Finding ways to cut monthly expenses is never a fun discussion. With that being said, cutting here and there certainly adds up.
When Jess and I were zeroed in on getting out of debt, we were looking for all kinds of areas where we could cut our expenses. Besides the obvious (and very important) step of setting a budget to control your day-to-day purchases, here are 5 easy ways to cut your monthly expenses. I recognize these aren’t for everyone. These are what worked for us. Please comment at the end to share some others that have worked for you.
Cutting the cord. Not a fun one to embrace but certainly something that can make a noticeable difference. This is easier than ever with high definition antennas, streaming services such as Netflix and Hulu, and now even live TV options that are independent of the cable and dish companies. Prior to making the cut, our cable, Internet and Netflix bills added up to approximately $148/month. When we cut the cable, we decided to add a high definition antenna (one time purchase of $30 from Amazon) and Sling TV (monthly fee of $20). The high definition antenna gives us access to the major networks (e.g., NBC, CBS, etc.) and several PBS stations. Using the following link, you can check the reception you are likely to get with a HD antenna before you make the purchase. The Sling TV provides access to many popular TV channels (e.g., ESPN, HGTV, Food Network, CNN, etc.) via an Internet connection. With the cuts, our current monthly expenses are approximately $75 for a savings of $73/month. Does the high definition antenna and Sling TV serve as a perfect replacement to cable? No, but it is certainly adequate. There are times when the signal will go in and out depending on the placement of the antenna or the weather outside. With the Sling TV, just like you may have streaming issues from time to time with services such as Netflix, the same applies here.
Auto insurance re-quote. Ok, full transparency here. I felt dumb on this one. A few years back I called our auto insurance broker and asked for an updated quote since I felt like our auto insurance was higher than it should be. We still had two cars and nothing changed except we were a few years older. That updated quote led to a new policy with the same coverage. In 2009, we were paying $146/month. We are now paying $85/month. A savings of $61/month. While I haven’t explored this yet with our auto insurance broker, I have heard others mention that paying a lump sum once or twice a year rather than monthly payments is a way to save some additional dollars on car insurance.
Refinancing the home loan. When we bought our house in 2009 at a 5% interest rate, we were told how good rates were at the time. As rates continued to dip for the next few years down to 3.75% (and even lower of 15-year fixed mortgages), we asked our bank about refinancing. So how do you know if refinancing is worth it? Let’s look at an example assuming you bought a house in 2010 for $200,000 at a 30-year fixed mortgage at 5%. Today, you could finance a 30-year fixed mortgage near 3.7%. Not too bad. Seems like a pretty simple decision but two major factors to consider are (1) how much are the closing fees to refinance and (2) how long do you project to be in that home. If you can answer those two questions with confidence, you can figure out whether or not it is worth your time and savings. For our example, let’s assume you still owe $190,000 on the principal since a mortgage is front loaded with interest. If we run this scenario through using a refinance calculator assuming closing fees of $6,000, this refinance would result in a payment that is $199 less per month. Since the closing fees were $6,000, if we save $199/month it will take 31 months until the amount we saved from lower monthly payments equals the amount we paid in refinance fees (aka breakeven). After 31 months, you would then be saving $199/month. That is where the “how long do you project to be in that home” question comes in to play. If you may be moving in a short period of time (or that is unknown) it may not be the best decision. The smaller the difference in the interest rate and/or the higher the closing fees, the longer it will take you to breakeven. For Jess and I, we were able to cut down our monthly payment by approximately $150/month through refinancing.
Budgeting gifts for family and friends. Whether it is for birthdays or holidays, this was one area we felt like we didn’t have a good handle on and was fluctuating significantly. Not too long ago, Jess and I wrote out every gift we could think of for the year, set a budget for each gift and then divided that number by 12. That became the amount we saved each month and when the gift expense came up, we were ready. Tip: If you celebrate Christmas and if that is typically a big expense for you, start this sometime in the early New Year so you can have the majority of the year for that to build up. It goes without saying that planning for these expenses (after all, they shouldn’t be a surprise!) will minimize stress and keep the spending within control. I estimate this has saved us a few hundred dollars a year or $25/month.
So there it is, an estimated savings of approximately $309 / month by making a change here and there. That adds up over the course of a year. More importantly, if you are trying to pay off debt, this has a significant psychological momentum that can expedite your ability to get out of debt or achieve whatever financial goal you are trying to achieve. You make a cut here or there and it is a small win that gives you some serious momentum towards achieving that goal. You will find yourself looking for more cuts.
Remember, this ~$300/month doesn’t include the savings that occurred from budgeting the discretionary expenses that happen every day (e.g., going out to eat, clothing, coffee, etc.) Those are the ones that add up the fastest.
Financial Homework: Are any of the above areas you might be able to take advantage of? If so, take a first step in exploring one and make it a reality by the end of this month. Share your progress by leaving a comment at the end of this post or by sending me an e-mail at firstname.lastname@example.org