Hello! In today’s article, as you can see in the title, I’m going to delve a little deeper into spending, specifically cutting back on less necessary expenses. By the way, @Min wrote the first article on spending, so I recommend you read it if you haven’t. I leave you here the link to the article.
If you’ve been tracking your income and expenses for a while, you should be able to easily identify where your income is going. Considering you’ve only been monitoring your finances so far, it’s time to make some changes.
As it isn’t often possible to increase your income in a short period, what I propose here is to reduce your expenses, especially the less necessary or so-called “unnecessary” expenses, so that you can start saving money.
By “unnecessary” or wasteful spending, I mean spending that does not maintain or increase your level of happiness and does not increase the value of your productive assets.
The main idea here is, if you manage to reduce your expenses and have a steady monthly income, you will be able to use the money you save to create an emergency fund or invest it.
In the following, I will present two ways you could reduce your wasteful spending:
1. Reducing hidden or “invisible” – expenses
Hidden/invisible expenses are those expenses that you have regularly and in this way have turned into a habit but, with a little awareness, you can reduce and later eliminate it.
George is passionate about good coffee. Since he doesn’t make his coffee at home, he usually buys it from a place he discovered on his way to work, where the coffee is excellent. So everyday coffee costs him 2 euros. He spends 10 euros a week on coffee. In a month, the cost of coffee is 40 euros. In a year, coffee can cost George about 480 euros.
I would like to emphasize that, instead of coffee, it could be anything else, the parking lot at work, lunchtime dessert, etc. Everyone knows their daily and recurring expenses.
It’s enough to have a few of these invisible expenses to realize that this may be one of the causes of your lack of savings.
Before you read on, try to think about whether you have such “invisible” expenses repeatedly and whether you could gradually cut them out.
If you have a well-defined budget, you will be able to identify all those invisible expenses, and you will be able to reduce or even eliminate them. If you don’t have one, I’ll leave you with the following link to an article, where you can learn more about how to create your first budget.
Surely, in the short term, you won’t see a major difference between spending 2 euros or not. In the long term, however, things are quite different. I propose the following challenge: try, from time to time, to think about how your medium and long-term financial decisions affect you.
2. Reducing the main expenses
Another method you can implement is to try to reduce your main expenses, such as housing, shopping cart, transport, as these are largely the expenses on which much of your income goes.
If you live in rented accommodation, you are less likely to be able to claim a rent reduction. It depends very much on the context of the current housing market, among other things.
However, if you have bought a house and have a mortgage, what you can do is try to renegotiate the terms to get an interest rate reduction. If you manage to get a small reduction in interest, considering that we’re talking about a loan that you have to pay for 15-20 years, it is certainly a success. The difference you save can be considerable over 15-20 years. You just have to do a little math.
Another thing you can do to reduce your expenses is to switch to other providers of electricity, internet, etc. Taking some time to review different company offers could help you save some funds, but also can allow you to find new services.
You have likely experienced the following situation. You went to the supermarket to buy “two” articles, but arrived at the cash register with “ten”. If you went to the supermarket with your shopping list done and only buy what you require, you’ll have fewer surprises when you have to pay and reduce your shopping cart expenses.
Another thing I’d like to bring up is avoiding food waste. This is a global problem because some food is thrown away while it is still edible.
According to the Food and Agriculture Organization of the United Nations (FAO), “about one-third of all food produced worldwide is wasted. In the European Union (EU), it is estimated that 20% of all food produced is lost or wasted. 70% of food waste comes from households.”
In your case, if you avoid wasting food, you’ll be able to save some money.
The next category I would like to mention here is transport. If you manage to use more public transport instead of your car, you will certainly see a substantial reduction in spending in this category.
Another option is to try to spend as much time as possible walking instead of sitting in your car waiting in a traffic jam. In some cases, if the distances between home and work are not very long, you can try this alternative.
The next option is to try using alternative transportation, such as a bicycle, to get around town instead of your car. Again, you need to consider whether you can do this and whether you are comfortable with it.
All of the above examples come with an in-depth analysis. This would be the first step you need to take. Not everyone is willing to do this, but you need to make changes in the way you spend your money to start saving. This deep analysis may take a few hours of your time, but you will be able to save a considerable amount of your income in the medium and long term. Are you willing to do it?
Finally, whether you want to reduce hidden costs or main expenses, you need to consider your situation and apply what is best for you.