Are you trying to cut your monthly expenses? At first, this task can seem overwhelming, but it is possible for almost anyone to cut some expenses out of their budget. You just have to know where to look.
Overspending in the U.S.
The citizens of the U.S. are no strangers to overspending. As you can see from the chart below, the average person in the U.S. spends 95.7% of their yearly income and saves only 4.3%. To put that into perspective, if your family earns $35,000 a year after taxes, you'll likely only save $1,500 after one entire year. That means you're only putting away $125 into your savings account each month! What if you have a major emergency like your car breaking down or your furnace taking its last breath during the winter months? Your savings account from one entire year will be totally depleted!
There is absolutely no excuse to save such a small amount of our incomes. In years past, the United States used to save an average of well over 8%, sometimes even 12% or more! Believe it or not, there are some countries that still have excellent savings rates. Take a look at the top 5 countries below and their rates of saving.
- Ireland — 19.3%
- France — 16%
- Spain — 13.1%
- Belgium — 12.2%
- Germany — 11.4%
Now, this is where we belong! These countries have excellent savings rates and are therefore ready for anything life throws at them. So how can we begin to save high rates of our income once again? How can we raise our average savings rate from 4.3% to 8% or more once again? Speaking in terms of the individual, this is actually a fairly simple feat.
How to Cut Your Monthly Expenses For Good
If you are dead serious about cutting your monthly expenses, then we need to put the 80/20 rule into practice. In other words, we need to find out what items are causing your largest expenses and start making cuts there.
For the majority of the population, their largest expenses can be found in three major areas:
No big surprises here. On average, people spend the most money per month on their house, the second-largest amount on their car, and the third-largest amount on food. While these may seem like costs that are difficult to change, they are really not. But, you might need to get a little radical with your mindset here.
Reduce the Size of Your House
One of the quickest ways to cut your monthly expenses is to get used to a smaller house. I know I know – you are gasping right now because you couldn't possibly move into a home with fewer square feet! After all, what would your friends think? Honestly, who cares. Your friends aren't managing your budget, you are. Get over yourself and do what is best for your family's security.
The average square footage of a home in the U.S. in 1975 was 1,535. Today, families have gotten smaller and the houses have gotten larger – to the tune of over 2,200 square feet! It is absolutely ludicrous! If you truly want to cut your monthly expenses, then downsize your house. This method could easily save you $500 a month, which would certainly improve your monthly expenses – and your sleep at night!
Reduce the Cost of Your Ride
We live in a world today where nearly every possession comes with a payment. Nobody pays outright for anything anymore, and it's killing our monthly savings rate. You see, every time you purchase something on credit, it comes with a monthly price. Purchase enough items and your monthly expenses can easily grow to the amount of your income. And then you are stuck.
This happens all the time with car purchases. People want a car that far exceeds what they have in the bank, so rather than drive something that's a little less impressive, they start making payments on their “dream car” and are immediately caught in the debt trap.
To cut your monthly expenses, you should sell that jaw-dropping ride of yours. Take the money that you have in your savings and purchase an ugly car that will get you from point A to point B. This simple move saved me so much money and allowed me to get out of debt so fast. It absolutely works, you just have to have the guts to try it.
Cut Your Food Expenses
This method isn't quite as effective as downsizing your home or getting rid of your pricey car, but by watching your food costs, most families can save an additional $100 or $200 every month.
First of all, you must cut back on going out to eat – not only to the fine dining restaurants but to the fast-food joints as well. The cost of McDonald's seems cheap, but it's still three times the cost of dining at home!
If you do not dine out often, there are still likely some savings to be had in your grocery bill. Instead of buying your food from Walmart or from the fancy grocery store down the street, try visiting one of those discount grocery stores. The food is actually of great quality and the costs are far less than even the “low prices” at Walmart! Do yourself a favor and try it out. I bet you won't be disappointed.
Cut Your Monthly Expenses and Grow Rich!
If you can successfully cut your monthly expenses, then you have already taken care of one part of a two-part equation to wealth! First, you need to learn to cut your expenses. The next step is learning to increase your income. Do your best to master step number one, and we can later discover the secrets of beefing up your income. Again, it might seem difficult at first, but it is absolutely possible!
Are you ready to cut your monthly expenses today?
This post was originally published on February 5, 2015 and updated on May 29, 2022.