Simple Steps to Reduce Expenses: Keep Your Hard-Earned Money!

In the fine balance of personal finances, expenses play a pivotal role, divided between needs essential for survival and wants that influence our comfort and happiness. The reality is, expenses directly impact your hard-earned money, shaping the financial landscape of your life. Imagine a straightforward guide that unveils simple steps to reduce expenses to help you keep your hard-earned money for saving and investing. These steps put you in control and allow you to keep more of what you’ve worked for.

This article doesn’t just explore the theory behind needs and wants; it’s your practical toolkit for reducing expenses. We’re talking about real, actionable steps that anyone can implement. No complicated financial jargon, just easy-to-understand strategies that can make an immediate difference. Join us as we explain the art of expense reduction, empowering you to take charge of your finances. Read on and embark on your journey towards financial freedom.

Expenses can be broadly categorized into needs and wants. Needs are the things that are important for our survival, and generally make up a fixed portion of our expenses. Wants cover discretionary spending on things that are not strictly important for our survival. However, they can affect our comfort, mood, and happiness. Read on to find out how you can take simple steps to reduce expenses and importantly, keep more of your hard-earned money! Who wouldn’t want that?

Expenses have a direct impact on finances. One method for reducing expenses is using an “income/expenses budget”, also called a cash flow budget. This type of budget can help determine which expenses can be reduced quickly and easily.

Needs

Needs are important for our survival and broadly include shelter, food, health, and transport.

• Shelter expenses include a home mortgage or rental costs, utility bills (e.g. gas, electricity and water), home maintenance and repair costs and insurance costs.
• Food expenses that are in the needs category include food purchased at shops or markets for preparing and eating at home.
• Important health expenses include general medicines, medicines or equipment to manage chronic illness, dental check-ups and unexpected medical costs.
• Finally, private and/or public transportation is necessary for travelling to the local shopping centre or markets to purchase foods and medical supplies, taking children to and from school, visiting friends and family and going to and from work.

Wants

Discretionary spending on “wants” is not essential for survival, but it can make life more comfortable and enjoyable.

• Food eaten at restaurants and food purchased at fast-food restaurants are in the wants category. Restaurant meals and fast-foods are pre-prepared and consequently more expensive than meals prepared at home.
• Buying the latest gadget, big house or expensive car often feels good for a time, but “keeping up with the Jones’s” is a sure-fire way to lose potential wealth. To put it another way, it is equivalent to buying something that you don’t necessarily need, with money you may not have available (you buy on credit or take out a loan), to impress people you don’t care about (or even know).

Ask yourself whether it is that important to eat out frequently, own the latest gadget, live in a big house, or drive an expensive car. Carefully consider why you are planning to purchase a particular item, brand, or model.

Could you instead reduce expenses by buying something a little less expensive? The money you save could be spent on something that increases cash flow, such as investments, which will make you more financially secure in the future.

You may be pleasantly surprised at how much you can save by considering these questions before committing to a purchase.

Expenses that could be needs or wants

Some expenses are categorized in the grey area between needs and wants.

Health insurance is an example and is often quite costly. In countries that have adequate public healthcare, health insurance is not a necessity. However, you may opt to take out health insurance for personal reasons.

Other countries may not have adequate public healthcare. People rely heavily on health insurance to help pay for medical costs, in which case it becomes a need.

Other expenses that could be considered as needs or wants include:

• Housing costs: home maintenance and repairs are expenses that are necessary in order to keep your “shelter” in safe and working order. Home improvements, on the other hand, are wants that are not necessary. Instead, they are expenses that make the home or property look better or improve some function of the home or property. Often a home improvement can increase the value of a property if it is well thought out.
• Mobile phones: owning a mobile phone is necessary for many people. They help families keep in touch, aid communication between authorities and the public, and provide many useful functions. Purchasing the latest and greatest model, though, is usually an expensive want. The latest models often provide no significant improvement than models one or two generations old.
• Education: similar to healthcare, education is an expense that can be covered by the government (public education), or partly funded by the government and partly from fees (e.g. private education). Whilst education is necessary, public education is considerably cheaper than education that requires extra fees.

Simple steps to reduce expenses

Both needs and wants cost money to varying degrees, which reduces your cash flow. A common saying in the personal finance world is “It’s not how much you make, but how much you keep.” This is true to an extent and depends a lot on how much your “needs” expenses are in relation to your income.

To increase cash flow and be more financially secure, it is worth reducing expenses in both the needs and wants categories where possible.

Review your budget to check where your money is spent. Think about which expenses are relatively high and try to reduce them first. The examples below can provide some inspiration for your situation.

Reducing essential expenses

There are many ways to reduce “needs” expenses. The list below shows some examples.

• Live in a smaller house: smaller houses and apartments are on average cheaper than larger houses, not only because of the lower purchase price but also from energy usage, as they generally require less energy to heat and cool.
• The cost of fuel or gasoline often increases and decreases in cycles. Try and time the cycles so that you fill up more often when the price is at the lower point of the cycle.
• When buying groceries, write a list of items you need to reduce the amount of “impulse” purchases you make when you see something that pops out on the shelf. In addition, try and eat before buying groceries. People often buy more food from the grocer when hungry compared to when they have recently eaten.
• Purchase foods from a local farmers market, fruit shop or butcher. These foods are often fresher and less expensive than a larger store if they are close by.
• Purchase non-perishable items in bulk. A single bulk purchase is often cheaper than buying a smaller quantity a few times. For example, a 5kg bag of rice may cost $10, or $2 per kilogram. A smaller 1kg bag of the same brand and type of rice might cost $3, or $3 per kilogram.
• Look out for sales and discounts on price labels when in the store or in advertising brochures or online. Many people treat supermarket brochures as junk mail and throw them in the trash, but they usually advertise items at reduced prices.
• Use comparison web sites for home insurance, health insurance, bank interest rates etc.
• If using health insurance, consider whether your level of cover is suitable for your life stage. For example, a couple with an established family who are not planning on having more children do not need reproductive or obstetric services. Only having cover for what you need will help to reduce insurance premiums on your health cover.
• For insurance in general, reduce premiums even further by opting for a higher excess plan. The savings could then go towards building an emergency fund that could then be used for unexpected expenses.

Reducing discretionary spending

Similarly, expenses in the “wants” category can be reduced by following some of the examples listed below.

• Continue using mobile phones after the plan runs out if purchased on a contract. Switching to a SIM-only plan means you only pay for the calls and data, not the extra cost of paying off the handset. Modern mobile phones can easily last three or four years with a battery change after two years. It’ll be better for the environment too! Or consider buying a cheaper brand in the first place. There are many brands to choose from!
• Reduce the amount of name-brand clothes you purchase, unless there are no other options for the type or style of clothing required.
• Cut back on how many clothes you purchase. Look at your closet or wardrobe and think about how many times you wore that designer dress, shirt, or shoes. Do you really need all the clothes you own? Think carefully before making these purchases. It might be better to buy a few good quality clothes or shoes than lots of cheap items.
• Make food at home more often. Only plan to eat out once or twice a week.
• Buy a coffee machine and make more coffee at home. It may cost more in the beginning, but over time it will pay for itself. For example, let’s say you buy a coffee machine for $500 and it costs $1 to make it at home. You normally purchase one coffee a day for $5 a cup. You would save $4 for every cup you make instead of buy. It would take 125 cups or a little over 4 months for the machine to pay itself off. After then, it is pure “savings” amounting to $4 for every cup. Over the following year, you would have spent $365 to make your own coffee, or over $1,800 if you buy a coffee every day!
• Determine whether education expenses are giving value for money. This is often a personal decision, but it is another option that can be looked at to reduce expenses.
• Buy a second-hand car instead of a brand new one. The price of cars decreases significantly in the first couple of years. Buying a car that is 2 to 3 years old is usually the sweet spot in terms of value for money.

Avoid impulse buying

Impulse buying is very common. After all, companies use every trick in the book to entice people to buy their products!

Several methods can help break the habit of impulse buying. Avoiding impulse buying will leave you with more money to save for more important income-producing assets and investments. Two common methods that are used to control impulse buying are the 72-hour test and the spending cleanse.

The 72-hour test

An effective method to avoid impulse buying is the 72-hour test. This involves waiting for at least 72 hours (3 days) before deciding whether you still want to buy something.

If you still want it after this time, then go ahead – buy it and enjoy it! The 3 days have given you time to think about whether you really want the item. And you haven’t bought it on impulse!

The spending cleanse

Another method is termed the “spending cleanse”. This involves setting a timeframe where you do not engage in any discretionary spending. This could be a week, a month, or more.

The duration of the spending cleanse is up to you. It is often easier to start with smaller spend-free durations and work your way up to longer ones.

Consider how much something is worth in terms of your time

Another way to determine whether something is worth spending your hard-earned cash on is to think about how much time you need to work to pay for it.

For example, let’s say you get paid $30 per hour. It would take 20 hours of your time to pay for something worth $600. Something worth $2000 would be equivalent to working for nearly 70 hours!

Thinking about the cost of goods in this way can help you decide whether something is truly worth buying.

Research products before making a purchase

It is important to research a product you intend to buy. Some different options are available to help with the research are listed below. Obtain information from more than one source to get a better feel for the product and its suitability.

• Most companies have websites that list their products. Check the online reviews of the product to see what others have said about the product.
• Comparison websites and reputable blogs often have “The 10 best [insert product here]“, or “The best [insert product here] to buy in [insert year here]” lists. These often detail the pros and cons of each item to help their readers decide which one is best for them.
• Depending on the product, there may be an online forum where you can ask questions about the product. There are usually plenty of people happy to provide useful information and feedback.
• Talking to people who have and use the product to find out whether it is worth buying or not. You will usually get an honest opinion and can ask plenty of questions – if they don’t work for the company or have a financial interest in it, that is! If they sound like a salesperson, take their advice with a grain of salt and use some of the other research methods listed above.

By doing some research up front, you can avoid buying something that is low quality or that doesn’t properly fit your needs. The saying, “you get what you pay for” is often true. It may be better to spend a little more on a product and have it last longer, and that better fits your needs, than going straight for the cheapest model.

Maintenance of belongings

Keeping belongings in good working order is an important part of preventive maintenance.

Preventive maintenance could include keeping your car regularly serviced so that it runs efficiently. This helps to reduce fuel costs, or worse, towing costs.

Making sure your appliances are clean and free from dust and other particles will prevent reduced lifespan.

Checking heating and cooling equipment in your home to ensure they are working efficiently will reduce energy bills. Keeping well-sealed doors and windows will also reduce heating and cooling bills.

You could also maintain your health by eating well and exercising. This will help to reduce potentially avoidable medical expenses.

Regular maintenance may cost a small amount of money over time. However, this expense can be small in comparison to needing to spend money on an emergency repair, or even replacing something altogether. Moreover, many things can be maintained for free or for very little cost.

More resources on reducing expenses

The following books provide more detailed information on the topics covered in this article. Feel free to browse through this list and support the site by making a purchase at one of our affiliate partners. Please read our affiliate links disclosure for more information. Note: The links below will open in a new browser tab or window.

Remember to choose your preferred format (paperback, hard cover, digital etc.) before making a purchase!

• How to Manage Your Money When You Don’t Have Any by Erik Wecks Link*
• Playing with FIRE (Financial Independence Retire Early): How Far Would You Go for Financial Freedom? by Scott Rieckens Link*
• Your Money or Your Life: 9 Steps to Transforming Your Relationship with Money and Achieving Financial Independence by Vicki Robin and Joe Dominguez Link*
• Popular books on managing expenses Link*

(*) This site contains affiliate links to products. We may receive a commission for purchases made through these links at no extra cost to you. Please read our affiliate links disclosure for more information.