Reducing your spending and cutting costs can be made as easy or as difficult as you like.
The first step when trying to cut costs is to get an objective picture of where your money is currently being spent. Write down all of your monthly costs and expenditures. No judgement, just document them.
Only when you have a clear idea of what you’re actually spending your money on can you begin the process of trimming the fat.
Now to dispel one of the most common myths about saving money and cutting costs. If there is something in your life that provides you a small pleasure at a relatively low cost, enjoy it.
A good example is buying a cup of coffee every day. Countless times I’ve heard people advising that if you want to save money, cut out luxuries like buying a cup of coffee every day. The theory behind this is that if you spend say £3 on a takeaway cup of coffee each day, that expenditure extrapolated over a year can add up to a whopping £780!
Sure, you can save money and cut costs by preventing yourself from enjoying any earthly pleasures but I wouldn’t recommend it. It’s bad for your morale and no one in the history of the world has ever become wealthy by choosing to not drink coffee. Ramit Sethi talks about this on a regular basis, and from a psychological perspective he recommends going for big wins instead of meagre savings for the best results.
A better and more sustainable plan for living your new low-cost life is to stop spending money on things that bring you no pleasure or add no value to your life.
Look at your list of expenditure and for each item ask the questions:
- Does this bring me pleasure?
- Does this add value to my life?
- Could I live without this item/Is this a necessary spend?
Most of us live in countries with a fair amount of regulation and bureaucracy. With that comes some terribly unexciting expenses such as insurances, taxes, and also modern “must-have” luxuries like broadband internet and a mobile phone plan.
Instead of quitting your morning coffee, that for many provides the only highlight of the working day, why not look elsewhere to spend less on things that you don’t really care about?
What’s important to YOU
Unfortunately there is no set blueprint to cutting costs and saving money. A large reason is because different things hold different levels of importance for different people.
However, there are some universal lessons and strategies that can be applied to all of our budgets.
Sit down and look at your spending and be brutally honest with yourself. What’s on that list that is really important to you, and what’s on there that doesn’t really mean that much to you or improve your quality of life.
Two important rules when it comes to cutting out the chaff from your budget are:
1) Don’t be loyal.
2) Don’t be lazy.
Don’t be loyal
When I say don’t be loyal, this applies to a number of areas and there are some exceptions. If you have a favourite local restaurant or cafe, be loyal! If you have a favourite bank, broadband provider, car insurance company, ketchup company… your loyalty is unwarranted. These companies and organisations do not give a crap about you and to be honest, whether you as an individual buy into their bullshit, doesn’t really impact them either.
You can save a tonne of money by shopping around for any of your big expenses. It’s also worth doing a quick evaluation once a year to see if you can get a better deal elsewhere for recurring costs and contracts.
Many companies rely on your laziness to survive.
With just a little bit of effort on your part, you can really make some massive savings by finding the best deal.
Something many people don’t understand either is that a lot of brands have parent companies, this is common practice for an industry like insurance.
I worked as a claims and customer service representative for a big insurer who owned about five different brands, all of whom had different price points and appealed to different target audiences. But at the end of the day it was essentially the same company selling the same products with the same level of service. The more savvy spender got the same service at a much lower price point purely because they weren’t brand loyal.
These capitalist bozos want a free market, so take advantage and save some money. Your loyalty often not rewarded, so shop around.
Don’t be lazy
This leads on to the second rule, don't be lazy. I know that for a lot of people, it’s just simpler to let contracts roll over and renew. Yes it’s easier, but again you’ll pay for it.
You don’t have to continuously search around for the cheapest options, that would be annoying and ridiculous.
It is valuable however to set aside a small bit of time to look around and see if you can save money by moving to a different company for any ongoing expenditures.
If there’s nothing better out there, cool. You can chill. If you choose not to look to try and save some money, don’t complain about only ever making enough to get by!
The hard cuts
Okay, so once you’ve done the easy job of saving money in areas that you’re not emotionally attached to, the harder cuts will follow.
Again, the aim of making these cuts is not to remove all worldly pleasures from your existence. It’s important to just sit down and be honest with yourself and ask objective questions.
Do you really need the latest iPhone each year?
Do you really need to lease a car that costs the same as your rent to simply get back and forth from work?
These questions will be different and unique depending on the spending assessment you’ve carried out. Although some things will be important to you, it’s a slippery slope to attach your personal worth to material objects. It can be brutal to stop spending money on things that you believe forms part of your identity. Making some tough choices and limiting your reliance on material possessions will do wonders for your budget and your mental health.
It sounds simple to take this action of making hard cuts, but it’s not. We live in a world and a society where we are constantly bombarded with advertisements and notions of what we should and shouldn’t value. It’s a tough spell to break, especially when everyone around you is adhering to the materialistic nonsense that we’ve been spoon-fed since childhood. Just try it though.
Spend a year being as minimal as you can with your material spending and see how it feels. If you really miss buying loads of “stuff”, then you can always return to your old ways. My bet though, is that you’ll likely realise though that your obsessive spending actually did nothing to benefit you and it will feel like a weight has been lifted!
Doing these financial exercises can be challenging but you’ll be surprised how much of a positive impact they can have on your life.
It will initially take a little bit of planning and a little bit of work. Once you’ve set yourself a good foundation and framework, the process of cutting costs will just be second nature to you. You won’t have to constantly work on this.
A big obstacle for many people when it comes to saving or investing is that they simply do not have the resources in their current budget.
By reorganising your finances and prioritising your spending habits, you can make room for saving.
There will be some people admittedly who run on much finer margins when it comes to their budgeting but there are many more people who are just simply full of crap when they say that the cannot live more cheaply!