Written by: Michelle Smalenberger, CFP ®
Whether you are retired and living on a fixed income and investment portfolio, or just starting to build your finances, knowing your monthly expenses is critical to your plan. When defining where you will spend money don’t forget the little expenses. You don’t want to $9.99 yourself out of money.
Often we think these smaller expenses are insignificant, but when added together it proves otherwise. If you’re feeling like you need to cut back on spending, then there’s a strong chance you do. In order to get back on track to feeling your expenditures are at healthy levels, pick three areas that you want to track or decrease spending.
Common areas for higher spending are:
- Dining out
- Various memberships and subscriptions
- Phone or Cable
- Energy bills
Here are some items to consider when you need to cut back or be more efficient in what you spend:
- Evaluate everything that’s included in memberships you already pay for.
Some of the most popular discount or shopping clubs like Costco, Sam’s Club and Amazon prime offer many more services or discounts than you may be aware of. For example, an Amazon Prime membership provides free music and movies. You may prefer a Netflix subscription over Amazon Prime since you like to shop in stores.
Costco not only offers the ability to shop in bulk with your membership but also offers other discounts for travel and auto purchases.
For subscriptions and memberships like these, it is important to be aware of how and what you use these services for. Then you can buy only what you need and complement the membership with other subscriptions with something like Sling for Cable TV or Apple TV and pay much less for only the channels you want.
- Where are the expenses coming from?
If you have multiple properties and only use one a small portion of the time and don’t rent it out when you aren’t there, maybe it’s time to sell it. The upkeep expenses can really add up depending on the location. Very often people with multiple properties may sell a larger home to buy a condominium in the same area in an effort to downsize on space and expenses. This provides relief from constant upkeep and the flexibility to use their other properties, too.
Depending on the location and type of property, you may only enjoy that property for a season or stage of life and then settle down to one location over time because it is ideal for your health and hobbies.
Pay attention to real estate prices so you can buy in a low market and sell high, when you have the flexibility to time it properly.
- Set limits, goals or targets to get back on track.
Once you’ve been tracking the items you’re spending (and just a month or two of tracking will be sufficient), you can start to set a limit or goal for how you’ll try to cut back going forward.
Set a plan. Maybe that means literally setting a meal plan or shopping plan so you aren’t tempted to overspend. Don’t set yourself up for failure! For managing properties that may mean setting a time frame for when you want to start prepping your property for sale, listing it, and finally selling it. And do you then need to replace it or are you satisfied renting or visiting friends when you travel back?
It’s important to pay attention to the details and not overlook these little areas of expenses that can hide. And don’t feel like a failure if you need to reset your plan every three, six, or twelve months. Look at your needs and set your expenses accordingly.
When you feel confident about your spending levels it can bring a whole new excitement to your financial plan!