How to decide if you should cut expenses
When analyzing a budget, one of the first things almost everyone goes to is "what can I/we cut from our spending?"
Add to that the fact that inflation is on the rise and that just our basic living costs have crept up over the last months, and a budget that once had some wiggle room in it now may feel like the belt is as tight as it can get and there still isn't enough to get through. Not to even mention, the Spotify subscription you just added, the Audible subscription that you forgot all about for the last several months, and any other little thing that doesn't seem like a big deal until you add them all up... it is making it a common theme in my conversations with my clients around cutting expenses where they can.
I am seeing this in business and personal finance conversations as a regular topic. Whether it is fear that people are going to spend less, so business revenues may go down, or fear that rising costs are going to offset any extra you can bring in anyways, the conversation has centered around cutting costs quite a bit lately.
I can't stress enough the importance of being aware of where you're spending your money. Life changes and with that, so will our expenses and our priorities. What you once needed, you may not now. What once was an expense that you incurred because it brought you joy, may not have been used in months. Budgets are not written in stone, they are meant to change as your life circumstances do. However, when cutting expenses, you don't want to just start canceling everything, you want to be intentional about it. I have eliminated a subscription before, which I then realized I actually needed and ended up paying more for it when I signed back up. OOPS.
So, before you cut anything, I have three questions I suggest you ask yourself to make sure you are doing it for the right reason.
What is the value I am getting from this and is it enough to justify
continuing to pay for it?
Value is something you need to define. It won't mean the same thing to everyone. Knowing what is valuable to you is key to answering this question.
Some expenses may save you time and that may be important to you and worth continuing to pay for it.
Some expenses may provide you access to a supportive community that holds you accountable. For some people that will be worth keeping the expense and to others it may not.
Can you find something similar for less and get the same value?
Often, I see where someone has paid for something for several years and may not be aware of alternative options that may save them some money. If you really value an expense for the benefits it provides, then it is worth taking a few minutes to do a quick Google search and see if there is something similar that can save you some money each month.
Heck, you may even find a free alternative to what you have been paying for.
What am I not able to do (pay for, save, invest) by spending this money here?
So often I hear my clients say they do something because they work hard and they deserve it. And yes, yes you do! But don't you also deserve to reach your financial goals? Don't you also deserve to retire? Don't you also deserve to not worry about money every single day?
For every dollar we spend, we are not able to spend it on something else.
Coffee mugs- this was my thing for a long time! I wanted all the cool, pretty, smart-assy coffee mugs that were out there. We had cupboards FULL of them and some that had never come out of the box after being purchased... but I deserved to spend money on myself because I worked hard and coffee mugs made me "happy".
However, one day I realized that for all the mugs I had in my cupboards (and boxes) I could have paid a couple of car payments with that money.... OUCH!
That was when I started asking this question more intentionally.
Yes, I like the mug, but do I need the mug? NO
If I stopped buying all the mugs, what else could I do?
So, whatever your version of coffee mugs is, ask yourself- what are you trading off for every mug you buy?
This answer is yours to own. If you want the thing, whatever the expense you are analyzing, and you decide it is valuable, and there is not a cheaper or free alternative, and it is worth the tradeoff, then go for it. I am not going to tell you what you can or should be spending your money on, that is your call. I only hope to help you see the options and weigh out the answer before you decide.
If you can identify even $100 of expenses that you could cut, that could help you not feel like your budget is so tight. You will have a little wiggle room again. Room to save or invest.
If you want a little support in reviewing your budget or even creating one and working through your money story, schedule a discovery call today.