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Building margin into your monthly budget by cutting back your expenses and changing your spending habits may sound like a daunting task. However, by the time you have finished reading this article, I hope that you will feel more motivated, more capable, and more empowered, to start saving for the day that you and your partner decide to start a family. If you have already started a family, it is never too late to start optimizing your finances!
Step 1) Track Your Spending
Before you are able to determine in which areas of your life you are throwing away your hard earned money, you will need to start tracking your spending habits. My wife and I use Personal Capital to track our cash flow, monthly spending, and savings rate! Not only is it free to get started, but all you need to do is connect your financial accounts in order to get a comprehensive view of where your money has gone, where your money is, and where your money is going. Many people have no idea where they spend their dollars, and would be shockingly surprised to see how much they are throwing away on less than worthwhile things. Things, that in hindsight, they do not even value. Spending $3.65 on your latte at Starbucks three times a week may not feel like a significant expense, but have you considered that it is nearly $600 a year! That is a nice cash cushion to have lying around for when you need to replace an unexpected flat tire.
In my own experience, in order to gain a more complete understanding of where your money is going, you will need to track your spending for at least three months. This is due to the fact that each month does not have the same expenses. For example, our water bill comes every three months, and some items that we buy at the grocery store are purchased less frequently, like laundry detergent and toilet paper.
Step 2) Become A Valuist
Now that you have taken the first step, use Personal Capital’s budgeting and cash flow tools in order to see where every single penny is going. When my wife and I first performed this exercise, not only did we find out that our monthly cable bill had increased by almost $40 a month, to over $185, which we had not realized since we were using auto-pay to receive a $5 per month discount (Thank you Comcast for the courtesy call you did not perform to tell me that our contract was expiring!), but even more importantly, it enabled and motivated us to look at our spending holistically.
Did we really so highly value watching an hour of television per night that we were willing to spend over $1,700 a year? Why not just cut back to a reasonable internet package, and subscribe to Netflix? Wow, that was an easy $1,100 in yearly savings! Did I really need to spend $2.35 on trail mix three times a week at the cafeteria vending machine? Why couldn’t I just buy a large bag of trail mix, put some in a sandwich bag, enjoy the same snack for less than $0.10, and save $350 per year?
Another potential money saving tip, which is a little more involved, is to periodically reassess your insurance coverage. I have been just as guilty of this as anyone, but now I have a yearly reminder to call at least two agencies to get new car and home insurance quotes. For a superb example of how valuable this can be in your life, check out this article!
The truth of the matter is that laziness and complacency are costing you precious life energy. It is a stimulating exercise to look at your spending and challenge yourself to answer the question “was it worth it.” Thanks to Personal Capital’s incredibly easy to use platform, and monthly email summaries, I perform this exercise on a monthly basis.
After having performed these exercises for nearly a year, my wife and I been able to save several thousands of dollars just by making easy and simple life optimizing choices. Not only is it important to make yourself justify why you had to have something two months ago, that you do not even use anymore, but it is a healthy exercise that can eventually bring you to the point in which you look at your spending habits and say to yourself, I spend my money on what brings me value. If you are really up for a life changing challenge, and are willing to push your limits, I urge you to check this out!
Step 3) Do Not Spend Your Newly Gained Savings
It is amazing how liberating it can be to get back some financial margin in your life. All it takes is a little bit of organization and effort. Imagine the incredible benefits from implementing these kinds of changes in your life. For example, not having to fret over an unexpected $500 emergency. Just the few changes I outlined above saved my wife and I over $2,000 a year. Add in the fact, that after looking closely at our grocery bills and the amount we were spending on eating out, we were able to save over $200 more per month. In total that is $4,400 a year.
If you recall from a previous article, I outlined how having a son added approximately $250 per month to our necessary monthly spending. Well, in just the few short minutes it took you to read this article, I have shown you how my wife and I were easily able to reclaim over $360 a month. Now it is your turn!