In America, the average household has $8,398 in credit card debt alone (see more here). That does not include student loans, auto loans, mortgages, etc. With some credit cards carrying interest rates of 15% and above, it is no wonder that financial personalities like Dave Ramsey have made a career out of helping people get out of debt. The fact that Americans carry so much personal debt indicates that it is highly common for people to live beyond their means. Say you are making $1,000 every paycheck but spending $1,500. It does not take complicated math to figure out that such a lifestyle is not sustainable, but credit card companies have created the false notion that you can sustain spending more than you earn. There is a healthy place for credit cards for those who learn principled spending, only spending what is within their budget. However, credit card debt is just one example of how expenses can overrun your financial success.
So how do you live within your means? It’s important to grasp that growing your financial security involves two primary strategies: increasing your income and decreasing your expenses. A lot of attention is properly given to increasing income through seeking promotions, negotiating your salary, working side jobs, etc. However, the less glamorous but equally important counterpart is learning to cut your living expenses. Here are 6 easy strategies that I have used to control my spending that may help you in your own financial journey.
1) Conduct a money audit
When you hear the word “audit,” most of you are probably running for the hills or yawning, but don’t tune out quite yet! A money audit is simply looking at your spending habits to see where your cash is going. There are several ways to approach this, but perhaps the most simple is to download your most bank statements from the last 3 months. A lot of banks already have software that enables you to see which categories you have spent the most on in a given period. You can also categorize your spending from your bank statements and identify how much you have spent on each category. You may want to average your spending over the 3 months to help normalize your spending habits. You can even pull 6 months or 1 year of bank statements if you want an even deeper look at your expense patterns. This step is a little bit different than creating a budget because it is less about planning your spending and more about getting a high-level view of how and where you spend your money.
2) Create a budget
A logical follow-up to your money audit is to create a budget to plan where you will spend your money. I highly recommend a zero-based budget, which means that every dollar you earn is assigned a role or spending category each month. For instance, you might designate $400 of your $1,000 paycheck to spend on groceries, $300 on utilities, $50 on eating out, etc., until all $1,000 you earn is assigned a specific role for that month. You Need a Budget (YNAB) is a helpful budgeting tool that is designed to help you create a zero-based budget and stick to it (check out YNAB here). YNAB even offers 34 days free so you can try out their software and see how you like it (after the free trial the annual subscription cost is $84/year). There are a lot of other great budgets available online, like Mint or EveryDollar. A budget can seem like a drag, but it’s a sure-fire way to make sure you aren’t spending more than you make if you stick to it. I have personally used YNAB in the past and found it incredibly effective in helping me get my spending under control.
3) Go green!
I live in Arizona, and in the summers temperatures often soar to 110 degrees or more. My electric bill used to be a huge shock to my wallet in those summer months, sometimes exceeding $300. It only took a few of those massive utility bills to get me thinking about ways to cut back on my energy usage. Utilities often make up one of the largest monthly expenditures you pay for other than groceries. There are so many creative ways to cut back on those utility bills.
Light bulbs - I have changed out all my light bulbs over the years to LED lights, and it’s fun to read how much energy each one will save over its lifetime. They are long-lasting, bright, and best of all, energy-efficient. According to the US Department of Energy (read more here), LED light bulbs are 75% more energy efficient than incandescent lighting, and they last 25 times longer! It’s a no-brainer to switch to these types of bulbs to save hundreds of dollars in the long-run.
Smart Thermostat - I invested in a Google Nest thermostat a couple of years ago, and I have no regrets. Sleek, smart, and simple, the Google Nest is easy to use and can easily pay itself off in a year or two from the savings it generates. The way smart thermostats save money is primarily through automating your A/C so that you are not needlessly using energy when you don’t need it. Most smart thermostats can be programmed to turn off or change the temperature in your house while you are away, and the Google Nest has other features that allow me to conveniently save energy without thinking about it. Smart thermostats have a higher cost up-front than LED light bulbs but are well worth the investment.
Solar Panels - This year, I took the plunge and invested in a solar panel system for my house. It’s a smaller system than most due to the size limitations of my roof, but the system generates about half of my electricity needs, cutting my electric bill automatically in half in those sweltering summer months. In the winter, when we use less electricity than we generate through solar, we get an energy credit from our electricity provider. One of the biggest hurdles to getting solar is the cost, but we went with Tesla, which just lowered their prices nationally, and with no money down we were able to get a low-interest rate loan that has a monthly payment less than our energy savings. Essentially, the savings pay for the solar system until we pay off the loan in about 6-7 years, and then we get to keep all of the earnings for the rest of the 25-30 year life of the system. Additionally, there is the Federal Solar Tax Credit which allows you to deduct a large portion of your installation costs for a solar panel system. Everyone is in a different personal financial situation, but if you can afford it and plan to live in your house for a while, solar panels might be one of the best energy investments you can make. I’ll keep you posted on the solar panels, as I plan to write a future in-depth review of my experience with Tesla Solar.
4) Negotiate down your bills
Some people are born negotiators who love to haggle at every opportunity. Others, like me, would rather just accept that messed up order at the restaurant rather than create a fuss. However, it’s easier than you think to get companies to reduce your monthly bills by just asking. In my area, electricity, water, and gas prices are pretty much fixed by legislation or regulation, but I was able to reduce my internet bill by about $20/month by calling them, asking what deals they had for a long-term customer like myself, and asking what other ways they could reduce my bill. That’s $240 right back in my pocket for one phone call! Sure, I might have to call again every year when they bump it up a bit, but it sure doesn’t hurt to try. And if you are one of those people who hate negotiating, there are even companies out there like Trim and TrueBill that will negotiate your bills for you in return for a cut of the savings!
5) Shop around for insurance
I worked several years for one of the largest car insurance companies in the USA, and I can tell you that among the top 10 or so largest insurance companies, there is very little difference between them in terms of the product they are offering. Sure, companies like USAA, Amica, and The Hartford often have a slight edge in terms of customer experience according to the annual JD Power satisfaction rating. But, if you are a safe driver, you will hopefully have minimal interaction with your auto insurance company at all. Even if you do get into an accident, customer service only goes so far, and far more important are the coverages you choose to carry on your policy. My car insurance rates were creeping up a few years ago, and I started shopping around for a new carrier. There’s a very good chance that another auto insurance company will have better rates than your current company, with very little difference in customer service and other products offered. Furthermore, if you are willing to bundle your home, auto, RV, motorcycle, you-name-it insurance coverage, you can save even more. By shopping around and switching my home and auto insurance to the same company, I was able to save over $1,000 annually on my insurance. That’s like a raise on your paycheck! If you are not keen on switching insurance companies, I would recommend at least calling your agent or customer service at your current company to ask what additional discounts might be available. If you even mention that you are thinking of potentially switching insurance companies, your current company has an incentive to keep you and may offer you better rates than you are currently paying.
6) Cancel those subscriptions
There are some subscriptions that just make sense. Amazon Prime, for example, can easily pay for itself with the savings you get from free shipping. We can all agree, however, that some subscriptions are not equal to others in terms of value. If you come across a subscription in your monthly bills that you aren’t sure you need, you definitely want to consider canceling it. From personal experience, my wife and I never got around to owning a TV, and it’s saved us so much money over the years since we are not tempted to subscribe to whatever latest cable deal is being offered. If you understandably don’t want to be as extreme as me in not owning a TV, there are plenty of new streaming services that might be a great cheaper alternative to a traditional cable subscription (i.e. Apple TV+, Disney+, etc). You’d be surprised how little you might miss some of those subscriptions once you don’t have them anymore, and also how much money it keeps in your pocket.
There are so many creative ways to save money. It is countercultural to the American lifestyle to look at ways to decrease spending when we are bombarded daily with ads telling us we need the newest and best things. But if you can overcome that temptation to spend all your hard-earned cash, it will reap huge benefits for you in the long-run. What are some ways you’ve saved money that we didn’t mention? Let us know on our social media or in the comments below!