You can learn how to reduce your expenses by following the steps below.
If you’ve ever listened to Dave Ramsey’s radio show, you may have heard Dave talk with people who call in and say they have one of two problems: 1) an income problem or 2) a spending problem. This distinction is important.
If you have an income problem, you don’t make enough money to cover your expenses and save money. If you have a spending problem, you make enough money to cover your expenses and save, but you are spending too much money to meet your goals.
This is probably not shocking to anyone, but it’s important to mention because when it comes to money, it’s significant to know which area you really need to focus on – increasing income or cutting expenses.
Increasing Income vs. Cutting Expenses
Whether you have an income problem or a spending problem, the fastest and most effective way that I know of for you to improve your financial problem of living paycheck to paycheck is to cut your expenses.
While you may make more of an impact by increasing your income because the potential for increase is unlimited, increasing income is hard and takes time. What you can do while you’re trying to increase your income is decrease your expenses.
This is what I did when I committed to getting out of student loan debt – I decreased my expenses while I started a blog and tried to increase my income. Just a few months ago, I moved to a less expensive apartment in order to reduce my living expenses. I cannot tell you how much better it feels to have more margin every month in my paycheck.
A Month Long Challenge to Reduce Your Expenses
If you are spending too much money (whether you’re a spendaholic, have recently lost a job, or just need to reboot your financial life), I recommend committing to a 31-day challenge.
The benefit of doing a month long challenge is that:
- You will have laser focus on accomplishing one goal,
- 31 days is not so long that you’ll give up but it’s long enough to see results, and
- You can change your life (everyone has to start somewhere so why not start with a commitment and a plan?!).
Zig Ziglar said that “people often say that motivation doesn’t last. Well, neither does bathing – that’s why we recommend it daily.” This quote exemplifies what I mean by focusing and committing to a challenge to cut expenses. It’s hard to live your regular life, in your same routine, and radically make financial changes. A challenge will help you stay motivated every day, and it will help you achieve your goal.
In terms of a challenge, you can create your own, or you can follow the leadership of someone who as already setup the structure for a challenge. I recommend 31 Days to Radically Reduce Your Expenses, which is a book that walks you through each day of the month to reduce your spending. At the end, you feel lighter, less strapped for cash, and in better control of your money. Who doesn’t want that?
If you need to reduce your expenses ASAP, the best way I know how to do that is to commit to it 100%. Don’t try to do it – just do it. This is why a month long challenge is such a good idea – it forces you to focus one goal and fully commit. Think of the quote “he who chases two rabbits catches none.” This quote applies to most things in life, in my experience, including money. If I commit to getting out of debt 100%, then it becomes the highest priority to me, making it easier to say no to everything else. Prioritization, focus, motivation, and commitment will enable you to radically reduce your expenses.
7 Expense Categories to Reduce
When you’re ready to commit and focus on reducing your expenses, whether it’s through a month long challenge or on your own, there are 7 main categories to address, including:
- Housing expenses
- Vehicles expenses
- Food expenses
- Medical expenses
- Personal Care
- Miscellaneous (e.g. pets)
Within each main category, you can break down your specific category of expenses. It will be helpful to track your spending first because you need to know what you can cut in order to cut it.
Tackle each category and find creative ways to lower your expenses in each section. It’s important to keep track of your spending throughout the process, so you see your progress (use budget templates or an online software, like Personal Capital).
Notice that the categories listed above do not include debt or savings. You may be tempted to decrease your debt payments or your savings in order to increase your monthly cash flow, but that would defeat the purpose moving toward a better financial foundation.
A Final Note!
If you are strapped for cash and wondering what’s the best way to change your financial situation, you can make the most impact by increasing your income because there is unlimited potential. In the mean time – while you are working on making more money, decreasing your expenses can provide you with the additional cash flow that you need to get on solid financial footing. Whether you need to save for an emergency fund, pay off debt, or prepare for a family, decreasing your expenses is the fastest way that I know how to make an impact on your financial situation in order to get to where you want to be.