How can I reduce my monthly expenses
How you can reduce your costs
Reducing expenses is faster!
If a company wants to improve earnings, it can either increase revenue or reduce costs.
There are companies that have been shrinking for years and still posting increasing profits. You reduce costs, headcount, advertising and investments faster than sales collapse as a result of these measures.
In your private life too?
It goes without saying that this will not work out in the long run. The manager is already taking the next career step before the big end comes in sight. And that also ends the transferability to private life. However:
The thought is correct: On the cost side, you can save much faster than you can create new products or open up new target groups on the income side. A quick improvement in the financial situation must therefore take place on the cost side. This also applies to private individuals.
Saving sensibly in the correct order:
1. Save everything that costs money and also harms,
2. Everything that can be obtained more cheaply in the same quality,
3. Everything that saves a lot of money with small inconveniences:
4. Reduce costs through used items
5. Strictly limit the passion for collecting:
6. Tackle the big cost blocks: used car, recreational vacation instead of prestige ...
So if you have financial problems or just want to start building wealth quickly and reliably, then you should make quick and potentially painful cuts on the cost side.
Cutting costs is not always a case for the lawn mower method. Above all, save where it has a noticeable effect, where it is as painless as possible and where it is quick.
Where do you reduce costs?
The first thing to do now is to create an overview. We need to know where the large and small cost blocks are going. We have to be able to differentiate between running costs and one-off costs. We have to differentiate between savings potentials by doing without on the one hand and buying the same product cheaply on the other.
So put together an overview of your costs. The worse your financial situation and the higher your goals, the more specific you should be. For today, however, a rough estimate should be sufficient. Put together a table: Find the 10 largest cost items.
Make your list with the 10 most important items. Add estimated or, if available, exact amounts of money.
Do not create a list, but a structured overview.
Form groups. You have to think a little more then, but it brings a lot more clarity. It's like with tasks and goals: people who invest a little more time in clear goals achieve a lot more.
It is best to use a good PC program, here MeineZIELE, or the free web app effectiviTREE. That makes structure and order very easy.
One measure for each line
Most of these lines can be improved: With the one-off costs, you will have to do without something, postpone an acquisition, prefer a second-hand piece of furniture. With running costs, it gets more difficult, but not impossible. Continue to be methodical:
Think of at least one measure for each line:
- • Do I have to go to the gym twice a week? Or couldn't I just go jogging? And anyone who wants to do strength training can keep fit very successfully without equipment (on Amazon).
- • Would it pay off to change the electricity provider?
- • Is it possible to change the telephone provider?
- • Couldn't I switch to an ancient, used, small car? Do I even need a car?
- • And buy heating oil together? With 20 neighbors from all over the settlement you would get a cheaper price.
- • Take the tips of the consumer advice centers to help.
- • Does the apartment really have to be directly on the beach? Or isn't it enough two kilometers inland for half the money?
- • Do I really need a daily newspaper? Or do I get more information on the Internet anyway?
- • Do I need the TV? Or am I just wasting my valuable life with it?
- • Shouldn't I finally become a non-smoker?
For many people, one of the most difficult savings decisions is not to take out unnecessary insurance. It's too easy to get confused and difficult to make a purely rational decision.
What can you do without? On the building insurance? Or the home insurance? Or could you generate the income from life insurance yourself? Risks that endanger the existence of the company should be insured. Much else depends on the financial situation and the risk environment. In an area with a lot of break-ins, you won't do without home insurance. And anyone who drives a rickety used car may well doubt the sense of fully comprehensive insurance. You can save relatively easily in the following areas:
- You could try to get insurance coverage cheaper elsewhere. The price differences are often very large
- It may well be that your insurance company "recalculates" or conjures new offers out of its hat if you simply call and announce that you want to cancel or cut your insurance
- Deductibles, e.g. bearing the first thousand euros of damage yourself, are often not a real problem and can significantly reduce the insurance premium
- Insurance for which you hardly need on-site support can be obtained much cheaper with direct insurance
- Is something double insured? For example, is the insurance of the bicycles already included in the household contents insurance?
- Can an insured loss seriously affect you financially at all? It goes without saying that you need liability insurance. But the partial coverage for the car? It can be much cheaper in the long run to actually bear all of the acceptable risks yourself
- Avoid speculative nonsense, such as insuring winter tires against lack of snow
In large containers, some things are extremely much cheaper. It is true that supermarkets tend to trick their customers with bulk packs, which are even more expensive per item. You should think along and do the math.
The rule applies particularly often when one goes far beyond the "normal" containers. One kg of birdseed may only cost 3 euros. And over the whole winter you might buy 20 of them after all. A 25 kg sack costs less than 25 euros (Amazon Affiliate Link). We have a factor of 3 when it comes to the price per kilo! The price for one kg of wheat flour can range from 40 cents in a 25 kg sack to 10 euros in an organic 1 kg container. If you have the opportunity to store and share with others, you should think about it, especially with things that you buy again and again in small quantities.
By the way: Not only heating oil prices fluctuate. The above-mentioned bird food can also be cheaper in spring than at the beginning of winter and not every variety is then already spoiled by the next winter.
Often costs do not occur in isolation, but are combined with other costs or revenues. A distinction must be made between two cases: If you move to a distant suburb, for example, you pay less rent: But you have to offset more money and more time for travel costs. So it is about the case of opposing running cost items. We can usually easily offset these two types of costs against each other. But it can also get complicated if we want to include tax aspects, changing places of work or even figures for the children's way to school or the health value of cycling to work.
The second case: If you open an account, for example, you might receive an opening premium, but you have lost interest or unnecessary fees over a long period of time. A cheap purchase price for a car can be consumed by high running costs. In general, it is about offsetting investments with running costs. The "full costs" are always decisive. Different losses in value add up to far greater differences in the profitability of a car than different fuel consumption.
The important factors
So basically everyone can save money in almost all situations. It just has to be checked carefully: It is clear that walking is cheaper than driving a car; Other considerations make things more complicated. For example, is it worth switching to a new telephone provider if suddenly the DSL tariff is cheaper but the basic price is higher?
On the first try, try to save money where it is easiest for you. Take the action as quickly as possible. This is important for self-confidence.
In the second attempt you should devote yourself to the big chunks. Try to bring about noticeable relief. Often this is the reduction of car costs. Whistle on the opinion of the neighbors. Do without the new car and drive your old car until shortly before it breaks up.
Reverse the trick of advertising
Does that sound familiar to you? "You can drive this fancy car for just € 5.20 a day. And in a minute it's just ..."
Turn this reasoning around. This € 0.70 a day for the daily newspaper costs € 250 a year and in thirty years with interest and compound interest ...
Save with credit card !?
A credit card tempts you to spend money more frivolously. Those who cannot handle themselves and their money in a disciplined manner should not get a credit card. Everyone else can save time and money with credit cards. Your money can work for you an extra month or you can avoid overdraft interest. You have fewer transfer items to pay for (and carry out). And if you really come across a bargain, take it with you.
The compound interest effect
When you talk about compound interest, you usually mean your financial assets. But also think about the cost side. The compound interest effect also applies here.
This is how compound interest works
An example: You have been playing the lottery for 10 years, € 23 every week. You get a dream for it. This dream costs 10 x 52 x 23 € = 11960 € in 10 years of 52 weeks each. At least at first sight. If you invest this money at 5% interest, the result is the following calculation:
Do the math!
If you manage to invest these amounts at 8%, the result is € 17325.93. With 20 years and 8% interest, the result is € 54,731.31 instead of € 20 * 52 * € 23 = € 23,920. If you permanently pay 12% interest on consumer debts, you will save € 298,600 in 30 years if you refrain from playing the lottery for € 23 every week or spending € 23 on cigarettes ...
When calculating the total capital "K", the compound interest formula shown here is used. "R" stands for the annual savings (in the example 52 * 23 €). "q" stands for 1 + interest rate (at 5% that is 1.05). "n" stands for the number of years.
Do the math yourself a few examples. It is extremely important to be aware of the compound interest effect. It works in exactly the same way when it comes to savings as it does when investing. By the way, there are some compound interest calculators online.But it can't hurt to know how to calculate something like this yourself.
Even states grapple with bankruptcy when their debt interest rates rise. And just as Germany is keeping the financing costs of Greece and Portugal low by means of guarantees today, England kept the interest rates for Portugal low over a hundred years ago (but seized ports and railway lines in Goa and Africa). If the family circumstances allow it, then it can, for example, save half of the interest if the "most creditworthy" of the family borrows money from the bank and, for example, lends it to the daughter or brother.
It pays to think about money. So once again: Get an overview of your most important items of expenditure and take at least one improvement measure for each item!
Next: Try another angle: The spending profile?
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