As discussed in the first post on how to budget, there are three different budgetary states you can find yourself in. The one you want to dig yourself out of if you’re already in it is a budgetary deficit. When your expenses exceed your income, there are only three possible solutions:
- Reduce your spending
- Increase your income
- Combine 1 and 2
This post will focus on the first solution.
The vast majority of people in the industrialized world today can afford to make some cuts to their current spending habits. When it comes to decisions such as this, it is vital to understand the difference between a need and a want. Many of the things that people choose to spend their money on fall into the second category. You don’t need to buy a $5 coffee from Starbuck’s every day. You don’t need to eat out at a restaurant as opposed to making food at home. You don’t need to have a getaway wedding celebration.
There are also many things that are legitimate necessities, but not at the price and standard people insist on. You probably need to have a cell phone, but you don’t need to buy the newest model every year. You probably need a car, but you don’t need to buy a 2024 BMW 5-Series. You get the gist.
Take a look at the receipts
As was mentioned in the previous post on personal budgeting, food is one area where many people tend to underestimate how much they are spending. There is certainly no set amount of money that an individual should spend on food. Some people may be able to slip by on an extremely simple diet of rice and frozen vegetables, though many cannot. Proper nutrition is an essential aspect of healthy living and sacrificing a well-rounded diet in the present to save small sums of money is not worth the many risks (not just financial) entailed by a lifetime of unhealthy eating choices.
That being said, there are still a number of ways in which the average person can cut down on food spending without foregoing nutritional options. The most obvious one is to reduce your trips to eating out instead of preparing your own food. Fast-food especially can be very deceptive in the moment because of how relatively small the cost is. Many people put hardly any thought into forking over $11 for a meal at Popeyes (my personal favorite). But even making only one trip there per week can add up to nearly $600 over the course of a year. And that is modest compared to how much the average American spends eating out every year.
If you recognize that you should start making some regular cuts to your spending in order to get things back on track, I suggest pulling up your records from the past three months for an accurate assessment of your current spending habits. Pulling just one month’s information only goes so far and might include outlier costs, such as a car repair or spending money on flight tickets for your summer trip. A solid three-month overview will also show you the average amount you spend on areas that tend to vary month-over-month, such as food and gas.
Expensive Viewing
Let’s say you’ve already looked at cutting down on your food-related spending, but it will only save you about $80 a month if you stick with it. Look at the rest of your spending as well to see if there are any other areas you can cut back on. The one area I usually suggest people look at next is their subscription services. Like food, this is an area where most people are spending more than they believe and the average monthly bill for all subscriptions combined adds up to $219. I myself don’t spend even half that number and even I sometimes believe I’m spending too much. The reality is that more and more industries are offering their services exclusively to paying subscribers. It offers a larger and more continuous stream of revenue for them, but all of them combined end up screwing over you, the consumer. Take a look at the average monthly cost of the following popular subscriptions:
- Netflix (without ads) – $15.49
- Amazon Prime – $14.99
- Disney+ (without ads) – $13.99
- YouTube TV – $72.99
- Apple TV+ – $9.99
- Peacock – $5.99
- Max (formerly HBO Max) – $15.99
All of the above subscriptions would add up to nearly $150 monthly if you had all of them and that’s not even all of the streaming services out there. Even beyond this, there are other subscription-based services that people pay for that extend far beyond just streaming movies and shows. Look back at your spending over the past three months and it’s likely that many of you will discover at least one monthly subscription you’re automatically paying for month-over-month that you forgot you even had. Look at each cost carefully and decide whether it’s something you can part ways with. Maybe you already live a very minimalist lifestyle and this section doesn’t apply to you. Fair enough, there are certainly other ways to save. But for those of you with multiple subscriptions, pay close attention to where your hard-earned money is going. If you had to sacrifice a few of these services but could keep an additional $50 or $100 per month, would it help you out in the long run? Only you can answer, but be honest with yourself when you do.
Other Areas
If you’ve already trimmed all the unnecessary fat from your budget and you’re still not saving enough, then well done. Even if you’re not where you want to be, you’ve adopted the right mindset of not spending money that you can’t afford to lose. There are still some ways you can cut costs, but those decisions can be much more difficult to make than hitting the “cancel” button on Netflix.
Rent
How much is your monthly rent? Would it be any lower if you moved one or two towns over instead? Is there anyone you can consider rooming with for at least a few months to keep costs lower for both of you? Again, these can be tough decisions to make, and money is not the only factor at play. Saving an extra $100 on rent per month is not worth it if that means moving to a different part of the city that’s less safe than where you currently live. Some people have the chance to move in with family members, friends, or significant others but may choose not to for valid personal or social reasons. Only you can know that. If where you live right now truly is the best spot for your circumstances, then don’t let some stranger on the internet cause you to second guess yourself.
Gas
Again, if most of the gas you use in your car is for traveling to and from work, then there isn’t much you can do to reduce that. There are a few hacks on saving money at the pump that others can suggest. But unless you are being truly wasteful in this area, there’s only so much you can do to squeeze your spending here.
Conclusion
Learning how to save money and be more frugal when necessary might be easy enough to understand on paper, but it can be extremely difficult to implement in practice. Keep in mind that not everyone’s tolerance for frugal living is the same and we have to accept that. Focus on your own needs and those of your partner if the two of you combine finances. Look at all the areas of your current spending and decide which sacrifices are acceptable and which ones aren’t. Even if these small changes don’t feel like they’re adding up, keep going. If nothing else, you’re instilling a mindset of discipline that will guide you along the way to independence. Ultimately, learning to spend less money than you take in is the #1 guiding principle you need to follow if you do want to find independence one day.
Now, if you’ve done everything you can to cut costs and you’re starting to get really annoyed at the fact that I’m still lecturing you on how important this is, give yourself a pat on the back. You’ve come a long way and you can go much further. If you’re still unsatisfied with what your budget looks like even after going through this process, there really is only one other area major area you can look at. Thankfully, this is something almost every person reading this will be capable of doing. I will cover it in a future post.
And that is learning how to grow your income.
That’s all for now. Peace!
