Paring back your expenses and identifying areas where you're overspending can present a challenge. So if you want to go on a financial diet but aren't sure how to start, try the following expert-backed strategies.
It you’re looking to boost your bank account and lower your bills, assessing where you can trim your expenses is an ideal step toward taking control of your finances. But just as cutting back on calories isn’t always easy, paring back your expenses and identifying areas where you’re overspending can present a challenge. You may have to modify your budget, re-evaluate your spending habits and even shift your mindset. So if you want to go on a financial diet but aren’t sure how to start, try the following expert-backed strategies.
Start tracking your expenses. “In order to cut back on the budget, you need to have a budget,” says Kevin Gallegos, the vice president of client enrollment with Freedom Debt Relief, a debt settlement company based in Phoenix. “While people may talk about trimming the budget, relatively few actually have one written down. A spreadsheet or pencil and paper will work as well as budget-specific software or an app,” he says.
For instance, you may want to download an app from Mint, Acorns or PocketGuard. While Mint focuses on tracking where your money goes, Acorns is a tool for optimizing savings and PocketGuard specializes in letting you know how much money you have left after you pay your bills.
Simply creating a budget can also help you identify money leaks in your budget. For instance, maybe you’re an impulsive shopper and tend to do a lot of online late night shopping. Or perhaps you often take a lot of trips to the supermarket, without a list and coupons, and you realize you need to start shopping more strategically. You can’t necessarily know what you’re doing wrong until you see what you’re spending money on month after month.
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Thinkstock
Change your mindset. Instead of thinking of a financial diet as a process for scaling back your spending and reassessing your money-management strategy, think of the reboot as an empowering lifestyle change that you have ownership of.
“Most savings habits are difficult for people because they perceive [the changes] as a loss, rather than a replacement,” says Krista Neeley, the managing vice president of Appreciation Financial, a retirement services company. Neeley says we need to think about saving money not as something being taken away from us, but as a gift we are giving ourselves. While you may be getting rid of your morning iced coffee, you’re also giving yourself more money to apply toward long-term savings accounts and other goals every month.
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Thinkstock
Eliminate expenses you loathe each month. “If I was going to advise people where to trim, the first places we would look are the areas that bring no joy to the client,” says Jessica Grande, a senior client advisor with Levatus Wealth Services, a wealth management firm in Boston.
Grande suggests starting with your mortgage. Does it make sense to refinance it? Consider some of the bills you dread paying each month. Grande suggests asking yourself: “Have you shopped around for insurance and phone plans?”
If you’re still looking to scale back your budget, consider other discretionary costs, Grande says. For example, look at how much you’re spending on the entertainment streaming services you use. For instance, if you have Hulu, Netflix, Amazon Prime and also cable, Grande suggests that you can probably find a subscription to ditch to optimize savings or even cut the cable cord. (Thinkstock)
[See: 12 Shopping Tricks to Keep You Under Budget.]
Check subscriptions. “This day and age, it is very easy to sign up for a [subscription] service and forget that you’ve been paying for it for years without going to the website,” says Mike Broker, the managing vice president of Trilogy Financial, a financial planning firm based in Denver. “Go through your bank statement and make sure that you are still using all of your services that you’re paying for. With all the different companies out there for music, television, haircuts, shopping, gym memberships and so on, make sure you’re getting what you’re paying for. If you’re not using those services as much as the price you’re paying would warrant, stop paying for them.”
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Thinkstock
Take stock of your food budget. Pay close attention to what you’re spending when dining out and what you’re spending at the supermarket. Food, after all, is a variable expense, and you can always find something to cut in your food bill, without compromising on eating nutritious meals.
“If your family eats out once or twice a week, spending $60 a week on dining out could amount to more than $3,000 in a year,” Gallegos says. “Spending just $20 a week [on eating out] amounts to more than $1,000 you could save.”
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Thinkstock
Put money into a savings account each month. While padding your retirement savings account is a smart money move, regardless of your financial situation, it’s also a strategy for maintaining financial well-being. Just like going on a diet to lose weight, if you find some places to cut in your budget, it won’t help you much if you don’t stick with your new money habits and start mindlessly spending again or sign up for a subscription that you don’t really need.
If you get into the habit of saving money every month in a savings account, you’ll have something to draw upon if you suddenly find your bank account drained due to overspending or you have an unexpected expense, like having to replace the tires on your car.
“Save it before you see it,” Gallegos recommends. “Set up self-billing for savings and consider it a mandatory bill. Some financial institutions let you arrange automatic withdrawal from your checking account to a savings account.”
[See: 8 Big Budgeting Blunders — and How to Fix Them.]
He also suggests checking with your employer for the option to have automatic deposits into your savings account. If the idea of putting money away is daunting, Gallegos recommends that you start with a small amount and increase it whenever possible. That’s also good advice for achieving a successful financial diet: Start with small but significant changes, and you may find it makes a big difference.
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