A financial crisis is a normal part of life and facing the challenge is a skill set that all should learn. At one point or another, everyone will face some sort of financial hardship. Although these may vary greatly, there will be a time when people are forced to look at their spending habits and adjust accordingly. Whether the situation is caused by a recent layoff, an illness, or some other emergency, budgeting will be a major part of understanding how to take control of your finances. At face value, this task may seem daunting, challenging, and frightening. However, with work and practice, the exercise will be a great learning experience.
So…Where Does the Money Go?
The first step in minimizing household expenses is to understand what you are spending money on. This may seem trivial at first; however, many people do not realize how much is spent on simple items like coffee and take-outs. Therefore, sit down and write all your expenses. This will probably require multiple iterations, as some items will be overlooked. Use a spreadsheet to make the task easier. However, this is not the end of the exercise. For a few days, open your phone and create a note. Every time you purchase anything, add it to the note. It does not matter how small the purchase is. Once you’ve done this for a few days, add the items to the spreadsheet. More likely than not, you will be surprised how those small miscellaneous purchases add up. These will be the first expenses to cut, and they will be the easiest.
Cut the Minor and Insignificant Expenses
Many times, people believe that budgeting and managing expenses are all about cutting items out. While in some cases this is true, the process is also about improving your buying habits by lowering what you are currently paying for products or services. For example, the average American spends over 1100.00 dollars a year on coffee. This is an exorbitant amount and individuals can save a lot of money by purchasing a coffee subscription. Apart from improving the quality of the coffee, they will also cut the expense significantly. Another expense that adds up quickly is opting for takeout and dining out. These expenses slowly drain you a few dollars at a time. However, going out to eat is becoming more expensive while the price for home-cooked meals is dropping. This process can be improved further by using coupons and buying smarter.
Look Toward Bigger Items
One of the biggest and most consistent expenses in the household is the cable bill. On average, American spend more than 100 dollars a month on this service. With bundled services that include a home landline, the bill increases further. However, if you have a cell phone, do you really need a home line? Additionally, do you actually watch that many channels? By cutting cable, a household can reduce their bill by more than half. With services like Hulu Live and YouTube, suffering is not part of the math. When mixed with Netflix, everyone can have access to their favorite content while saving money.
Gasoline and car maintenance are other major expenses, although these can be tricky. They depend on several factors including the type of car and distance traveled. Nevertheless, the average American spends over 150.00 a month on gasoline. The older the car, the higher the fuel use. This is not including maintenance. If dropping expenses is a long-term goal, then looking for the most reliable cars ever with great gas mileage is the way to go. Otherwise, consider riding your bike to work to reduce use and gasoline expenses.
Cutting costs shouldn’t just be considered during financial hardships. While it’s true that certain life events are motivators to change spending habits, it’s best to stay one step ahead and to cut costs whenever possible.