There’s no need for your quality of life to come down when you are looking for ways of cutting costs. It can be challenging to look for ways to reduce expenses without seeing a direct effect on your day-to-day living. This article will break down a few ways to shift your thinking to improve your quality of life and reduce expenses in the process.
Cutting costs and doubling down on passions
When thinking of cutting costs, people think you need to eliminate any and all unnecessary expenses to only spend your time and money on things that are essentials. While it’s great to keep a pulse on your daily expenses, going to the extreme can mess with your quality of life. I’m not here to tell you to stop buying lattes from your favorite barista. A few of these concepts were coined from Ramit Sethi in his book, “I Will Teach You To Be Rich.”
Maybe you have a really cute person that works there that the only reason you go is that they work there. Rather, the main reason for this post is a reminder that there are plenty of things that may have gotten out of control financially. I will do my best to help you be aware of these things so we can both reduce expenses and improve your quality of life because you’re living a life with more energy, passion, and purpose.
When looking at your daily life, what are the absolute essentials to keep you living, as well as things you LOVE spending money on that you just can’t go without? With those in mind, do your best to come up with a rough idea of what that costs you on a monthly basis. Now that we’ve established the Need to have’s, these should include housing, food, utilities, transportation to work.
Let’s look at the LOVE to have’s, these might include books, movies at the theater, really nice denim jeans, traveling, or shoes. There are millions of things in the world that people love to have, just identify what’s really important to you.
From here, let’s establish a baseline. What is the absolute bare minimum expense threshold you need to have in order to continue living and buying your LOVE items in moderation? For example, the average person might spend $2,500 a month on living expenses and an extra $250 so their threshold is $2,750.
So monthly, the bottom line would be $2,750. With that in mind, if you see your total monthly expenses are far and above $2,750 in this example, you know there’s work to do to bring that down. Some of the most common expenses are housing, transportation, eating out, entertainment, and insurance.
There are articles I’ve written in the past covering house hacking and reducing your housing expense (usually the biggest expense we have) to live almost for free or even get paid to live where you are. That article can be found here. We’ll dive into some other ways to cut costs throughout this article.
For now, think about what you really want to spend the majority of your money on. Now when you’re out of the house or browsing amazon, think about not buying certain things that you don’t love or need so you CAN buy more of the things that bring you true joy. If you like home movies, consider getting rid of your cable bill, instead, get Netflix and Hulu subscriptions and try creating an awesome home theater setup.
That way every time you want to put a movie or TV show on, your house creates a much more fun environment than cable TV. Not to mention little to no ads, and almost everything you want to watch is still there when factoring in youtube and other streaming platforms. When it’s all factored in, you’re saving anywhere from $35-$100/month by removing your cable bill and making your home theater more enjoyable.
- Again, whatever your LOVE column is, think of saving money on certain things that don’t bring you a ton of joy for things that truly bring you happiness. Other examples include;
- Walking/riding a bike to replace driving everywhere.
- Picnic to replace restaurants.
- Healthy food to replace junk food that feels good but is really slowing you down.
- Latte’s at home to replace Buying coffee all the time.
- Go car and health insurance shopping to ensure you’re getting the best coverage for the best rates.
There are often hundreds or thousands of dollars of savings out there, start looking for ways to replace or reduce what you spend currently
Looking at Your Income/Expenses for Free
A great application to check your current expenses is with personal capital. You can set up your accounts to provide live updates on your net worth and what your income and expenses are. If you see a category that’s showing excessive spending, dive into it deeper and investigate. You can manage what you can’t measure.
Once you start to have a pulse on what is coming in and out, you’ll be able to accurately improve your savings rate.
If you don’t want to track your income/expenses with a website, you could do it through a google spreadsheet. This is my preferred method because It’s manual and you know down to the penny what you’re spending money on.
Biggest Expenses First
When it comes to cutting costs, let’s look at the most impactful ones first. I’d love to say you guys should focus on removing latte’s but saving $1,000 is far better than $5
With that in mind, start from the top down, what are the things you’re confident you can get removed or reduced if you replaced some things or asked around? For example, there was a period of time when our car insurance was well over $350/month.
I called around and found a company that could provide us with what we needed for almost half. Now that extra $150 will go towards other things we enjoy like traveling or healthy groceries.
As you get to the bottom, there are little expenses that may seem unimportant but they are just as big a focus if you want to plug all the holes your ship has. The goal is to reduce all expenses you can so your quality of life can stay the same or even improve while lowering costs along the way. These smaller expenses might be getting Starbucks every morning vs making it at home, gym memberships, restaurants, and shopping.
Some of these are LOVE items for some so we don’t want to decrease quality of life. That said, a good practice here is to place an amount of money you expect to spend each month towards these items in a bank account and you simply withdraw as you need it to reimburse yourself.
The goal here is to only spend what you have or less than that to hold yourself accountable and responsible for your money. If you have $50 in your account set aside each month for dining out, use that. Otherwise, you’ll have no limits and can often get out of control quickly.
While this could very easily turn into an 18,000-word blog post about reducing the unnecessary increasing what you love and improving your quality of life, i’ll stop it here. I hope you now have a better grasp on what it is you can do to get ahead in your financial life without losing the quality of life. Share your thoughts in the comments below!