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Personal Finance

How to Reduce Expenses

One of the most effective ways to reduce expenses is to cut the amount you spend on big-ticket items like housing and transportation. But if downsizing to a smaller place or trading in for a cheaper car isn't possible right now—or won't free up enough cash—you can also substantially impact your bottom line by targeting other ongoing costs, like utility bills and entertainment expenses.

It's important to include behavioral changes in your plan to reduce expenses, too, such as starting a budget and tracking your spending. Read on for some ideas on how to cut costs, in ways big and small.

Create a Budget

Before embarking on any plan to limit the amount you spend day to day, first create a budget. Your budget doesn't have to be super restrictive or complicated, but it should provide you with a healthy framework to help keep you on track. Think of it simply as a way to give your money a job to do, or a dedicated place to go, so that you're less likely to have to scramble once money runs out before your next paycheck.

At its core, a budget is a method to analyze how much you earn after taxes and come up with a reasonable plan for expenses so that you never spend more than you earn. Budgeting incorporates money you set aside for things like emergency savings, retirement and debt payoff. So you can also consider your budget to be a way of prioritizing saving by limiting other, potentially less critical, types of spending.

There are several budgeting strategies, and it's worth trying out a few to find the one that you're most comfortable with. If you're very organized and hands-on with your money, for example, you might try zero-based budgeting, which assigns each dollar you earn to a category. If you earn $1,500 per month after taxes, for example, you'll create a spending plan that breaks up that $1,500 across housing, groceries, gas, savings, meals out and other expenses until you have $0 left over.

Track Your Spending

A crucial element of budgeting is the follow-through: Tracking spending is how you'll make sure you're actually sticking to the plan you've developed. There are lots of ways to do this and, again, the best strategy for you depends on your preferences and the amount of time and money you're willing to commit.

  • Apps: If going digital will be most convenient, use a mobile or desktop app that lets you enter and track expenses. Many are free, but you could also pay for an app like You Need a Budget, which provides a robust interface for tracking spending according to the zero-based budgeting technique.
  • Spreadsheet: You may decide to create your own spending tracker, perhaps by setting aside a day and time when you review your receipts and bank transactions from the week and enter them into a spreadsheet. Like the other methods, this can give you a sense of control and a clear overview of your finances.
  • Online banking: You might prefer to use the website or app your bank already provides. This can be convenient if you don't have many loans, credit cards or other bank accounts to keep track of. If you use a debit or a bank-issued credit card for all your purchases, you can easily review your income and spending all in one place.

However you do it, make sure to identify categories that you typically overspend in so that you can keep a closer eye on them in the future. When you track spending, you can also adjust your budget if necessary—for instance, if you didn't account for enough grocery spending in your initial budget and you decide to pull from the entertainment category as a result.

Review Existing Memberships and Subscriptions

When you pile on monthly subscription services—for streaming movies and music, pet toys, clothes and more—it may be easy to lose track of the recurring expenses you've signed up for. This is also true for fitness memberships, digital tools like password managers and software licenses.

Make it a habit to regularly audit your memberships, perhaps every few months, to make sure you're getting your money's worth. Some companies offer deals if you bundle, and family discounts if you sign up as a group with other members of your household; look into options for reducing the cost of memberships that you enjoy but that you can't justify paying full price for.

You can even use the Bill Negotiator service offered for free through Experian to do the work of reviewing your financial accounts for all the subscriptions you currently pay for—some that you may not even be aware of.

Reduce Monthly Bills

As part of your budgeting plan, you likely noticed that you have fixed expenses (like your mortgage and car insurance payment) and variable expenses (like vacations and food). You'll often find success in saving money by targeting both fixed and variable expenses that occur monthly. Cutting your cellphone bill by $20 isn't just an immediate win, for instance; you'll enjoy those savings every month thereafter.

Here are some monthly bills to focus on reducing:

  • Utilities: Look into energy-saving appliances, thermostats or programs at your local utility company that can limit electricity and heating costs. Regularly identify cellphone plans that could cost less than what you're currently paying; a prepaid plan, for instance, might be a better option based on your phone and data usage, or perhaps downgrading from or updating to an unlimited data plan would make sense.
  • Housing: During periods of very low interest rates, refinancing your mortgage is an option worth considering. But make sure to do the math on how much in fees and closing costs you'll have to pay, and how much in interest you stand to save, before going for it.
  • Transportation: Car costs can take up a huge chunk of consumers' budgets (more on that below), so identify other means of transportation that help cut down on car reliance. Can you bike at least part of the way to work? Are you making use of any incentives at your company to use public transportation, such as the option to buy monthly tickets pretax?

Reduce Car-Related Expenses

There are plenty of ways to save on driving and car maintenance. Refinancing an auto loan, for instance, is an option during periods of low interest rates. It's important to get clear on any fees required, to bolster your credit score beforehand to get the best rate possible, and to compare multiple lenders' offers.

Reevaluating your auto insurance is potentially another way to get substantial savings. You can start by reaching out to your current insurer to ask about discounts or new types of coverage that might have been made available since you first became a customer. You can also shop around with other insurers for a better rate based on your driving profile and history. If you already have other types of insurance with a provider—such as homeowners, renters or life insurance—that company may also offer you a discount to switch to their auto insurance offering.

Cut Food Costs

Food is a necessity, but overpaying for it is not. You can reduce spending on groceries by meal planning for the week, which can help you limit impulse purchases and food waste. You might set conditions for yourself, such as only dining out when you're in a social situation or saying no to solo takeout and challenging yourself to cook whenever you're home.

You can also look for ways to make at home items that you regularly buy in bulk, like using a SodaStream to make carbonated water. Purchasing kitchenware like a slow cooker or Instant Pot that eases meal planning and provides lots of leftovers will be worth it in grocery and takeout savings.

Save on Monthly Shopping and Entertainment Costs

Browser extensions and coupon apps have made it easy to save money while shopping, especially online. When shopping for a particular item, you can use apps like Capital One Shopping or PriceBlink to compare how much it costs at other stores so you never overpay.

To save on entertainment, tracking expenses for a few months will give you insight into the types of entertainment you most regularly consume. Living on a budget doesn't have to mean an un-fun life, and it's important not to cut out all your entertainment spending. After all, a budget that leads to boredom could lead you to resent it. But if you notice you're paying for a premium Netflix subscription and you could easily save money by downgrading, for example, go for it.

You may also be able to save on entertainment by making use of credit card rewards, like cash back on certain purchases. It's not ideal to use a credit card merely to rack up rewards, in case you can't pay back in full the amount you spent. But under the right circumstances, a cash back card could save you money in common spending categories, such as restaurants.