How To Drastically Cut Expenses
The following is the transcript of the video above, “How to Drastically Cut Expenses”. Therefore, it may be awkward to read. If you can, I would encourage you to watch the video. Automatically generated closed captioning is available on the video.
If you’re spending more than you’re bringing in, slashing some of your expenses is a great place to start since you get a dollar-for-dollar benefit for your efforts.
In other words, if you reduce your expenses by $50 you’re now going to have that $50 to utilize somewhere else in your budget. That’s a little bit different than increasing your income by $50. Because after taxes and other types of deductions, you’re not going to see that full $50.
So, slashing your expenses is a great place to start and we’ll get into some easy expenses to slash, right after this. [Intro]
Hey there! I’m Adam Hagerman, your financial coach. And if you’re saying things like, “With my income, I shouldn’t feel this stressed about money!”, then you’re in the right place. This channel is all about helping you better understand your money so you can use it as a tool to help you achieve financial freedom, and if you’re consistently spending more than you’re bringing in Financial Freedom can be very difficult to achieve
How to Drastically Cut Expenses
The $25/hr Test
To get the biggest bang for your buck, you first want to make sure you’re focusing on expenses that meet what I call the $25 per hour test. So, let me explain a little bit out about what I mean. I want you to think about the process of you reducing your expenses as a job. In other words, how much you going to get paid to do this job of reducing your expenses? Let’s look at an example.
Let’s say that you want to reduce your cable bill. It’s gotten out of control and that’s what you want to focus on first. So, let’s say you spend an hour on the phone with your cable company tonight and you get them to reduce your monthly bill by $10 a month for 12 months. In total, you’re going to save $120 ($10 x 12 months). So, for your hour of time, it was like you went to a job reducing your cable bill and you made $120 an hour to do that. You made good money for only an hour’s worth of your time.
Now, let’s compare that to something else. Let’s say you are going to hop into several dumpsters on your way home from work this week. You’re going to grab a lot of the Sunday newspapers and get the coupon packets out of there. You’re going to go home and you’re going cut those coupons up and put them into a wonderful dividing folder that you’ve got. You go to the grocery store later this week and because of those coupons, you’re going to save $50 on your bill. That’s nothing to sneeze at. It’s a pretty good amount of money that you save there, but what kind of time and effort did you put into saving that $50? Maybe you spent 5 hours doing all that organization. So for 5 hours of time, you saved $50. That’s like only earning $10 per hour at the “job” of cutting up coupons for your weekly trip to the grocery store. Again, not bad. But you could have spent an hour of those 5 hours to call your cable company (assuming you hadn’t done that already).
9 Expense Categories To Focus On
The first category I want to talk about is subscriptions you might have. We are certainly turning into a subscription-type world with many streaming services and other things you can sign up for and pay for monthly. And once they’ve got your bank account information or credit card information, it’s very easy to continue charging you for those things. That makes it’s very easy then sometimes to forget that you signed up for stuff and not utilize it anymore.
So, look at the last 30 days of expenses on your credit card and bank statements and go through that line by line and find subscriptions that you have on there that you can eliminate. If you’re struggling to find your subscriptions, you can use services like Trim or TrueBill to help you locate some.
Maybe there are three streaming services and you can go to just do one per month. Try to maximize everything on the one streaming service while you’re not paying for the other two and then you switch it back to something else the month after that.
Your Car Insurance
For expense #2, I want to look at your car insurance. It makes sense to periodically shop around. You may love the company that you’re working with but a lot of times they don’t reward you for that love. They continue to charge you a higher rate because they don’t need to woo you as a new customer anymore.
You also want to look at your current policy and say, “has anything changed since I signed up for this thing?” When you sign up for auto insurance, you usually tell them how many miles you drive on an annual basis and the average miles you travel to and from work. So, if that stuff has changed, you want to go back to your insurance company and be like, “hey, you know when I originally signed up I was driving 20,000 miles per year but now I’m driving 10,000.” Those lower miles traveled decreases your risk of getting into an auto accident. That should lower your auto insurance premium as well.
Also, your vehicle might have been worth $10,000 when you got the auto insurance initially and now after driving it for some time, it’s only worth $1,000. It may make sense then to get rid of collision insurance. Since collision insurance only covers you in case you get into an at-fault accident (i.e. if someone else caused the accident their insurance would pay to repair your car), you don’t really need it once your vehicle loses most of its value.
It’s also a good idea to at least shop around for a new policy. You don’t have to switch your insurance if you find something cheaper, but maybe you go back to your current auto insurance company and see if there’s anything that they can do to get you some discounts to fall in line with the other company you got the lower rate from.
Your Cable Bill
For expense #3, I want you to look at your cable bill. This is an industry that lives on contracts. You sign up for a 2-year contract with them and they’re going to charge you $100 a month for the first two years but after that, they increase the price. Since they already have your bank account information, it’s easy to forget that the price will go up eventually.
It makes sense then to periodically call them up. Maybe renew your contract to see what other kinds of discounts they might have. Maybe you’re paying for channels that you don’t use any more. Things you can kind of drop off of that package.
A lot of people go to cutting cable as one of the first expenses that they want to reduce. If you’re talking about wanting to cut cable but then getting all kinds of streaming services, I’ve found in doing this full-time (i.e. working with people and seeing what they’re doing when it comes to their cable bill) still having the internet cost leads you to end up in the same place that you were previously. You’re spending the same amount of money on some of those things. So, don’t just assume that you’re going to save money immediately by cutting cable. However, if it has been several years since you renewed your contract or are using a ton of channels that you’re not watching, you can likely save quite a bit of money for only a small time commitment.
Your Cell Phone Bill
Expense #4 is your cell phone bill. Are you paying for things with your cell phone bill that you don’t utilize anymore? Maybe you have Wi-Fi at home and every time you’re at home that’s what your phone is connected to. So, you’re not really using a lot of data. Maybe you’re using less than 1GB of data every single month, but you’re paying for unlimited data.
Maybe you’re paying for data on a phone that you’re allowing your child to use at home or an iPad or something like that. You’re paying for data on that and you don’t need the data because it’s hooked up to the Wi-Fi. So, review your plans to see if there are any things that you’re paying for that you no longer need.
If you need to do something temporary, maybe you’ve got the latest and greatest iPhone and you’re paying a hefty monthly fee to have that phone. Maybe you get rid of that more expensive phone and go back a few generations of the iPhone because you can get that one for free or at a much less monthly cost. Maybe you do that to save a little bit of money so you have it available for something else that is more important to your monthly budget right now.
Expense #5 is your creditors. So, if you have credit card debt, call all of those companies and see if there’s anything that they can do for you. It’s very difficult to get your interest rate reduced just because you’re a good customer but if you’re saying to yourself, “I’m done with these things and I never want to use them again”, you might be able to work with your credit card company to get on a payment plan at a lower interest rate. You’ll likely need to close that card to new purchases, but what does that matter if you don’t want to use them anymore? You might be able to save quite a bit of money in interest by just working with them to see what they can do to help you pay this thing off as quickly as possible.
It’ll also be good to look at other debts you have like your auto loan or student loan. You may be able to refinance those at a lower interest rate, especially if you’re in a better financial position than you were when you originally took those loans out.
Your Food Waste
Expense #6 is food. Now, I’m not talking about using coupons or buying things in bulk here. I’m mostly talking about limiting your food waste. American’s waste a lot of the food they purchase and if you can get better and knowing what you have, you can likely save a good amount of money.
Start utilizing some of the food that you already have in your house. So kind of eat your way through your pantry or your freezer. A lot of people have freezers that are just full of stuff or pantries that are full of food items that are hard to remember that you have in there. Make a challenge for yourself and see if you can avoid going to the grocery store this week and just work through your freezer. Open your refrigerator or your pantry and see what you can make out of the stuff that you already have.
If you’re looking for some ideas of what to do with some of this stuff, you can use a recipe aggregator site. One of my favorites is supercook.com. Instead of browsing through recipes on their site, you essentially just tell it what you already have and it brings in recipes based on those items. It will also give you suggestions.
Expense #7 is more of a tip and that is to shop around, especially for non-discretionary types of expenses. In other words, don’t just settle for the first price you see.
In the past, I saved $250 for an hour’s worth of research. I was replacing a headlight assembly on my car and the mechanic wanted $350 to put it on. It was a very simple fix and I just thought I could probably do that myself. So I went home and purchased the part online for a hundred bucks. It took me literally 10 minutes to install and anybody could have done it.
Search For Easy Coupons
Expense #8 is also kind of a tip and that is to search for coupons before you make a purchase. You especially want to do this when shopping online. It’s just a few extra steps to hop on another tab on your website browser and you just search for a coupon code for “XYZ company”.
For example, if you have a Papa John’s in your area and you order pizza frequently, if you’re paying full price you’re paying way too much because there has never been a point where there hasn’t been at least a 20% off coupon. You just have to know where to go.
Skip The Drinks
My last tip for you is to skip the drinks, especially when you’re going out to eat. Drinks are very expensive at restaurants and fast food joints. They really add additional cost for something that is very low cost to the actual restaurant itself.
Just buy the things for yourself at the store and have it at home for when you get back. Doing so is going to save you a lot of money. That’s especially true as well if you go to work every single day and you just go to the convenience store or maybe you got a little shopping center in the building you work in and you go down there and you buy an unsweetened tea every day for $3. You might be able to save a lot of money by just purchasing that at the store yourself and then bringing it into work.
Final Thoughts on Slashing Expenses
Slashing some of the expenses we talked about here can net you a few hundred dollars on a monthly basis. That’s money you can use to build up your emergency fund. You could use that extra money to pay down your debt aggressively and get yourself a debt a lot faster.
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