Five steps to killing your living expenses
Living expenses are the regular costs that you typically incur on a month by month basis. This can include essentials such as the cost of your mortgage or rent and council tax. Also things such as the cost of electricity, gas and water services and the repayment of existing loans and/or credit card balances. Then there are costs such as the cost of groceries, school fees, medical and dental care and the cost of commuting to work and running a car.
Most of us will recognise a lot of those and will appreciate that they represent fairly essential cost categories. Additionally, though, there may also be a host of other monthly costs. The following list is by no means exhaustive but these miscellaneous costs may include entertainment (sports events/cinema/theatre/gigs/CDs/DVDs, etc), alcohol, gym membership, magazine subscriptions, clothes, beauty treatments, haircuts, and computer games.
There may come a time, however, when you pause and realise that you are spending more than you can afford to, or more than you want to. This moment of realisation may be occasioned by viewing a bank balance, being made redundant or by seeing that you’re not going to be able to meet your savings or investment goals.
The good news, though, is that it’s often possible to trim quite substantial costs from your monthly expenditure just by making some simple changes. Let’s look then at how we can do this:
Step 1: Understand what you’re spending money on:
Before you can effectively reduce your living expenses, you need to understand just where all of your money is going. There are two main tools that you can use to get a full picture of your costs. The first is to review your bank statements. If you look at three months’ statements, this should give you a good feel for where your money is going. The alternative method is to keep receipts from everthing that you spend money on for a period of time. Either way, the key then is to group your costs into categories, so that you can see what types of things are taking up the bulk of your living expenses. Some of the categories that you might group the costs into include:
– Mortgage / Rent
– Council Tax
– Utility bills (electricity, gas, water, etc)
– Groceries
– Travel (train, bus, cost of running a car)
– Clothes
– Entertainment
Step 2: Evaluate whether you can get the same for less:
Sometimes we don’t need to cut out activity to reduce our costs. It may be sufficient to find the same things at cheaper prices. This can apply to the costs of mortgages/loans/credit cards and also to the cost of your utility providers. Similarly, it may be possible to switch to lower cost providers for your groceries, clothes, etc, and this may mean choosing own-brand items rather than their more expensive branded equivalents.
Step 3: Check if you can cut down on your usuage:
Most of us are guilty of being wasteful. We leave all the lights on in the house, even on sunny days. We buy more food than is healthy and either end up checking half of it in the bin or becoming overweight. If we are truthful with ourselves, and sufficiently focused on cutting costs, then most of us will find items that we can easily cut down on without reducing our overall state of happiness.
Step 4: Check if there are things we can cut out completely:
There may be some luxuries that we like indulging in but which we realise have become a bit out of control and which we can probably live without. Many households across the world have been learning this lesson during the recent turbulent economic times. It may be better to give up that football season ticket or the gym membership rather than remaining in a position where we are living at the boundaries of our comfort.
Step 5: Set targets and monitor them:
In business, we’re familiar with the concept of targets being set and sometimes incentivised. The reason is that we tend to perform better if we have a solid target to aim towards. This applies equally in our home lives and is perhaps the most important change that you can make to improve your overall financial position. Write down the maximum amount that you are going to spend each month and then work towards beating that target. Share your goal with other household members so that everyone is bought into it. Finally, if you start to hit your target, consider whether you can shave some more off your costs by setting a more demanding target!
By applying this rigorous and systematic approach, you will succeed in reducing your regular living expenses and the difference that this will bring to your financial wellbeing should prove well worth the effort!