You know that excitement you get when its payday? Woohoo! All that hard work punching the time-clock almost feels worth it for a split second! Now fast forward, it’s the end of the month, the bills are due and that excitement has now turned to a feeling of dread or despair as you pay that last bill. You’re left scratching your head as you realize you may have nothing to show for all that hard work or even worse… still owe someone. Where did all the money go?!
STEP 1 – Write it down!
Get out a pen and paper or open up a spreadsheet and start putting all your monthly bills in front of you.
If you have no idea where your money is going you won’t know where to focus your efforts.
For this post let’s doing some Googling and find what the average American has for monthly expenses.
My goodness, I am sweating already! Over $4000 per month just to live. If you are one of the fortunate enough souls to live in some of the east/west coast states your numbers are probably significantly higher!
STEP 2 – In vs Out
Alright so the next step is to subtract your monthly bills and debts from your monthly income. For this example, we will use the average salary in the United States, around $62,000 per year. If we don’t include retirement and medical contributions, and just assume Federal and State taxes as well as Entitlement Programs such as Social Security and Medicare the average bi-weekly pay comes out to around $1800 or about $3600 per month.
STEP 3 – What’s left?
Oh boy, this isn’t good. We are in the hole by $450 in this example. How do we make up the difference?
If you are like the average American there is a good chance you may leave a balance on your credit card to squeak by. But, if the next month is the same as this one, you’ll continue to add to the balance…with interest! It’s easy to see how the average credit card balance in the US is over $6000! So, what do we do about it?
STEP 4 – Cut the fluff!
So, what can we do to get us back in the green? Any low hanging fruit? Let’s take a deeper look at our expenses…
1. Mortgage, Property Taxes, PMI
There isn’t a lot of quick and easy ways on this one as a home owner, outside of drastic moves such as down sizing or relocating to a cheaper area, which do come with their own costs (such as realtor fees).
Private Mortgage Insurance (PMI) removal might be a possibility but you’ll have to add MORE money to your monthly mortgage payments in order to increase you total equity to over 20%. Note, your mileage may vary depending on the type of loan you have, such as an FHA loan will not allow you to cancel your PMI when you reach 20% and may require refinancing to a conventional loan.
If you plan on staying in the same place for more than 5 years and you’re unhappy with your current interest rate, look into your refinancing options which may lower your monthly payment. Understand there may be additional fees when it comes to refinancing so make sure the amount of interest you save over X amount of years is greater by a significant amount greater than those fees.
If you want to reduce your overall loan cost and total interest paid toward your mortgage while also turbocharging the amount of equity in your home, you could look into paying “extra” toward your principle every month. You may save 10’s to 100’s of thousands of dollars over a normal mortgage period. Check out this Mortgage Payoff Calculator and see how much you could save.
If you think your property taxes are a little high or you just don’t quite understand why your taxes went up 10% this year see this guide for tips and tricks!
If you are renting, you could ask your landlord for a rate reduction if you have a great rent history (stable income for the landlord may be more enticing than an empty unit), or negotiate a new rate at the time of your lease renewal. If none of those options work and you have a chance to down size to a more manageable rental go for it!
2. Home Owners Insurance – (Save 20%)
When is the last time you reviewed your home owner’s insurance policy? Shop around and see if your current insurance company is still competitive. Make sure you are not over paying for coverage, or over insured. Always make sure you have the right amount of insurance to protect you and your family from loss. There are dozens of home owner insurance providers to look into! You could save substantially!
We discovered we were grossly over paying for insurance on our first home when we started shopping around. We were fortunate it enough to lower our premium by almost 40% and increase our coverage. It pays to do research here!
If you are renter, renter’s insurance is a must. It is only a faction of the cost of home owner’s insurance, but still shop around for the best price
3. Car Payment
This is a big one. The average car payment is now over $500 per month with a typical loan term approaching 70 months! Cars are costly and do the opposite of appreciating in value, your typical new car loses 50% of its value in the first 3 to 5 years! Other than putting the “For Sale” sign on the window see our example of paying an auto loan off fast.
4. Car Insurance – (Save +15%)
You’ve seen the never-ending commercials with the goofy antics. Car insurance is a highly competitive market and that is good for you! Shop around annually to see if you can save on your auto insurance. Loyalty to one brand only goes so far. Always make sure you are properly insured and never go without it. The consequences of no insurance far out way the few bucks you’d save by not being covered.
If you have multiple cars or recently married see if you can combine your policies for a significant discount! We cut our combined premiums by 30% by doing research and shopping around here.
5. Student Loans
The sooner you pay these off the better, as they are a drain on your ability to build wealth. With the average APR on undergraduate student loans at over 5.4% or higher you need to attack these with a vengeance, see how much you could save on interest by paying more toward your loans.
Be wary of refinancing or consolidating your federal student loans, you may lose a number of benefits such as “income based repayment plans” or “interest only payments” when you roll your loans over to a private loan.
6. Credit Cards – (Save $600)
Now here is where you can slice and dice substantially. A credit card gives you a painless method of paying for things you need as well as… the things you want. Just slide or insert your card! After you pay, just put the card back in your wallet! Painless. It’s not quite the same has handing over cold hard cash. How do you feel when you give the clerk a $100 bill? A little more impactful than a swipe? You bet it is.
Get your last credit card statement out and see what you really spend your money on. Fancy $4 coffee every day? How about that $12 lunch at work? Who has time to cook dinner? $30 of take-out Chinese food is where it’s at!
Start adding up all the extra food purchases outside of your normal grocery budget. There is a good chance you will be shockingly surprised.
In this example we assume on our way to work every morning we stop and get that fancy coffee, and for lunch we get that sub combo meal. Then, after a long week we are too tired to cook so we splurge on some dinners out. Add it all up and it gets pricy fast. We are looking at $620!
Now imagine if we can just cut this out of the budget entirely by making coffee at home and a little bit of meal prepping! We would be on our way to saving $7500 a year!
7. Grocery Bill – (Save 20%+) – Food Waste
Take a hard look at your grocery bill… do you end up throwing out more food every week than you should? Almost 30 to 40% of the groceries we buy end up in the trash!
Do you buy more than you need? Make a shopping list! Ideally when you are not hungry. And stick to it! Try to plan in advance the meals you will make that week. Once a week meal prep! Start prepping on Sunday nights by making large batches of the foods you like, get some Tupperware, and divvy up your week for lunches and dinners! Make it easy everyday to just grab and go.
8. Electric – (Save 10%)
Who turned off the lights?! You should… when you’re not in the room. Also, look for opportunities to switch any old incandescent bulbs to energy efficient LED bulbs. If you want to take it a step further, and if you are the primary home owner, look into other electricity suppliers in your area see what competitive rates are available.
9. Heating – (Save 15 to 20%)
Turn down the heat! If you have a programmable thermostat you can have it adjust the temperature in your home when you are away. Potentially saving 15 to 20% in your heating bills per year! Also, regular maintenance is very important to keep your heating and HVAC systems as efficient as possible.
10. Water – (Save 20%)
This one is self-explanatory, the less you use the less you pay. Don’t let the water run while brushing your teeth, take showers vs. baths, and even better – shorter showers. Only run your dish washing machine and cloth washing machines when they are full. Install low flow faucets and shower heads. If you are on city water and sewer you pay double, what comes in goes back out and they charge you for it. For those out in the country and have a well, that water pump can be one of the largest energy hogs in your home depending on its age. Less IS Less here.
11. Cable – All the channels!… (Save 20% to 100%)
How many channels do you watch per day? There is a good chance you’re not even watching 75% of the channels that are included in your cable package. So why are you paying for it all? Look into downsizing your cable packages to only what you watch. If you only need the local news and public broadcast channels like NBC, CBS, FOX to keep up on the weather, some shows, and maybe some major sporting events you can get a heck of a bargain here.
If you want to cut cable out all together and just stream. Go big, but be aware that major internet provides are making Internet only packages less enticing than bundling with cable. We recently switched to Philo as our “cable” replacement for the channels we actually watch, and at the time of this post it costs only $20 per month for 50+ channels!
12. Internet – More is Better?
Yes, if you are like me and lived through the dial-up era then yes more is totally worth it but in today’s day and age more is only more up to a certain point. Do you really need 300 mbps download speeds? How about 1 gbps? (1000 mbps) Do you know how fast your internet needs to be to stream 4k HD movies and TV shows? 25 mbps. So, you are paying for 12 times more bandwidth than you need. What about 1080p HD? You only need 5 mbps. So, now you’re paying for 60 times more bandwidth than you need for your favorite shows. Obviously, everyone’s household is different. Some household have multiple internet connected devices so take a hard look at what you really need. If you are big into downloading games that are dozens of gigabytes every other day maybe you need those huge bandwidth needs. If you are only watching Netflix while scrolling Facebook you could probably get by with a whole lot less.
Our family got by at 60 mbps for a number of years, including online console video gaming, Netflix streaming, and all of the Facebook scrolling on multiple devices at the same time with no issue, for a grand total of $50 per month.
13. Cell Phone – Unlimited Unlimited!… (Save 70%)
Ah the cell phone, there is a lot to be saved here. If you are okay with not having the latest and greatest bleeding edge hardware in the newest iPhone or Galaxy phone that come with a *gulp* $1000 price tag there are a boat load of lower cost alternatives that can do about 80-90% of what the top-of-the-line phones do. Take a hard look into what you use your cellphone for. Instead of spending $1000, lower your budget to $300 or less, and don’t put it on a payment plan. Buy it out right. If you are okay with refurbished units you can get last year’s top-of-the-line models for a fraction of the price! Be sure to get an “un-locked” model so you can switch carriers with no issue. When you purchase your unlocked phone outright you get to decide who gets your business.
We purchased a refurbished Galaxy S8+ a few months back for around $300, now comparing that to the $850+ that a new one will bring and you can’t tell the difference between the two it’s a no brainer to keep that other $550 in our pocket.
Now on to cell phone plans and carriers…
With the number of red, blue, yellow, and pink commercials that are blasted out every day you know the business model is competitive. The more competitive it is the better it is for you!
We recommend looking into prepaid options which give you the greatest flexibility to move to carriers that offer the best service and cost for your dollars. Check your coverage areas and understand how much mobile data you use monthly. There is a good chance you don’t need that unlimited data plan. A quick google search reveals the average person only uses 1.5 to 2Gbs per month! You can save a fortune by only paying for the data you need!
14. Netflix Subscription (Online Video Subscriptions) – (Savings 100%)
If you are really hurting to balance the budgets than you may need to cut the luxuries, your online video subscriptions may need to fall on the chopping block. If you have favorite series that get released once a year look into the release schedule and maybe sign up for that month only to binge!
15. Gym Membership – (Savings 100%)
Your health is your most important asset! Without good health everything else seems a little less enjoyable. But that doesn’t mean you should overpay for that gym membership, or even worse feel guilted to continue paying for a membership you aren’t even using! It is said that over 50% of gym memberships go unused every year so unless you are making the effort to use them, then drop them!
STEP 5 – Reevaluate
Alright, so we took a hard look at our expenses in this example and really tightened our financial belts. So how did we make out?
Now that’s more like it! Reduced our monthly expenses by almost $950! We are back in the green with enough money left over to start working on that student loan debt, and/or building an emergency fund.
Try this exercise for yourself and let us know how you made out!
What are your tips for cutting the fat? Let us know!
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