We are knee-deep into the new year and, like many Americans, you probably made a resolution about improving your financial situation. Financial resolutions range from desiring to spend less, save more, take control of your finances, eliminate debt, or start investing. Whatever your financial resolution, starting very simply and looking at the money going out versus coming in will yield better results than fancy budgeting programs, no-spend Januarys, or cutting out your $5 coffee.
According to a Motley Fool study, 67% of Americans plan on making a financial resolution for 2024. Eighty-two percent of millennials and 74% of Gen Zers plan to set financial goals for the new year. This is likely because Millennials and Gen Zers are experiencing financial hardship. Generally, they are earning less, saving less, purchasing more, and experiencing a higher cost of living than generations before.
A study by Synchrony Bank said that 91% of resolutions fail by January 19th! Why do financial resolutions fail? Because most people declare goals such as: Get out of debt! Save more! Stick to a budget! They often lack a strategy, a way to measure their progress, and guidance to make sure they’re doing the right things to achieve their goals.
The Equation for Achieving a Financial Goal
In order to achieve any financial goal, you first need to look at a very simple equation: money in – money out.
You can have the best intentions, but if your money in equals or is less than your money out, you’re not going to be able to achieve anything. It is easier to decrease the money out than increase the money in. That doesn’t mean you shouldn’t try to increase money in, but that takes time.
Embarking on a journey to conquer your debts, boost savings, invest more, or establish an emergency budget requires a focus on minimizing your monthly expenses, aka reducing the money out.
Reduce Monthly Spending
Deciding what spending to reduce is certainly a challenge, as I’m sure every expense feels important. However, identifying the most impactful areas is crucial to reaching your financial objectives sooner. Hint: I am not going to tell you to stop the $5 cup of coffee you enjoy once a week. That is not going to make much of an impact and will likely do more harm than good to your spending, as you’re going to spend the $5 plus some elsewhere.
Some expenses we can’t do anything about; they’re fixed and necessary. While addressing the necessary trio of expenses — housing, transportation, and food — promises significant savings, don’t overlook the cumulative impact of cutting costs in other areas like entertainment, clothing, and communication expenses. Those things are nice to have, but there’s wiggle room in their cost. Explore the following tips to reduce monthly spending, paring down both fixed and variable costs in order to increase savings each month.
Gain Insight Into Your Financial Flow
Initiating expense reduction requires a clear understanding of your financial outflows. If you already maintain a budget, you likely know your major costs. However, budgets usually only track the consistent expenditures and not the “one-offs” that can add up and derail our savings.
You need an understanding of where every dollar goes. If you lack this insight, tracking expenses over one to three months through methods like receipts, spending journals, spreadsheets, or online tools is imperative. This groundwork enables an honest evaluation of spending patterns and identifies areas for potential cutbacks.
Managing Common Monthly Expenses
Understanding Food Expenses
Eating Out: Sometimes we have to grab dinner when we are out of the house. It is totally fine and reasonable. But ask yourself how much of your eating out is out of necessity. Are there times that you can save a trip to the drive-thru and just eat what you have at home?
Planning restaurant visits instead of going out on a whim makes it more special and your family is likely to appreciate it more. Most restaurants and grocery stores have discounts, specials, or happy hour offerings on particular days each week. Learn those days and plan your going out around them.
Grocery Shopping: It is expensive. Food has become astronomical over the past couple of years. I have heard people say it feels like eating out may just be cheaper. It is not! Eating at home is still cheaper than eating out. We just have to be a little more creative and cautious when it comes to our grocery spending.
Planning meals, creating shopping lists, and shopping alone helps to avoid impulse purchases. Utilize sales, coupons, and savings apps for grocery shopping. Also, some grocery stores are notoriously more expensive for particular items. Some stores may have great produce prices, at others meats are less expensive. Alternate where you do your shopping and for what to take advantage of lower prices.
Control Entertainment and Shopping
Subscriptions: Evaluate subscription and membership fees for potential cutbacks. Take advantage of free or low-cost activities around town. Have your kids plan outings, pack a picnic, and enjoy a spend-free day.
Bank Fees: Cut your fees. Eliminate ATM and overdraft fees. Only use your bank’s ATM. Paying money to have access to your own money is crazy! Monitor your account to prevent overdrafts and consider opting out of overdraft protection.
Credit Card: Are you paying a fee for your credit card? If you’re getting points or miles from your credit card and you’re paying interest each month, those points or miles aren’t free. You’re just paying for them through your credit card interest. Seek free checking and savings accounts or explore credit unions and online banks.
By systematically addressing these expense categories, you can make substantial strides to reduce monthly spending. This allows you to redirect funds toward your financial goals, whether that involves debt repayment, savings, or investments. If this all seems daunting, schedule an introduction with a financial planner to get help with understanding your goals and creating a strategy for your financial success.
