Are you not saving the amount you want each month? Or worse, are you running out of money at the end of each month? You can learn how to reduce your monthly spending with these tips.
Track Your Spending
Knowledge is power. Start by tracking your spending. I track mine in a spreadsheet. Some people use mint.com.
Categorize your spending. For example, my spending falls under these categories: Food, Recurring Bills, Health, Transportation, Entertainment, and Misc.
- Eating out, buying a coffee, and getting groceries fall under “Food”.
- Rent or mortgage, utility bills, phone bills, and any other subscription fees fall under “Recurring Bills”.
- Any expenses on sports activities, prescription drugs, Medical Services Plan fall under “Health”.
- Expenses from refueling the gas tank, car insurance, and public transit fees fall under “Transportation”.
- The “Entertainment” category is for any entertainment you do, such as going to the movies, or watching a Broadway show.
- Anything else that doesn’t fit into the other categories, goes into “Misc”.
For each item, I record the date, amount spent, the location, and a description of the spending. Identifying which ones are necessities and which ones are wants, can help to reduce your spending.
How to Reduce Your Monthly Spending
After you’ve recorded your spending for a few months, you can probably identify categories where you’re spending the most money. See if you can cut those amounts down.
Secondly, see if you can cut down the wants. For example, instead of drinking Starbucks coffee twice a day, maybe you can make coffee in the morning and save that amount. Assuming a cup of coffee costs $4, you’d save $20 in a week, $80 in a month, and $960 in a year.
If you can’t part with your Starbucks coffee, see if you can think of other ways to cut your expenses. For example, maybe you still have a landline at home, but perhaps you only need your cell phone.
Save 10% Immediately from Your Paycheque
If you’re the type of person that would spend as soon as you see money in your bank account, create a separate account with another bank. Set it up so that 10% of each paycheque you receive goes immediately to that separate account. And don’t ever look at it. Pretend it doesn’t exist.
Better yet, instead of stashing 10% in another bank account faraway, you can stash it in a TFSA or RRSP. Buy a broad market ETF or some solid, diversified ETFs in there. By saving 10% each month, you’re dollar-cost averaging into the market so that when the market goes down you’re buying more shares and when it goes up, you’re buying less shares. The long-term expected trend of the market is that it’ll go up.
How to Avoid Impulse Buying
If you’re an impulse buyer, you can deliberately leave your credit cards at home and only bring the amount that you plan to spend in cash. When you’re spending cash, it feels more painful than using credit cards because you feel like you’re spending real money.
You should only buy items that you plan to buy before going shopping. This means you should create a shopping list of your needs ahead of time. (Yes, not wants.)
Plan to spend wisely so you can avoid wasting money on things you don’t need.
Disclaimer: I am not a certified financial advisor. This article is for educational purposes, so consult a financial advisor and or tax professional if necessary before making any investment decisions.
Get Exclusive Articles from me on Seeking Alpha
- Access my portfolio of high-quality U.S. and Canadian dividend stocks.
- Real-time updates of when I buy or sell from this portfolio.
- Get best ideas of the top 3 dividend stocks from my watchlist. Updated each month.