Happy New Year! Have you made the resolution to have more money this year? Great! Do you have a plan in place for how you’re going to make it happen? Well, I do. And I’ve been gradually sharing my plan with you for the past several weeks now. Today our focus will be how to analyze and cut expenses. And the result? That’s right, more money!
How to Analyze and Cut Expenses
When people are trying to save money they often decide to cut expenses. After all, if we spend less money, we will have more money, right? But, unfortunately, just cutting expenses in general is not that easy. Which expenses should you cut? By how much?
A few weeks back I shared a post about how to track your expenses. If you haven’t already started tracking, I recommend you read that post here. This is important because it’s hard to analyze your expenses if you don’t know what they are! I recommend tracking for about 2 weeks.
Have you tracked your expenses? Great!
Necessary vs. Unnecessary Expenses
Look at your list of everything you’ve spent while you were tracking expenses. Use this list to sort those expenses into two categories: necessary expenses and unnecessary expenses. Your list might look something like this example:
What is a necessary expense? Things that you absolutely need to pay for. Some examples include groceries, medications, and gas.
You’ll likely find that most of the expenses you’ve tracked are actually unnecessary expenses. This is because, for most of us, most of the things that we’re spending money on are not necessary. Here are some examples of unnecessary expenses: clothing (unless your children have grown out of their clothes), take-out food (or coffee), getting your nails done, or going to the movies.
If you’re married, I encourage you to sort out your list out with your spouse. Being on the same page is going to be vital to your success.
Related: The First Step to Saving More Money
Keep in mind that just because you decide an expense isn’t necessary doesn’t mean you’ll have to cut it out completely. You’ll be able to decide which expenses you want to cut out or cut down on.
How much do you want to save?
Decide how much of your spending you want to cut. Pick an amount that is challenging but possible. Then, looking at your unnecessary expenses (and the amounts on the list of expenses that you tracked), find some items that you can eliminate or cut down on.
Here are some ways that you can do this:
If you’ve been getting take-out 3 times a week and spending $20 each time ($60 total) you can aim to cut that down to only once a week with a savings of $40.
If you have a shopping habit, you may want to give yourself a spending limit of $15 a week to spend and then challenge yourself to stay under that amount. Hint: stay out of the stores!
Related: 5 Tips to Shop Less
Now do it
Write down your goals. Put a reminder in your wallet. And then spend less money.
Set aside ten minutes each week to reflect on how you’re doing and make adjustments to your plan as needed. You may find it helpful to continue to track your expenses so that you can compare your spending week to week.
Each time you’re tempted to spend those precious dollars on something you don’t need, remind yourself why you want to save money. It’s important to keep your goals fresh in your mind so that your motivation doesn’t start to dwindle along the way.
Cutting down on your expenses will feel hard at first, but over time spending less becomes part of your habit. Your bank account and your future self will thank you.
How are you going to cut expenses? Let us know in the comments below!
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