Spending less starts with knowing more about your financial habits. Here are five steps to help you get a better handle on your money—and reach your savings goals.
1. Know where your money goes.
It’s essential to know what your monthly expenses are in relation to what you earn. Make a plan with a budget that tracks your income and spending.
2. Determine needs vs. wants—and cut where you can.
With your budget in place, identify your needs vs. wants. If you lease a vehicle with high payments, consider ending the lease and buying a cheaper, used car. If rent is high, maybe a less trendy neighborhood or new city would bring a cheaper cost of living. Also look at how much you’re spending on wants, such as dining out or a new pair of shoes for your collection.
3. Make the most of “monthlies”.
Regular monthly costs add up. Out-of-shape health club memberships, idle public transportation accounts and unread magazine subscriptions aren’t cheap. Figure out what you can eliminate.
4. Cut out impulse buys.
If window-shopping usually turns into “Thanks for shopping,” find ways to cut down on unplanned purchases. Spontaneous lunch outings and upgrading to the newest tablet can derail your money goals. When the urge strikes, refer to your needs vs. wants list—and focus on the bigger picture.
5. Take an interest in interest.
If you have a mortgage payment or a car loan, you know interest is a big part of your monthly payment. Find ways to lower interest payments over time by refinancing or making an additional principal payment or two each year. This helps you build equity, reduces the life of the loan and minimizes interest paid.