“Money doesn’t provide happiness.” Sure, but money does provide the things that provide happiness. While I am not here to debate the ideology of wealth, I do want to discuss money and finances in a manner that focuses in on the various techniques and methods people utilize to build wealth and stability.
My background is in accounting. My passion for money management and financial technique drew me to the field. Now, I want to share my insights about financial control and financial decision making. To begin, I want to focus on a broad, popular personal financial category. The question: How do I cut costs? How do I lower my expenses? How to spend less money?
Each question is of course asking the same thing. We want more money and less expenses. Well, the good thing is if you are reading this post, you have taken the first step in lowering your expenses. Lets begin!
The Five Easy Steps to Spend Less and Lower Costs:
- Recognize your spending habits
- Analyze your spending
- Categorize your expenses into my stated categories
- Apply my "Need, Want, Huh" strategy
- Commit to decreasing your spending
STEP 1: Recognize your spending habits
Once recognized, you can enact beneficial change in your life. Everybody’s spending habits are different. It is important to understand that even a small spending change will lead to large long-term savings. So, recognize and commit! What is next?
STEP 2: Analyze your spending
Obviously, expense analysis is much easier if you use debit and credit cards as the card companies conveniently provide your expense history online. If that is not the case, you must develop a strategy for personally tracking expenses (the analysis should occur after collecting expense data for at least a month). If you do utilize debit and credit cards, I suggest pulling spending data from the past three to six months for each card. You can adjust that time period shorter or longer to suit your time needs. Export the data into your preferred spreadsheet software (I use Microsoft Excel) and begin the analysis.
STEP 3: Categorize the expenses by date, vendor name, amount, cost category, and description
By using this format, you can easily analyze cost per category (like grocery or gas) and cost per vendor (Walmart or Shell), which are two important areas of spending analysis. Additionally, I suggest separating expenses by month, placing each month’s costs on a separate spreadsheet tab. This provides a manageable monthly view of your spending. I suggest summing values per category and per vendor, and if amounts shock you, scrutinize the individual expenses using the description column. Find out what you purchased and what influenced the high expense total.
STEP 4: Add the “Need, Want, & Huh” column
In this column, each expense should receive a NEED, WANT, or HUH label. Let me explain. The NEED label indicates items that serve your basic needs (rent, utilities, grocery, transportation, etc). The WANT label indicates items that you cannot and will not live without. By labeling WANT, you indicate that giving up the related expense would make your life miserable. The WANT label varies drastically because each individual values different things. Some may value the boutique cup of coffee every morning while others may value the weekly movie tickets. What you value gets the label WANT! Lastly, the HUH label goes to the unmemorable, “why did I buy that” expenses. Struggling to remember what the expense data relates to usually serves as a good giveaway for a HUH expense. As the least impactful cost items, you should find it easiest to eliminate the HUH costs. Therefore, in lowering cost, I suggest beginning with the HUH expenses. For further cost cutting, further analyze NEED and WANT for specific habit changes that could lower expenses (example: switching grocery stores). I will write about specific ways to lower costs per category in a future post!
STEP 5: Commit, commit, commit!
You must analyze your expenses every month, discovering new areas to cut costs and improving upon existing habits. As a result, you will experience an increase in income and savings, leading to financial stability.
Following the five steps to lower spending should eliminate the unnecessary and unmemorable expenses in your life. The five step guide combats the spending habits that provide the least impact in your life; therefore, the decrease in spending should prove manageable, creating long-term wealth-building habits in the process. By committing to the easy five step process to lower expenses and decrease spending, you will experience less costs and more money!