In 2018, the average pre-tax household income in the United States was $78,635.
This looks like a decent stash of money until you figure out that the same households spending over $61,000 on average household expenses. It’s no wonder the vast majority of Americans are living paycheck to paycheck.
Certainly, spending over 80 percent of your income on household expenses isn’t ideal. This is considering you need to put away some money for emergencies and retirement, as well as invest.
For this to happen, you need to reduce your expenses. Don’t know how?
Here’s how to cut expenses and budget your money wisely.
Draw a Clear Picture of Your Expenses
If you’re anything like most Americans, you probably don’t have a fine picture of your expenses. All you know is the average amount of money you’re always spending on these expenses every month.
That’s not the way to be savvy with your finances. You need to know exactly where your money is going.
As such, the first step to cutting back your spending is to know your expenses. Start by writing down every single item you spend money on. Do this every day for one or two months.
Now that you know your expenses, it’s to sit back and proceed to the next step.
Do Away with Unnecessary Expenses
We all have basic living expenses. This includes housing (rent/mortgage payments), food, clothing, transportation, and healthcare.
We all also have expenses that appear to be basic but are really secondary needs. Good examples include entertainment (cable/streaming television and movie tickets), and home internet.
From your lists of expenses, identify your secondary items; those items you really don’t need. If you’ve multiple streaming subscriptions, for instance, now is the time to cancel them. One is enough to keep you entertained.
If you’re paying for home internet, consider chopping it off, unless you use it for work. Some people pay for home internet even when their landlord provides free internet. Don’t be like these people!
Sure, free internet can be crappy, but when you’re looking to cut back on expenses and save money for a brighter future, you can make do with it.
Draw a Smart Budget
After cutting off unnecessary expenses, there will be a tangible change in your finances. You can even use a graph maker to create a visual comparison of your finances before and after.
Now it’s time to create a smart budget that works for your finances.
Your new budget will include all your living expenses, as well as new items that will set you up for a brighter future. For instance, if you haven’t been saving up for a rainy day or don’t have a life insurance policy, ensure your budget includes these expenses.
Another important thing to include in your smart budget? Investing.
You don’t need thousands of dollars to start investing. Putting a couple of hundred dollars into an investment account every month will go a long way.
How to Cut Expenses Made Easy
Many American workers aren’t living paycheck to paycheck because they’re aren’t pulling in enough money. It’s because they’re spending way beyond their means. With this guide on how to cut expenses, you now know how to make the most of your paycheck and budget for a smart future.
Keep reading our blog for more personal finance advice.
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