There are four major routes to financial prosperity. You can be born rich, marry into wealth, get lucky, or work very hard and smart.
To most people, working very hard and smart is the most realistic way to get a shot at financial prosperity. Yet, working hard and smart to build wealth might be an uphill task because monthly expenses always seem to find a way to outstrip monthly income. However, you won’t be able to save up enough money to get on the pathway to financial prosperity unless your income is more than your expenses.
Sadly, many people do not have much control over their income; hence, it is hard to cause your income to outgrow your expenses. However, if you can’t increase your income at the snap of a finger, you can take proactive action to reduce your expenses.
This piece explores some practical ways to reduce your monthly expenses without reducing your standard of living.
Live by the numbers
The first port of call on the journey to cut monthly expenses in order to improve your finances is to know how much you spend each month. Knowing how much you spend each month is simple but you might want to put pen on paper or use a budget calculator to add up your expenses. The idea is to add-up every item on your monthly expense and subtract it from your monthly after-tax income.
If you conduct the exercise and you end up with a dollar-positive number, you might as well skip this post because you are obviously doing something right and there’s no need to tweak what works already. If you end up with a dollar-negative number, read on to know how to take control of your finances.
Separate essential expenses from non-essential expenses
You’ll have a number of essential expenses that cannot be eliminated from your monthly expenses and you’ll have another set of expenses that you can afford to reduce or eliminate from your expense column. Essential expenses are important and you can’t really eliminate essential expensive except you want to return to the era of the cavemen.
A simple trick to know if an expense is an essential or non-essential expense is to ask yourself if you’ll chose it over food or electricity if you are in survival mode. The idea is to trim down the essential expenses where possible and reduce non-essential expenses as much as possible.
Here are some non-essential expenses to eliminate
Starting with non-essential expenses, you’ll need to be brutally honest with yourself in deciding expenses to keep and expenses to discard.
You might want to start with your credit cards, it is in your best interest to compare credit card rates in order to ensure you are not missing out on better rates, terms, and perks. More importantly, you should take time to scrutinize every charge on your credit card in order to ensure that you are not a victim of identity theft or credit card fraud.
Cable TV is another non-essential item that requires objective evaluation if you intend to reduce your monthly expenses. Access to premium channels often a bit more than the basic plan but most people can get by with the basic TV subscriptions and it doesn’t make sense to pay for premium channels that you rarely watch. More so, many people have access to an on-demand video streaming service such as Netflix, you might want to think twice about paying for cable TV in addition to Netflix.
Here’s how to trim down essential expenses
Going down to essential expenses, you’ll pay grocery, electricity, water, and insurance (auto, pet, and home, medical) bills among other things.
You can’t eliminate groceries from your expense list but you can make smarter decisions when shopping for groceries. For instance, you can buy vegetable and other produce in season when they are cheaper and you can buy generic brands instead of splurging on the high-profile brand names.
You can also make smarter choices on how much you spend on electricity and other utilities by being a little proactive. Energy saving bulbs will ensure that you consume less electricity and smart thermostats can turn off AC, heat, and light bulbs when you are not at home. You save on water and electricity bills by running appliances such as dryer, washer, and dishwasher during off-peak hours.
You can also get better value for money on insurance by claiming necessary discounts and premium reductions. For instance, home insurance should cost you less money if you have gone out of your way to install alarms and smoke detectors. Your auto insurance should be reduced if you recently installed an anti-theft feature in your car.