightness that meets your satisfaction and many have the option to dim as well. But you don’t have to replace all your lights at once. Start with the most used ones. This means the kitchen and main bedrooms and bathrooms. From there, wait until you can find some sales and then buy some more. When we did this in just our main living areas, we saw an immediate drop in our monthly bill by $20. I was blow away.
- Buy a programmable thermostat. We use ours and have it set up so that the house isn’t heated or cooled when we aren’t around. We’ve seen a nice drop in our electric bill as a result. Here is the model we use. In addition, close doors/vents in rooms you rarely use. There is no point in heating or cooling these spaces.
- Buy ceiling fans. You will have to pay upfront to get them and install them, but they save will save you money. We used to keep our house 5 degrees cooler in the summer before ceiling fans. Now with them, we are able to keep the house warmer because of the cool air the fans blow on us. We even use them in the winter (there is a switch to reverse the direction) so that it pulls down the warm air that rises.
- Unplug electronics. Many electronics still draw power when turned off. This includes your phone and tablet chargers as well as flat screen TVs. Pull the plug on these when not in use and watch your electric bill drop. If you aren’t sure which electronics are secretly sucking money from your wallet, spend $20 on a Kill A Watt. It will pay for itself almost immediately. Alternatively, you can get smart power strips that turn off electronics from using electricity while in standby mode.
- Check doors and windows. You can do this on a Saturday afternoon. Go around the trim on all of your windows and see if you feel a draft. If you do, get a caulk gun and seals the gaps. For doors, check to see if you can see any light around the edges of the door. If you can, you should replace the insulation. In most doors this simply means pulling out the old strip of insulation and snapping a new piece in.
There are some simple things you can do to increase your fuel mileage. First, learn to drive slower. This isn’t to say drive like your are out for a Sunday drive. Just slow down a little bit. The faster you go, the more fuel you use. Additionally, learn how to accelerate and stop. When you punch the gas at a green light or slam on the brakes at a red light, you are wasting fuel. Accelerate slowly and anticipate red lights and stop signs by coasting to them.
From there, keep your tires inflated properly and keep your trunk empty. Underinflated tires and added weight in your trunk will kill your gas mileage.
Next, pay attention to gas prices. Find the station around you that has the lowest prices. There are apps you can use to accomplish this, or just pay attention when you drive around town. Just make sure you are comparing prices on the same day. Prices fluctuate by day, so pay attention!
Lastly, don’t make the costly mistake of buying a hybrid car just because you will spend less on gas. In many cases, hybrids aren’t worth the price. You are better off learning how to drive smarter in order to cut your monthly fuel bill.
Most people don’t get their money’s worth out of a gym. You don’t need to join a gym to be healthy and get in shape. You can do body-weight exercises or DVD programs like P90X or T25 right from your living room and save yourself the gym fee. With this link you can try out their On Demand workouts for 30 days free!
You can even do something as simple as buy an activity monitor. I have been wearing a Jawbone UP 24 for over 3 years now and love it. I am fairly active but was shocked at how little I move around during the day. It helps to get me out of my chair during the day and move.
How much are you paying for your cell phone service? My guess is close to $100 a month or more. Why? Thanks to resellers, you can get the same great service for much less. For example, I use Cricket. For $35 a month, I get unlimited calls and texts and have 2.5 GB of data. My coverage is the same as if I were with AT&T since Cricket uses AT&T towers, plus they are owned by AT&T.
This same plan with AT&T would run me $90 a month. I’ve been using Cricket for 2 years now and have saved over $1,500! Plus I’ve had zero issues. If you switch over using this link, you can get a $25 statement credit.
Other Ways To Cut Expenses
There are a few other ways I want to highlight that will help you cut your monthly expenses.
Shop Online. When you shop online, you can typically use a coupon code to save money. But you can also use a shopping portal like Ebates. When you shop online through Ebates, you get cash back. Most times it is between 1% and 25% but sometimes they offer double cash back.
Over the course of the past few months, my wife has earned over $100 cash back from Ebates on purchases she was going to make anyway. It was free money that we ended up putting into our savings account. If you try them out for free, you will get a $10 gift card!
Cancel Subscriptions. How many subscriptions or memberships are you paying for but never use? Well you can use a free app called Clarity Money to help cut these expenses out. They will look over your checking account, identify recurring charges that you may be able to cancel, and help you with canceling them. And they do this for free!
Delay Purchases. This is another spending trick that can help you save a lot of money. Before you buy something, wait a couple of minutes to see if you really need it. Many times when we want to buy something, it is purely emotional. Later, when we see the item, we have regret. This is when the thinking side of our brain catches up to the emotional side. If you can learn to hold off on buying things, you can save yourself a ton of money.
What To Do With Your Savings?
Now that you’ve taken action and reduced your monthly expenses, you are going to have to figure out what to do with the money you’ve saved. Here is a clue: spending it should not be an option! Below I list 4 ways for you to use your new found savings from cutting monthly expenses.
Pay Off Debt
If you have credit card, student loan, auto loan, or other types of personal debt, you should use the money you save by cutting monthly expenses to rid yourself of these debts. Doing so will free up more money for you to save every month.
Look at it this way. If you are paying $400 a month for an auto loan and pay another $250 a month a credit card, paying both of these off will free up an additional $650 each month. How great would it be to have an “extra” $650 each month?
For help with setting up a payoff plan yourself, read this post.
In addition to those debts, maybe you took many of the steps above to cut your monthly expenses but you couldn’t refinance your house for a number of reasons. You could use the money you are saving in other areas to accelerate the pay down of your mortgage so that you can qualify for a refinance and save even more money each month.
Build An Emergency Fund
Having an emergency fund is essential when it comes to good finances. Most experts recommend 3-6 months worth of living expenses in an emergency fund. I am on the more conservative side and think that you should have around 8 months worth of living expenses in an emergency fund. Why do I say this? It can take a long time to find a job. Having an extra cushion in your emergency fund will take some of the stress out of your life while you are searching.
I have my emergency fund with Capital One 360. It’s a great online bank that doesn’t charge any fees and pays a higher interest rate than most brick and mortar banks. In fact, if you open an account with Capital One 360, they will give you money!
The key to building wealth is through the stock market. In my how to be a stock market millionaire post, I lay out the steps for investment success. One of the main keys is to learn the basics about investing and to make sure you have a long-term outlook. If you can do these two things, you will be well on your way to making money in the stock market.
Once you do the above, check out my online broker comparison chart to figure out where you should invest. If you have any questions about it, don’t hesitate to ask. And if it still feels overwhelming, look into an automated investing option. This is by far the simplest route to getting started investing. Spend 10 minutes and you are done. They take care of the rest.
Once you have all of the above taken care of, you can then use the savings from cutting your monthly expenses to fund other savings goals you might have. This might include a new house, a dream vacation, etc.
Feeling like you are short on money each month is a lot of stress. I can remember when I was struggling to get by when I bought my first house. It was hard and scary. I took a lot of the steps I’ve outlined here and slowly over time, money was less stressful as I had a cushion between my income and my expenses.
This was due primarily to me cutting monthly expenses. I negotiated my cable bill. I switched out lights for LEDs. I turned off power strips when I wasn’t home. I used a programmable thermostat. I refinanced my student loans and was smarter when shopping for groceries.
I started slow and kept at it. In time, more and more money was freed up and I had extra money left over at the end of the month. You can too. You just have to take the first step.
Start by cutting monthly expenses that are big and work your way down to the smaller ones. I am certain that if you take a few hours over the course of the month to save a little bit of money, that money will add up and you’ll be surprised at how much you can save.
You can even track your progress with a free app like Personal Capital. By entering in your accounts, you will be able to watch your net worth increase each month.
Remember, don’t look at cutting monthly expenses as going without or in a negative light, see this as a step towards allowing you the freedom to live a better life.