When it comes to saving money, reducing your spending is key. Progress comes from doing simple things well, so although you might have good intention to reduce your spending, unless you actuall implement a raft of changes to bring your expenses down, you will always continue to spend the money you have available.
For example, we might spend hundreds of dollars on a cool outfit and an impressive guitar, but without the hours spent practicing scales, learning new chords and slowly putting together different skills, we’re never going to wow an audience.
The same is true of our personal finances. We may have a strong budget, savings plan or intention to save money, though without actually following through on our promises to reduce spending, our savings will amount to very little.
It’s a very basic formula. The less you spend, the more you have.
Here’s a guide on how to reduce your spending and watch your savings grow.
There are two main ways you over spend
Generally, there are two major kinds of unsustainable purchase behaviours. Either, or both, are harmful to your ability to live comfortably within your income and still save money. They are as follows;
1. Spending too much on necessities
People will often mention ‘necessary’ spending. As in, the need to eat justifies buying caviar every second day. We all know it isn’t the case, but there are many ways to improve how much we spend on our everyday essentials.
Look at buying homebrand items
Can you taste the difference between Coles and Edgells canned veggies? Or pastas? Certainly, it’s worth giving them a try, when every dollar counts.
Consider the brand
Research from the University of South Australia, and cited in the Herald, found that brand loyalty is a “natural phenomenon” that allows humans a feeling of control. What I take from the is study is that we all have the power to reconfigure our purchasing behaviours.
Do I buy a more expensive toothpaste because it is better, or because it’s what I’ve always done? Rewiring our behaviours (and becoming loyal to cheaper brands) is a relatively easy way to reduce our spending on essentials.
Don’t pay for packaging
It’s not just kids that get enamoured of the colourful cereal box. We all do it, and resisting the marketing ploys of products is a fast way to improve your spending on essentials.
2. Spending money on things you don’t need
Great personal finance comes down to the ability to defer gratification, something we are perhaps less adept at than older generations.
We all know what we shouldn’t be spending our hard-earned savings on. Bringing increased consciousness into how we spend money can significantly reduce your spending.
Here are some tips to reduce spending:
Cooking at home
I’m never going to be the type of person to suggest that great personal finance is a case of never getting takeaway. Sometimes, you need that delivered pizza. But most of the time, we don’t.
The amount of money that can be saved by cooking from our fridge and pantry is extreme. Reconfiguring our meals around the food we’ve already bought, and avoiding the temptation of grabbing naan and curry on the way home, is one of the fastest and most effective ways to reduce spending.
It also reduces waste, something that our grandparents would be relieved to see.
Ever wondered how much you spend on your bad habits?
- Smoking: over $4,000 a year on one pack a day.
- Drinking: the average Australian spends around $1,612 per year.
- Junk Food/ Eating Out: around 27% of our household food expenditure is spent on food outside the home, totalling an average of $3,276.
Despite appearances, this isn’t about being the fun police. I love wine, adore eating out and could murder a Big Mac on occasion. But if we want your finances to improve, it is essential to make some priorities.
A report from the Australian Institute of Health and Welfare found that some households are spending the same amount on alcohol each week as they spend on electricity and gas. It’s not sustainable, for our health or our wallets.
Some things are easier than others to cut out of our lives. Decide what you really enjoy and lose the rest. Perhaps you just love picking up a magazine every Friday afternoon. If you do, by all means continue doing what you love. But make the decision to cut back elsewhere. Lose the coffee a day habit you only feel ho-hum about anyway.
Why do we need to reduce spending to save money?
This might seem blatantly obvious, but here are a couple of reasons to get your motivation charging.
- You feel good. Honestly, you do. I think we underestimate the stress and anxiety in our lives that comes from not having enough money to comfortably cope with change.
- You feel in control. To my mind, an essential for wellbeing. No one can run your life but you, and you can make the choice and change the behaviours that enable you to run it efficiently and sustainably.
- You enjoy what you have. There’s no need for a pay rise in order to feel more financially comfortable. At Savings Guide, we believe it’s not how much you earn, but how smart you are with your money. If you want an instant pay rise, reducing your spending can give you one straight away.
- You choose your life. By reducing your spending, and consequently improving your savings, you get to choose the kind of life you want to lead, now and in the future. By reducing spending, you can choose to have a comfortable retirement, enough money to manage the inevitable crises of day-to-day and afford the enjoyments that really matter
How I reduced my own personal spending
There’s no way of dressing it up, I was appalling with money. I was renting in the city, and partying far more often that was helpful (especially to my university grades). I thought I was entitled – at the ripe old age of 23 – to a couple of months in Southeast Asia, and just chucked it on my credit card.
Wind forward three years, and I’ve got a variety of debts, an atrocious credit rating and the need to get my personal finance back on track. And the truth of it? There’s no easy way. I worked hard for a year, cut down all my spending and put everything I could towards my debts. I moved to a cheaper town in order to pay less rent. I stopped buying clothes, and any essentials, I bought from op shops. I quit smoking and stopped heading out to the pub every night. I started learning about personal finance.
And the end result? I’m much better with money now. I live reasonably frugally, excluding my outrageously expensive career in music. I know now what actually makes me happy. Security. A home-cooked meal at the end of a long day. The opportunity to take advantage of things that come my way. The ability to look forward to the next five years, ten years, fifty years without breaking out in a nervous sweat. I slip up, and revert to old behaviours sometimes. I spend money sometimes where I shouldn’t. But it’s all part of the process, and reducing spending- in many ways- gave me the opportunity to get my life back and do with it what I will.
Tips for those wanting to reduce their spending
Track your spending
Like all clichés, this one is true. There is no way you can reduce your spending if you don’t know what you spend your money on. Try it for a month. You’ll be amazed at what comes up; the amount you spend on diet cokes on the way to work, or the actual cost of a night out on the town.
Cut your grocery bill in half
Just for one week, commit to spending only half what you would usually spend. Supplement from stuff already in the fridge. You’ll be amazed at how easy it actually is to get through a week on half the cost, especially if you commit to buying cheaper products at the same time.
Plan your meals
A meal plan will reduce your spending significantly, especially if you work around stuff already in your fridge.
Have a no-spend month
Choose an item you spend a lot of money on- shoes or concert tickets- and commit to not spending any money on it for a month. You might find you don’t miss it. You might find the extra money for your savings brings you peace of mind, while the shoes just bring blisters.
I’m a firm believer that great, sustainable personal finance and the ability to reduce spending comes from a taking a realistic view of our lives. Personal finance is not about living like a monk. It’s not about taking all the fun out of our day. It’s about choosing the things that are important and that can include your morning coffee at the local cafe – but also choosing to sacrifice other things that aren’t as important. We can’t have it all. Once we prioritise what matters, we can save money in order to achieve those goals.
How to reduce spending even if you don’t trust yourself
Like repeatedly dating the wrong guy or believing that Die Hard sequels will ever equal the genius original, behaviours can be hard to change. If you want to make sure you reduce your spending, you can:
- Automatically deduct your savings from your pay check each week, leaving you with a finite budget to spend until the next pay day. Make it realistic, so you don’t starve for the last couple of days.
- Spend only cash. No credit, no debit card. Our brains are wired differently when it comes to cash, as opposed to cards, so try spending only cash for a week (read best ways to save cash).
- Increase your tax and super contributions, improving both your retirement savings and the amount you’ll get back as a tax rebate at the end of the financial year.
- Find a buddy. To keep your credit card, to help you stay motivated. Find habits to replace bad spending behaviours. Get fit. Call a friend every time you want to binge spend. Keep a close eye on how your savings grow, and feel great about the changes you’ve made.
I’ve managed to save money, what should I do with it?
The money you’ve saved from reducing your spending can then be put to work in any way you like.
Perhaps it’s time to look at an investment portfolio. An emergency fund will buy the peace of mind we all so desperately crave. Extra contributions to superannuation will work wonders with the combined power of time and compound interest. Look at how you can use your savings to create a comfortable, sustainable savings and investment scheme for the long-term. First, reduced spending. Next, the world as your oyster.