Resolve to cut expenses, increase financial wellness

January is a time when we often make new commitments to change our lives. It is also Financial Wellness Month, an opportunity to look at our current financial habits and create healthier ones. One way to improve our financial health is to cut expenses, especially in areas where we overspend.

We all have fixed expenses, which can include mortgage/rent, auto insurance, car payments, utilities, and child care costs. Spending on other items – e.g. groceries, entertainment, clothing, gasoline, among others – can fluctuate from one month to the next. Because these expenses can vary, it can be easy to lose track of spending and put household finances in the red.

If your spending frequently creates a budget deficit, here are several tips to cut expenses and increase your financial wellness.

Set Targets for Each Spending Category

One common method for developing effective spending targets is the 50/30/20 rule: 50% for needs, 30% for wants, and 20% for savings and debt repayment. NerdWallet offers a full description of this rule, along with a 50/30/20 budget calculator for more help. Be sure that your targets are realistic.

Reduce Your Utility Bill

Turn off lights when you leave a room or your leave the house. Before you go to work or go on a trip, turn down the heat in the winter and increase the temperature of the air conditioner in the summer. Unplug electronics and appliances that don’t have to be on all the time; they can be significant energy drainers. When you need to replace light bulbs and appliances, purchase energy-efficient versions.

Use the Envelope System

The envelope method involves dividing cash among several envelopes for different expenses for a specific period of time, such as one pay period. Then, you spend only the money in the envelope for each expense during that pay period. Here’s how it works:

1) Subtract all fixed expenses from your monthly net income. Be sure to include savings in your fixed expenses.

2) Take the income left over and divide it among discretionary spending categories in your budget.

3) Label each envelope with a specific spending category and the spending limit amount for each category. After each payday, put cash in the envelopes equal to that amount.

4) Spend ONLY the cash within each envelope for each category. On your next payday, replenish the envelopes.

5) If you don’t spend all the cash in your envelopes, that’s great! Set it aside in savings, or allocate it to another category where you came up short during that period.

6) Adjust the amount for each envelope as needed, especially if you spent less in a particular category. If you overspend somewhere, track expenses in that category to see where you can cut back.

Get Rid of Unused Subscriptions/Memberships

Do you have subscriptions to newspapers or magazines you no longer read? Any paid apps that are obsolete? Not getting the value out of that streaming television service or gym membership? Review your monthly credit card or bank statements to see how much you’re paying for items that you don’t use and can either eliminate or find cheaper alternatives.

Go On a “Spending Fast”

Don’t spend any money on discretionary items over a designated period, like a day or two. Get through a spending fast by preparing home-cooked meals and occupying your time with free activities instead. It can be easy to succumb to impulse purchases and overspending, but by “fasting” a few times a month, you can curb that overspending and allocate the unspent money to savings.

These are only a handful of options. Feel free to implement your own cost-cutting ideas that work for you and your family. Good luck in your efforts to balance your budget, build up savings and increase your financial wellness.

If you are struggling to balance your budget and better manage your expenses, LSS Financial Counseling can help. We will work with you to create a realistic action plan to take control of your financial life. Call us at 888.577.2227 for your free session or get all your support online at your convenience. The New Year is a great time to begin: start now!

  Author Ray McCoy is a Certified Financial Counselor with LSS Financial Counseling.