Things You’ll Need
- Intent to save and live a healthier financial life
- old receipts and credit card bills to give you an idea of what you spend most money on
Ask yourself if you are ready. This will require some lifestyle changes. So don’t do it because someone else says you need to save. It is really hard to succeed in something you are not interested in.
When you are ready, gather all your receipts and credit card bills from the last 3 months.
Look at your bills and receipts.
Categorize each expense as necessities, comforts, and wasteful/luxury expenses. If you have a family, do this exercise with them. If you live alone, ask a trusted friend or family member to review your classifications.
Necessities: food, rent, phone
Comforts: basic cable, good food (does not include ramen, mac & cheese, cereal or other really cheap food)
Luxuries: eating out, internet and email on cell phone, vacation
For the necessities category, decide that you want to cut costs by a specific percentage (e.g. 10%)
Cut costs until you have eliminated 10% of your costs by doing the following:
* See if you can negotiate your rent or refinance your mortgage to reduce living costs.
* Replace your land phone line by MagicJack or Vonage
* Give up land phone line and use only cell phone.
* Downgrade your cell phone plan to one with less minutes
Now pick a percentage for your comfort category. This number should be higher than the percentage you chose for necessities (e.g. 20%)
Cut costs in the comfort category until you have reduced your cost by 20%:
* Downgrade your cable package
* Reduce how much alcoholic beverage you drink
* Reduce consumption of soda
Now pick another percentage number for your luxuries category. Depending on how serious you are , this can go up to as much as 70-80%. 40% is an easier target, so choose 40% at first.
Cut costs until you have reduced your luxury spending by 40%:
* Reducing the number of times you eat out at restaurants
* Pick cheaper restaurants when I do go out
* Brown bag your lunch
It will be hard at first, but do stick to the new plan for at least 6 weeks. After 6 weeks, if you are still unhappy, revise your percentages and bring back a few of those things that you really missed. Remember, the goal is not to be miserable and rich; rather, you want to live a richer life, both in terms of fulfillment and the health of your bank account. Don’t compromise with that.
Do not spend the money you just saved (unless you need to pay off debt). Save it.
Enjoy watching your bank account grow and the financial freedom that comes with it.