”Look everywhere you can to cut a little bit from your expenses. It will all add up to a meaningful sum” Suze Orman
Have you ever wondered where your money goes? How about that feeling when you’ve just been paid but you still feel like you have no money? Like most people we bet this is an all too familiar situation that you can relate to.
Let’s start with the bad news. Unless you have an abundant and never-ending supply of income these feelings may never go away completely and at times may bring significant stress and negative energy into your life. The good news is that for most people, making small yet fundamental changes to the way you feel about and interact with spending money can make huge inroads into a life of financial freedom. For most people, the best case is that they feel confident and secure in their financial position and spend very little time and energy worrying about money. When compared to the average person and potentially your current financial situation, this is actually a fantastic outcome.
Imagine a life where you were mostly free from worrying about income, expenses, unexpected emergencies and rainy day funds. Sounds pretty good to us!
If you haven’t checked out our article on managing the household budget we suggest doing so as it provides the foundation for this post. Assuming you have, let’s talk about the best ways to cut expenses so that you start putting more money into your savings bucket which is the necessary safety net that over time means you will very rarely ever have to worry about money again. Naturally this excludes some of the bigger financial decisions in life such as buying a home, a severe medical emergency or the loss of your income – we’ll address each of these in future posts.
For the most part, there are a few key things to keep in mind to help cutting your costs.
Needs are necessary
A great place to start when trying to reduce your expenses is to identify how you spend the discretionary part of your income. However there are parts of your expenses that aren’t discretionary, are critical and need to be catered for.
In the interests of simplicity we’re going to say needs are the things that are critical to us living healthy, happy lives and that if weren’t purchased would be detrimental to our health or way of living. These are likely to include the roof over your head, electricity, water and food. It could also include things to ensure you can keep producing income or protect you and your family in the event of an emergency such as transport, clothing and insurance.
There’s not a lot you can do in relation to cutting expenses relating to your needs short of getting better deals or shopping around for cheaper alternatives. Whilst we’d encourage you to do this – particularly for some of the most costly services such as electricity and insurance – it’s likely you have a much larger funnel of expenses that you’d be better of focusing on. This takes us to our next topic.
Wants are not
At some point in time many of us got confused about the things in our life we need verse those we want which is a testament to the consumerist way of thinking and successful advertising of marketers.
In short wants are purchases that would add to our quality of life but won’t cause significant damage if avoided. This can be harder to qualify because we may actually feel short-term pain if we were to abstain from purchasing a non-critical item that we want. Generally this is due to us not getting what we want when we want which for more of us is a muscle we use less of. However a short-term feeling of discomfort is quickly overridden when financial pressures begin to impact our ability to meet the spending requirements of our needs or to meet major goals in life such as buying a home, travel or putting children through school.
Long-story short spending related to wants are the most adjustable and should be the first looked at when trying to tighten the household budget. There’s no doubt in our mind that without even looking at your budget we could help your reduce your costs and increase your savings. If we were you, we’d go straight to the bucket of spending that includes dinners out, buying lunches, coffee runs and shopping for clothes or other “stuff”. These are the best to start with because the alternatives such as making your own lunch, limiting your take-away coffees or reducing the volume and regularity of eating out or shopping trips are pretty easy to implement and won’t significantly affect your quality of life.
Avoid impulse purchases
Buyer’s remorse is an all too common feeling for too many of us. That impulse buy which you thought would give you satisfaction has only made you feel worse when you come to the realisation of the cost involved and lack of fulfilment you have a week, a day or perhaps even an hour later. The good news is that you can largely avoid this feeling whilst cutting costs by ensuring you make well-informed and calculated purchasing decisions.
Whilst the impact of this is magnified for bigger purchases, the value of this approach can be equally as useful when making everyday purchases of discretionary products and services. Giving yourself time to consider what you’re purchasing, explore alternative options and if going ahead getting a competitive price can only be a good thing. You may also find an added benefit in some situations where time gives you additional perspective to realise that you don’t actually need what you’re looking to purchase at all.
Generally speaking we’d suggest spending a night or two sleeping on a particular purchase and if the need or desire is still there, then go ahead. We’d also recommend shopping around quickly to get a competitive price – we’re not talking about a super intensive comparative process either. Typically a quick internet search will give you a decent understanding of price and a few suppliers to choose from.
Whether you’re getting better deals on your necessary expenses, finding ways to reduce your outlays relating to the things you want or avoiding impulse purchases, the key is to ensure that the money back in your pocket lands in your savings bucket. This starts the virtuous cycle of adding to your overall savings which typically leads to higher levels of commitment to and satisfaction with regular savings.
Action for the week:
- Identify your expenses relating to your needs and consider whether you’re getting value for money. A quick review of a few providers may save you a sizeable amount of cash for some of your bigger outlays.
- Think about your expenses for those purchases which would fall into the wants category. Spend 15 minutes understanding how you can adjust these to help you meet your savings goals.
- Avoid situations where you’re forced to make impulse purchase decisions and give yourself a day or two considering the underlying need, alternative options and ongoing value before making purchase decisions in the future.
Small changes can lead to big outcomes and regular savings is a primary example of this. Whilst it might not feel like you’re changing your life initially, financial freedom is a long-term game. In the meantime, spending less time worrying about your finances is more than most can aspire to and a critical step towards improving your quality of life. With time and your new found financial freedom, you’ll be able to not only avoid negative stress but will be able to having the satisfaction and optimism that comes with thinking about how the freedom you have to lead a healthy and happy life.
In our next post we’re going to build on this new found freedom of negative stress by highlighting a few ways to get the rest you need to be at your best and lead a healthy and happy life.
We’d love to hear your thoughts on cutting costs, what has or hasn’t worked for you, and any other comments or questions you have. Please reach out to us at any of our social media channels.