How to Lower Your Annual and Monthly Expenses

Unexpected financial realities can really take a toll, and the only way to build any defense against them is through financial planning. The first thing to take into account are your necessary expenses: mortgage/rent, utilities, insurance, car payments, groceries etc. These expenses are unavoidable, and unfortunately, not always reliable. They can fluctuate depending on inflation, policies and politics, and more. When making a financial plan, it is important to first take these necessary finances into account, before allocating funds for more non essential expenses. 

How can we differentiate between essential and non essential expenses? 

Essentials are as we said previously, with the addition of maybe tuition, phone payments, credit card minimum payments and a few other specialized circumstances (like diapers if you have a child).  

Nonessentials are things like dining out, entertainment, travel, clothing, even coffee shop coffee (no matter how essential it feels to your life)

Do not prioritize lifestyle before life essentials. Deciding to splurge on dinner instead of spending that money on a loan payment can seriously damage your credit. Stated simply, but easier said than done: Live within your means. Maybe you’re already really good at that. Maybe it’s a matter of decreasing essential expenses to give more leeway to nonessential expenses, or to add the option of padding your savings account. 

For example, how can we exactly lower a necessary expense such as rent and or mortgage? Let’s say we want to move into an apartment and rent costs roughly $2,500 per month. Paying this every month by ourselves is not the optimal solution, especially during our more flexible stages of life (in college, newly married). Instead we can have people to move in with and divide the costs by two or even three. By doing so, instead of paying the full amount, we can pay our share of $1250 or less per month and save money to put somewhere else instead. This allows for more financial breathing room every month to budget efficiently. The same system applies to mortgages under a similar circumstance. However, it is important to keep in mind that rent is a necessary expense that does not go away over time unlike a mortgage payment that does. Rent prices fluctuate due to availability in the market. The key when dealing with a necessary expense, is to always bring the cost down optimally if given the opportunity to do so. 

But decreasing our necessary finances is not always an option, and if you have to remove an organ, let it be an appendix and not the lungs. 

There are unnecessary expenses that we do not need to submit to that will likely pile ourselves with more and more financial stress and fatigue. Unnecessary expenses such as subscription services. Count how many subscriptions for streaming services you have. Most likely it's more than one, and we get it, Netflix doesn’t have all of my favorite shows either. But, if you do have multiple, add up all the monthly payments together and see how much is going out from your income. Is it more than you thought? Is it more than you're comfortable with? This illustrates how budgeting can be crucial. So many of us wonder, where is our money going? We earned so much, just for it to disappear so quickly. Subscriptions can make life a breeze, but can also be adding additional financial stress if we do not keep track of them. Spending more than what we make is not good financial behavior, not only that, it can become a bad habit overtime because of our inability to hold ourselves accountable. 

Another nonessential? Eating out. Think of this for a moment in terms of inflation. Prepared food is always more expensive (Ah yes, the food service business model - charge more than it costs to make so you can stay in business). Usually, it does not cost *that* much more than if you bought all the ingredients and made it yourself, depending on where you go. But, because inflation has caused those ingredients to increase in price, ultimately, the restaurant will charge more for the prepared meal. If you are someone who eats out often, maybe try offsetting how many times you eat out per week. By eating at home and learning how to manage your grocery supplies, you can save way more and bring your overall food costs down significantly. Unnecessary expenses are the ones we control, we have a say of whether we want to spend or not, which is why it also requires discipline, resisting temptation and as well as keeping track of your own budget. 

This is why the concept of budgeting is powerful when mastered and done correctly. We can see where our money is leaving. It is accounting for all of our expenses and adjusting accordingly. It is scheduling payments so you are always aware of what you have paid off, what you have spent, and what you have left. With that kind of information we can pay off our debt even faster because we know how much money we owe and where. By doing a budgeting system, we can reduce our unnecessary spending habits. We cut out wasteful spending, and by doing so resurrect or even begin to replenish our saving habits and accounts. There is no better time to start budgeting. Because now more than ever, we can't afford to be frustrated and or demotivated about how we feel about spending money. We know! Spending money makes us feel good!  However, we should do it when we know it is efficient. Practicing now can help reduce future financial problems in the current economic crisis’ like the one we are currently facing. 

At Financially Fit, we are dedicated to helping you get back on track with your finances. Feel free to refer to our previous blog that discusses more on how you can save during an inflation period. Our program also offers the best insight on how you can accomplish this and start today. Visit our website and download the app to learn how you can start budgeting. 

Here to help, 

Your Financially Fit Team