Is turbocharging your savings your main goal this year?
If so, it’s time to get real about your spending. Perhaps you’re funneling dough to items you don’t really need.
But, did you know that most of the expenses listed out in your budget may not be actual needs? Yup, those Hulu and Amazon Prime accounts are not exactly necessary expenses.
To start creating a budget that works and reach your financial goals, you’ll first have to define your necessary and unnecessary spending. Read on to learn more.
Necessary costs are items you can’t live without. These are not items you think you can’t live without, like organic coffee beans and three streaming services. Here are a few needs that belong at the top of your budget:
- Food and water
- Gas and electricity
- Medicines or medical needs
- Non-negotiable debts, such as student loans
Unnecessary costs, or wants, are items that you do not need to survive. You may not want to part with your daily latte or Spotify, but you aren’t going to keel over if you cut them from your budget. Here are some examples of unnecessary costs:
- Cable or alternative cable services, such as Hulu or Netflix
- Monthly subscriptions like meal kits or beauty boxes
- Gym memberships
- Eating out
Now that you’ve taken a closer look at your necessary and unnecessary expenses, it’s time to look at your fixed costs. These are your monthly expenses that do not change. They are predictable costs with regular due dates. Here are some common fixed monthly expenses:
- Rent or Mortgage: Whether you rent or own, your shelter costs will be the same each month. Since this is usually your biggest expense, prioritize it.
- Health insurance: Health insurance premiums can increase yearly, but you won’t see an uptick in price until your renewal time. You can also opt-in to your employer’s health insurance plan to have this monthly cost taken out of your paycheck pre-tax. This allows you to declare a smaller taxable income. For example, if you make $65,000 and pay $4,000 yearly for health insurance, you are only accountable for $61,000 of earnings at tax time.
- Car insurance: As long as you maintain a clean driving record, your rates should remain steady. My car insurance is about $1,000, split into four payments per year. I transfer $84 into a savings account each month so that I am ready for the $250 quarterly charge.
- Internet and cable: Your Internet and cable are not necessary expenses, but they do cost the same each month. Minimize these costs by taking advantage of promotions or downsizing your package.
- Car payments: If you didn’t pay for your car in full, then your monthly payment was locked in at the origination of the loan. If you are leasing your vehicle, be sure to follow the strict guidelines so you can turn in the car at the end of the lease term with no additional fees.
Six Actions to Cut Down Unnecessary Monthly Spending
Now that you understand your fixed expenses, it’s time to look elsewhere to save money. The natural place to cut the fat is with your unnecessary costs.
Here are six ways to trim these expenses down:
1. Pick one streaming service and ditch the rest
Do you really need Hulu, Netflix, Sling and Prime? Definitely not, especially if you also have cable. Speaking of cable, if you haven’t cut the cord, now is a good time to do it. Not only will you save money, but you might also decrease your binge-watching habit.
2. Dump your carrier’s unlimited plan
Paying a premium for unlimited data plans is pointless when you are surrounded by WiFi. Entertain the idea of joining a family plan (even with friends) to save even more on your cell phone costs.
3. Rethink your car
Is your car payment like a dead weight? Maybe it’s time to get rid of your car and take public transportation to get around. Alternatively, you can sell your wheels and buy a more affordable used car.
4. Skip brand names
This rule applies to almost everything you buy. If a brand is pouring millions into packaging and celebrity endorsements, then you can be sure that this is reflected in the cost. Mic calculates that shoppers can save up to $1,500 annually when they switch to generic brands.
5. Put an end to subscription boxes
We all love happy mail, but are your subscription boxes truly worth the cost? Initially, when you break down the cost of the items in the box, it may seem like a bargain. Yet, if you weren’t planning to purchase these items in the first place, they are a waste of money.
6. Ditch expensive gym memberships
Exercise is a necessity for a healthy lifestyle. Yet, you may be paying for an expensive gym that you never use. Instead, cancel that membership and take up running or biking. You can even connect with a friend and go for a hike once a week. Get creative and make use of the great outdoors.
Time to Take Charge of Your Budget
Stop thinking of your budget like a cage that keeps you locked up from enjoying your life. By simply cutting out unnecessary spending, you’ll have more money to devote towards your savings goals.
Just think: That freed up cash can help you go on that Tahiti vacation or afford a down payment on your first home sooner rather than later. Are you ready to zero in on your unnecessary spending and save more money?
This page is for informational purposes only. Chime does not provide financial, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for financial, legal or accounting advice. You should consult your own financial, legal and accounting advisors before engaging in any transaction.